By Cavan Osborne, Portfolio Manager, Old Mutual Equities
Although Mauritius is more remote than most other holiday destinations for Europeans, tourist arrivals have been rising steadily over the last few years for the island country. And it is likely gaining these increasing visitors due to its remoteness.
While countries like Egypt, Tunisia and Kenya have gone through difficult periods following terror attacks, Mauritius has offered a safer (although more expensive) alternative. In fact, tourism arrivals have had an annual growth rate of 5 to 10%, climbing from 1 million in 2013 to almost 1.4 million (which roughly equates to the country’s actual population size!).
With tourist numbers being a key driver, it is a little surprising that hotel and resort stocks have been weak. All of Sun Resorts, Lux Resorts and New Mauritius Hotels have seen share price pressure, especially over the last 12 month period. The identified explanation for this drop is that package tours are losing share to Airbnb-type accommodation options. In fact, on our trip we were part of this migration. We stayed at an amazing resort along a rugged section of the southern coast, accessed through lush sugarcane plantations. Our chalets rested along a cliff and cost just US$50 per night, including breakfast and dinner.
Moving off the sugar plantation
Mauritius island started life as a sugar producer, but over the years has diversified. There are four families, descendants of the original migrants, who control most of the island’s ‘old’ wealth. Far more so than most other African exchanges, the Stock Exchange of Mauritius (SEM) is representative of this diversified local economy. The main industries of financial services, tourism, sugar, local manufacture of textile and beverages are all represented on the exchange. Outside of these, there are a number of companies with little to no Mauritius exposure but are using Mauritius to optimise tax.
Although it seems that many Mauritian holding companies have tended to expand locally, there are more recent moves by some to reach further afield. Initially, the expansions have been into other Indian Ocean islands such as Seychelles, Maldives, Reunion and Madagascar, with the focus being on tourism, financial services and seeking out cheaper labour for textiles. Interestingly, many of the companies we met are now looking at expanding to mainland Africa, with some having already done so, particularly into Kenya. Still, for now, most of the listed companies’ forays are not that material yet.
An alternative reality
Looking at its GDP per capita of approximately US$10 500 (versus South Africa at US$6 000 and Kenya at US$1 500), Mauritius doesn’t appear as a typical African growth story. However, this number is likely distorted by some super wealthy people being located in Mauritius to keep their taxes down. When you are actually on the island, just move one or two streets back from the glitzy residences and hotels along the coastline and much of the approximately 1.3 million residents have significant scope to be an ‘emerging market’. Where Mauritius truly isn’t typically African is its population dynamics: the country’s birth rate is 1.4 births per woman, which means that over time the population will start to decline. And Mauritius has a life expectancy of 73 years, the highest amongst developing nations.
Mauritius is one of the African countries we visit where development is most evident, and every time we visit the continuous improvements are very clear. In the 12 months since our last trip, I have been amazed by how far the new Mauritius Metro Express Project has come. There are now new viaducts and stations being built around the capital and the island. It is such investments by the government that give us confidence that the strategy we manage in Mauritius will deliver good returns. We currently have exposure to a local bank and the local beverage manufacturer.
After this latest trip, I’m increasingly musing about managing the fund out of Mauritius. A few factors support my hopes of island living: there are direct flights to many of Africa’s main business cities; the corporate tax rate is 15%, and can be as low as 3% if revenues are generated out of the country; and then of course there are 15 public holidays each year!
This trip note was originally published by Old Mutual Investment Group, following a visit by its Equities team to Mauritius.