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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.

The result? Investment into Mauritius and other Southern Africa jurisdictions has increased significantly, says Soria Hay of Bravura. “Both South African and foreign investors and businesses are looking to more attractive neighbouring states such as Mauritius, Botswana or Namibia; 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, an independent investment banking firm specialising in corporate finance and structured solutions services, has a primary listing on the Stock Exchange of Mauritius and a secondary listing on the Namibian Stock Exchange, with offices in Mauritius, South Africa, Namibia and Australia.  “Bravura experienced that whilst a secondary listing on the Johannesburg Stock Exchange would enable access to the largest pool of capital, a secondary listing on the Namibian Stock Exchange was a more cost-efficient manner to obtain a secondary listing within the Common Monetary Area with less onerous requirements than the JSE, including requirements relating to shareholder spread,” says Hay.

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.  The growth rate is expected to recover marginally in 2017, although growth is expected to remain muted and subject to more downward revisions. The recovery is dependent on higher prices for the country’s key export commodities and higher agricultural output following 2016’s disastrous harvest. Economists project that the economy will grow between 0.6% and 0.7% in 2017.

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, the Gupta e-mails, the sense of 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.

2012-2016 South Africa Mauritius Namibia Botswana
Growth rates (compounded annually)
Real GDP growth rates (constant prices) 1.4% 3.5% 4.3% 4.1%
Gross debt growth rates 13.1% 11.1% 26.5% 1.2%
State spending growth rate 8.7% 9.4% 14.0% 8.2%
Gross debt to GDP 41.0% 51.5% 23.7% 18.9%
State spending as a % of GDP 31.4% 23.3% 33.8% 35.4%

Source: IMF Country Data

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.

According to RMB’s Where to Invest in Africa rankings in 2016/17, the top five most attractive business environments in 2006 were (in order): Botswana, South Africa, Mauritius, Namibia and Tunisia. This has changed to Mauritius, Botswana, Rwanda, South Africa and Seychelles in 2016.

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 recently released 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.”

Hay suggests that a saving grace for South Africa could be the Africa Continental Free Trade Area (ACFTA) agreement, hopefully due to be concluded in 2017.  “Such a trade agreement could provide the impetus to harmonise other policies and regulatory frameworks across African regions to enable market access and accelerate sorely needed investment across the region.”

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, Mauritius, News
Published:   August  25th 2017  Quotes: Ventures Africa, Business Tech