In the race between Mauritius and South Africa for the most investor-friendly regime, South Africa’s island rival is gaining ground. Five years ago, South Africa and Mauritius were actively vying to be positioned as the gateway to Africa. Since then, political turmoil, corruption, a weakening rand and credit downgrades have hit South Africa’s economy hard – while Mauritius boasts political stability and a flourishing economy.

World Bank Doing Business Report 2018 released on 31 October 2017 ranks Mauritius far ahead of South Africa

Mauritius has been ranked 25th out of 190 countries by the World Bank’s Doing Business Report 2018 and Mauritius’ score went from 75.45 to 77.54. This 2.09 increase implies that since last year, the country has improved its business regulations and is narrowing the gap with the global regulatory frontier. The country’s ranking witnessed a significant leap of 24 places compared to last year. South Africa is ranked 82nd amongst 190 economies, having deteriorated from 74th in 2016 to 82nd in 2017.

The World Bank Doing Business Report 2018 has reported improvements in Mauritius in 8 out of 10 indicators namely Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Paying taxes, Trading Across Borders, Enforcing contracts and Resolving Insolvency.

Mauritius has consolidated its position as the most competitive economy in Sub Saharan Africa ahead of other countries such as Rwanda (41), Morocco (69), Kenya (80), Botswana (81) and South Africa in the 82nd place.

With Malawi, Nigeria and Zambia, Sub-Saharan Africa is the most represented region among the global top 10 improvers in the Doing Business Report 2018. Multiple economies in the region implemented four or more reforms in the past year, including Kenya (6 reforms), Mauritania, Nigeria, Rwanda and Senegal (5 reforms each) and Malawi, Mauritius and Niger (4 reforms each).

The result? Investment into Mauritius and other Sub-Saharan African jurisdictions has increased significantly, says Soria Hay of Bravura. “Both South African and foreign investors and businesses are looking to more attractive states; tired of dealing with South Africa’s pedestrian returns and the challenging regulatory environment, while still facing the volatility and risks of an emerging market.”

Bravura has a primary listing on the Stock Exchange of Mauritius and a secondary listing on the Namibian Stock Exchange. The Bravura Group is an independent investment banking firm specialising in corporate finance and structured solutions services, with offices in Mauritius, South Africa, Namibia and Australia.

South Africa has lost growth momentum, with the economy in a downward growth trend over the past
several years. Growth in 2016 marked the lowest rate in the past 16 years, apart from the 2009 recession. Economists project that the economy will grow between 0.6% and 0.7% in 2017, and only 1.1% in 2018.

The low growth is mainly a result of South Africa experiencing an investment recession due to a lack of business confidence and policy uncertainty. Internal events like political infighting, wide-spread corruption and the problems with state owned entities like Eskom and SAA are adding to the woes.

Recent figures released by the OECD show that South Africa’s economic growth is now below that of both sub-Saharan Africa and world growth, and this is not a trend that will change in the foreseeable future.

Real GDP growth
2010 2011 2012 2013 2014 2015 2016 2017
Sub-Saharan Africa 7.0 5.0 4.3 5.3 5.1 3.4 1.4 2.6
   Of which:
Oil-exporting countries 9.2 4.7 3.9 5.7 5.9 2.6 −1.4 0.9
   Of which: Nigeria 11.3 4.9 4.3 5.4 6.3 2.7 −1.5 0.8
Middle-income countries 6.9 4.5 4.3 4.7 4.6 2.7 0.5 1.8
   Of which: South Africa 3.0 3.3 2.2 2.5 1.7 1.3 0.3 0.7
Low-income countries 7.2 6.9 4.5 7.2 6.8 5.6 4.4 5.2
World economic growth 5.4 4.2 3.5 3.4 3.5 3.4 3.1 3.5
Source: OECD Economic Outlook 101 Database, IMF, World Economic Outlook, 2016

South Africa’s growth is also below that of its neighbouring countries. For example, Mauritius has shown a compounded growth rate for the period 2012 to 2016 of 3.5%, with projected growth of 4.1% expected during the next financial year. The Mauritian gross debt as percentage of GDP is still higher than that of South Africa, but the growth in gross debt is lower and the state spending as % of GDP is also lower than that of South Africa.

Political uncertainty in South Africa remains high, weighing on business and consumer confidence. The stage is set for further volatility as the focus remains on local politics towards the December ANC elective conference. A look at recent trends shows that South Africa’s foreign direct investment (FDI) growth, a key factor in being the gateway to Africa, is decelerating, while other regions accelerate. South Africa can no longer be considered the leading destination for investment into Africa.

Mauritius remains Africa’s most competitive nation for the fourth consecutive year, according to the Global Competitiveness Report 2017/2018, published by the World Economic Forum on 27 September 2017. Mauritius ranks 45th out of 137 countries worldwide, maintaining the same place as last year while slightly improving its overall score. South Africa slipped dramatically to number 61, down 14 positions from last year’s report.

According to RMB’s Where to Invest in Africa rankings in 2017/18, the top five most attractive business environments in 2006 were (in order): Botswana, South Africa, Mauritius, Namibia and Tunisia. This has changed to Mauritius, Rwanda, Botswana, South Africa and Seychelles in 2017.

In stark contrast to South Africa, Mauritius provides a secure, stable and well-regulated jurisdiction and has set itself up as a preferred domicile for African capital, says Hay. “Mauritius boasts well-developed infrastructure, the most healthy and educated workforce in Africa, the most efficient goods market and strong institutions. The budget for 2017/18 shows its commitment to invigorating corporate growth, expanding social programmes, stimulating the development of small businesses and strengthening the macro-economic conditions within the country.”

“Significant tax amendments set out in the Mauritian Budget Speech are beneficial for foreign investors, international companies and the stimulation of local businesses,” says Hay. “Mauritius is creating flexibility for global companies, making Mauritius very attractive for business. Incentives, including lengthy tax holidays for certain types of companies, have further been created to support innovation and the creation, or implementation of, technology throughout Mauritius.”

Hay highlights that the Mauritian government is working proactively to attract investors through the Economic Development Board and the creation of Special Economic Zones. “An Economic Development Board (EDB) is being set up, which will spearhead all investment and export promotion matters. Measures such as releasing companies holding a GBC1 Licence, that are also listed in another jurisdiction, from prospectus requirements, aim to promote Mauritius as a capital raising platform by reducing legislative burdens. The Stock Exchange of Mauritius is aiming to transform the local debt market and setting up an international capital market to attract international governments and companies from Africa and other regions to issue multi-currency bonds in Mauritius.”

Both South Africa and Mauritius boast a vast number of worldwide Direct Tax Agreements and both figure prominently in international standings as platforms for conducting African business. “However, when it comes to the size and scope of a local market, South Africa will always win with its population of over 50 million and the largest middle class in Africa,” says Hay. “The ability to do business within South Africa itself makes South Africa more than just a location for corporate headquarters and remains the most compelling argument to base a business there.”

From GDP numbers to FDI flows to credit ratings, other African countries like Mauritius are not just catching up to South Africa, but taking over. “It remains obvious that South Africa has limited time to get economic, political and social trends moving in a positive direction if it wishes to stem the flow of FDI to neighbouring countries and claw back the desired status as a key gateway to Africa. And that needs to be a unified focus,” says Hay.

Categories: Economy, MauritiusNews
Published:  Business Report, BusinessTech