By Namita Hardowar

Although the global economic environment remains challenging, some headwinds, such as energy, commodity and freight prices, have begun to subside. China’s reopening has also fuelled growth optimism for 2023. Global growth is projected to reach 1.7% in 2023 and 2.7% in 2024.  This will however be highly dependent on the pace and sequence of further monetary tightening, the course and consequences of the war in Ukraine, and the possibility of further supply-chain disruptions.

Three years after the unprecedented crisis prompted by the COVID-19 pandemic, the Mauritian economy continues its recovery path at a gradual, albeit more moderate pace. Despite the highly volatile and uncertain global economic environment, the local economy has registered better performance in 2022, driven essentially by a pickup in tourism, which accounted directly for over 50% of the economic growth outcome. GDP at market prices in 2022 has been estimated at 7.8% for 2022 and is projected at 5% for 2023, on account of the testing conditions in our main markets. 

It is important to highlight some key challenges that the business community is facing. 

Shortage of manpower

Ensuring a stable, competent workforce for the foreseeable future has consequently become one of the greatest challenges for local businesses. The shortage of domestic skilled labour and tougher competition for foreign workers are increasingly worrying for companies.

Today, the profits made over the past decade from a steady increase in female labour force participation have levelled off at a plateau, and the declining birth rate combined with the fervour of fresh graduates to seek greener pastures overseas is making it extremely cumbersome for businesses to attract labour locally.

The shortage of domestic skilled labour and tougher competition for foreign workers are increasingly worrying for companies.

The difficulties to retain local talents coupled with ageing population stress the need to boost recourse to foreign labour, alongside increasing upskilling and cross skilling efforts of the population. To this end, reviewing our legislations, providing more flexibility for the recruitment of foreign talents alongside raising the Mauritian to foreign worker ratio especially for sectors facing chronic shortages such as manufacturing, ICT, tourism and hospitality, construction and healthcare remains essential. More importantly, implementing policies and programmes that create a favourable environment for professionals (tax incentives, better employment opportunities, and investment in research and development to encourage innovation) will also help to raise the attractiveness and competitiveness of the country at the international level.

Cost of doing business 

As we speak about competitiveness, we must touch on the cost of doing business in Mauritius

Businesses have braced the year on firmer grounds with the stabilisation of freight costs and the international prices of commodities. However, many forces have come together with the drive in inflation and have spiralled the cost of doing business of enterprises. 

Indeed, soaring inflation coupled with slow growth, appreciating currencies (especially the US dollar and the euro, our two main trading currencies), hikes in interest rates, severe increases in electricity prices and abrupt changes in prices are weighing significantly on the cost structure of our businesses. These costs are unfortunately denting their competitive edge, with a percentage level of overheads clearly beyond their control.

Exchange Rate Volatilities 

The Mauritian rupee has continued to depreciate against major currencies such as the US dollar and the euro. For an economy largely dependent on raw materials and foodstuff for its domestic use, and highly vulnerable to the external environment, the persistent deterioration of the rupee vis-à-vis these currencies has serious implications for the economy, trade sector and for businesses. A close monitoring is warranted to avoid further spillover effects.

Electricity Prices

The recent rise in energy tariffs has come into effect abruptly and more importantly at a very challenging time, especially when the local economy was just starting to recover.

The rise in electricity prices will lead to a major spike in the overall cost of production and increase operational costs of enterprises across all sectors of the economy. Notwithstanding the fact that several factors such as the recent crisis in Russia and Ukraine, have already had a profound bearing on the prices of goods and services, inflation currently stands at double digits, and foreign currency remains highly volatile. Businesses are finding it very challenging to absorb these costs, which is squeezing their profitability, constraining their investment capabilities, and impacting on their overall growth and competitiveness. Some businesses risk closure, whilst others will have no choice but to pass on these costs to customers. 

The rise in electricity prices will lead to a major spike in the overall cost of production of enterprises across all sectors of the economy.

Price Controls/Regressive Mark-up

The abrupt implementation of price controls/abrupt increases in prices has adverse implications for businesses, as it disrupts their business models, strategic ambitions and business plans. For instance, the introduction of price controls on cement and regressive mark-up on pharmaceuticals products is expected to negatively impact both on operations and the market as whole.

Establishment of a Regulatory Impact Assessment (RIA)

Today, the establishment of a robust Regulatory Impact Assessment (RIA) framework in Mauritius through a well-defined methodology is considered urgent as it will enhance the effectiveness of regulatory reforms. Conducting RIA within an appropriate systematic framework will underpin the capacity of the government to ensure that regulations are efficient and effective in a changing and complex business environment and ensures predictability of decisions. For the MCCI, an RIA will have ensured that the impact of all policy options be carefully assessed before any decision is taken.

Growing our manufacturing sector 

The manufacturing sector, comprising Micro, Small and Medium-sized Enterprises, is one of the main engines of economic growth in Mauritius, contributing about 13.4% to Gross Value Added (GVA) of the national economy and accounting for 17% of the total workforce. This sector is instrumental to the creation of jobs, increasing foreign direct investment, promoting of exports and improving the ease of doing business.

The real growth rate of the manufacturing sector dampened from 8.3% in 2021 to 6.3% in 2022, underpinned by weaker performance of the sugar milling sub-sector and moderate growth in textile manufacturing.

Few focus areas for this sector would be: i) advancing value addition and competitiveness through the integration of new technologies and innovations to boost productive capacity, add more value to products and increase our exports; ii) increasing investments in the development of skills through job training programmes that are competency-based, to create high performing work environments and which are responsive to rapidly evolving production processes and customer needs; iii) accelerating the creation and implementation of the Industry 4.0 ecosystem, a sine qua non condition for the development of a modern and competitive manufacturing sector.

There is today a need to instil a new dynamism and to propel this sector to a higher productivity growth path.

Namita Hardowar
Namita Hardowar is the president of the Mauritius Chamber of Commerce and Industry (MCCI).