Economic ExpertSpeak: Mauritius’ location positions it well as an African financial hub
Danae Kyriakopoulou, a Senior Economist at the Centre for Economics and Business Research in London, and an external Economic Adviser at the ICAEW spoke to AfricaMoney, commenting on the global economic condition for 2015-2016. She stated that the US will be the one of the brightest spots in the global economy in this year, and Mauritius is also expected to fare quite well. Mauritius boasts the highest score in the continent on global indices and its location provides a strategic advantage to the island economy for positioning itself as a financial hub for investments into Africa.(Image:Company)
Danae Kyriakopoulou visited Mauritius in May 2015 to launch the ICAEW’s Economic Insight: Africa report at the African Congress of Accountants (ACOA). It may be noted that the ICAEW is a leading professional organisation that promotes, develops and supports over 144,000 chartered accountants worldwide.
Edited excerpts from an exclusive interview:
Being an economist, can you please provide your comments on the current international economic conditions?
It would not be a stretch to say that global economy entered 2015 on a relatively weak note, suffering from slow-down in economic performance in China and other emerging markets, political uncertainty in the UK and the Eurozone, and an unusual seasonal blip in US growth. Looking ahead though, reasons to be optimistic remain. Low oil prices are boosting consumer spending power in most of the world, helping drive consumer-led recoveries. Even though economies have recently started to climb back on the growth track, we expect them to settle at lower levels than before the downtrend started. We are already seeing a pick-up in growth in the US and the Eurozone, with the latter also helped by the European Central Bank’s quantitative easing programme. However, there are still plenty of risks. Uncertainty in the Eurozone given the latest developments in Greece and uncertainty in the United Kingdom given the upcoming EU referendum are making businesses cautious to invest. A worse-than-expected slowdown in China is still a possibility, with the latest stock market movements adding plenty of dark clouds in China’s economic sky. Overall, we expect the global economy to settle at growth rates lower than those seen in the pre-crisis period over the next decade.
Why are global oil prices going down and to which country(ies) can this decline be traced?
Economists like to explain price movements by looking at supply and demand. The current oil market is no exception. On the supply side, the fall in prices was originally helped by the glut in supply that formed due to increased investments in the shale gas market in the US. On top of this, the OPEC stance to protect its market share through keeping supply abundant pushed prices further down. On the demand side, weakening economic performance in China is keeping demand for oil and other commodities constrained. To top it all, exchange rate developments, and the strengthening dollar in particular, are further pushing oil prices down given that oil is priced in dollars.
Can you please provide your views on global economic expectations over 2015-16? Which country’s performance will be positive and which country will display negative performance?
We expect the US to be one of the brightest spots in the global economy this year, but factors such as higher interest rates, a stronger dollar, and higher oil prices could keep growth contained further down the line. Meanwhile, China is expected to continue on a declining trend, facing a managed but steady landing. There are risks in the stock-market and property-market but we think that the overall economy will avoid a crash even if these sectors correct sharply. Looking at the UK, the uncertainty surrounding the EU referendum is already putting a lid on growth and this is something that is expected to continue until the landscape has cleared. Further, the UK faces more fundamental challenges such as the unbalanced nature of its recovery, which is too heavily focused on consumers. The Eurozone on the other hand is looking in a better shape, helped by the European Central Bank’s quantitative easing programme. The Greek crisis remains a dark cloud in the Eurozone sky but ultimately we think that the rest of the EuropeanUnion is now better insulated against such shocks than it was some years ago. Finally, oil and commodity-producing economies are expected to take a hit this year from lower prices, but this is too broad a group to consider as a whole and there is great variation on a country-wise basis.
Africa is a continent that has tremendous potential for growth. What do you perceive as the main challenges that are hindering Africa’s growth?
Although I would be wary of disregarding the diversity of individual countries across the region, on a general note, it can be observed that the continent’s economies lag behind in terms of their infrastructure, both in terms of physical and human capital. The issue surrounding governance is also a big factor that has prevented the continent from reaching prosperity despite being endowed with vast amounts of natural resources.
Are declining commodity prices expected to have a huge impact on the myriad resource-rich economies in Africa?
I am glad you asked that question. Research by Cebr for the Institute of Chartered Accountants in England and Wales (ICAEW), as part of the inaugural Economic Insight: Africa publication, found that many African economies are now much better insulated against commodity price downturns compared to previous occasions. National and international statistics analysed in the report show that many countries have made progress towards diversifying their economies away from commodities. The services sector, for example, is now making up around 60% of sub-Saharan African GDP.
Mauritius is the gateway to Africa. Given the promising growth forecasts for Africa, albeit under the cloud of challenges such as declining commodity prices and the impact of Ebola, how can Mauritius expect to fare in this area?
Mauritius is actually expected to fare quite well as it is currently one of the best-performing economies in Africa. The island economy boasts the highest score on the continent in global measures such as the World Bank’s Ease of Doing Business Index (where it also beats Japan and Spain) and the World Economic Forum’s Global Competitiveness Index. It is also an economy that is well diversified: after decades of being too dependent on the sugar industry, it has now built strong industries in textiles, tourism, and more recently, financial services as well.
Can you please provide comments on currency volatility and expectations of dollar and Euro movements, given the adverse impact on Mauritian imports and exports with the dollar appreciation, even as the Euro has depreciated?
The weakness in the euro compared to the dollar is something that we expect to see continuing. The main driver of this trend is the diverging monetary policy paths from the (tightening) Federal Reserve in the United States and the (loosening) European Central Bank. Given the underlying performance in the US and Eurozone economies this is a stance we expect these central banks to keep. In terms of how this affects Mauritius, stronger foreign currency against the rupee is expected to boost Mauritius exports by making them more competitive, but at the same time, this will make imported goods more expensive. The opposite holds when a foreign currency is weakening, as is the case with the Euro.
Finally, what is your advice for a Small Island Developing State like Mauritius? How can the island make its mark in the global economy, with the advantages it enjoys in the tourism, financial services and investment gateway arenas?
Mauritius benefits from its strategic geographic location in the Indian Ocean, between Africa and the emerging markets of India and China, and the rest of Asia. In addition to supporting its position as a tourist destination, its location provides an important advantage for Mauritius to position itself as a financial hub for investment from these countries into Africa, something that we are already seeing happening. For this to continue, sound macroeconomic policies and good governance are necessary conditions that will need to remain fulfilled. An area where we can see further improvement is that of female participation in the labour force, which is an arena where Mauritius still lags behind economies at similar stages of development, such as neighbouring Mozambique and Tanzania, which may be used as successful case studies.
- By Wazna Gunga