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Budget Highlights 2018/19

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Table of Contents

01 Mauritian Economy; Budget Objectives; and Key Takeaways

02 Banking and Finance

03 Tourism

04 Manufacturing

05 Property & Construction

06 Annexure

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Mauritian Economy – Key Figures


Key Indicators
Key Figures 2015 2016 2017 2018 F Revenue for 2018/19 (Est.)
6%
GDP/GVA growth rate (%)* 1% 8%
+3.1 +3.6 +3.5 +3.9
Budget Deficit (% of GDP) 3.5 3.5 3.2 3.2
Net public sector debt (% GDP) 62.9 65.0 64.8 63.4
Unemployment rate 85%
7.9 7.3 7.1 6.9
Inflation rate (Headline)* 1.3 1.0 3.7 4.2
Total Revenue (Rs bn) 88.3 94.1 106.8 117.4
TAXES SOCIAL CONTRIBUTIONS
Total Expenditure (Rs bn) 106.2 110.6 122.3 133.8 GRANTS OTHER REVENUE

Key Repo Rate currently at 3.5%, Mauritius historically lowest level

*Figures are for Calendar Year


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Objectives of Budget 2018/19


 OUR YOUTH OUR FUTURE

 CREATING NEW OPPORTUNITIES FOR PRIVATE INVESTMENT

 FOSTERING A NEW WAVE OF IMPORT SUBSTITUTION INDUSTRY AND REVIVE EXPORT-LED PRODUCTION

 BUILDING THE INFRASTRUCTURE THAT OUR POPULATION DESERVES AND THAT OUR TRANSFORMATIVE JOURNEY
REQUIRES

 SECURING SUSTAINABLE DEVELOPMENT BY MAKING SIGNIFICANT INVESTMENT TO PROTECT AND ENHANCE OUR
ENVIRONMENT

 LIFTING UP THE QUALITY OF LIFE BY INVESTING IN HEALTH, SPORTS AND LEISURE, EDUCATION, A DECENT
DWELLING FOR ALL FAMILIES AND SAFETY FOR EVERYBODY

 GENDER MAINSTREAMING, ENHANCING SUPPORT TO OUR ELDERLY AND CONSOLIDATING OUR WELFARE SYSTEM

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Key Takeaways
The budget speech entitled ‘PURSUING OUR TRANSFORMATIVE JOURNEY’, was delivered by the Honourable Prime Minister, Minister
of Home Affairs, External Communications and National Development Unit, Minister of Finance and Economic Development, Pravind
Jugnauth this Thursday 14th June 2018. After focusing on stimulating economic growth during the previous budgets, this budget was
mainly addressing social issues as could be expected from a pre-electoral budget. Some key economic figures were mentioned
during the introduction. GDP is expected to grow at 4.1% for 2018-2019 compared to 3.9% in 2017-2018. Unemployment is
expected to decline to 6.9% in 2018 (7.1% in 2017) while inflation forecast for 2018-2019 is 3.5% (4.1% for 2017-2018). As at May
2018, import cover stood at 10.7 months. Budget Deficit for the current fiscal year would be around 3.2% of GDP with total revenue
of Rs 106.8bn and total expenditure of Rs 122.3bn. For the next financial year, budget deficit would be stable at 3.2% of GDP with
total expenditure of Rs 133.8bn and total revenue of Rs 117.4bn. Public debt is estimated to decline from 64.8% to 63.% by end of
June 2018. The government is planning to borrow Rs 2.6bn from foreign sources and Rs 27.4bn from domestic sources. This should
help to mop out excess liquidity on the domestic market.
On the social front, we witnessed the introduction of negative income tax as well as minimum wage to increase purchasing power of
the lower end. Measures were now taken to increase disposable income of the middle class by increasing the income exemption
threshold to Rs 305,000 per year and reducing the income tax level from 15% to 10% for those earning between Rs 305,000-650,000
annually. This should impact positively on consumer staples. Moreover, the usual culprits namely tobacco and alcoholic beverages
were spared from any increase in excise duty. However, gamblers should see a withholding tax of 10% on winning amount in excess
of Rs 100,000 on Lotto, Govt Lotteries, casinos and gaming houses. Along with measures to decrease the inequality gap, several
incentives were announced to tackle the gender gap during the speech.

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Key Takeaways
During last year’s speech, the major focus of the budget was modernising the infrastructure of the country through the funding from
India (grants & line of credit). A total of Rs 37bn has been earmarked to be invested in transport infrastructure over the next three
years. The Metro Express project linking Port Louis to Rose Hill will be operational in September 2019 and the link between Rose Hill
to Curepipe should be operational by September 2021. Beside investment in Metro Express, Rs 12bn has been earmarked for the
construction and upgrading of roads. Urban bus terminal would also be modernized. Several other infrastructure, social housing
units, healthcare, sports, utilities and education projects were also mentioned. Construction companies should take advantage from
the implementation of those projects.

Consistent with the previous budgets presented by this Government, the SME sector was again at the heart of the budget with
several measures help them. For instance, access to finance and labour. DBM and Maubank will offer loans to SMEs at a low rate of
3.0%. Moreover, DBM earmarked Rs 1bn to support MSMEs through a set of schemes. The SME Employment Scheme will target
1,000 graduates whereby the HRDC will pay a monthly stipend of Rs 14,000 over two years while employer pay for traveling costs.
Also, the refund of training costs will increase from 60% to 75%. A lot of emphasis was laid on the food and food security industry
which could represent an interesting potential for SMEs as we import 77% of our foodstuffs annually. Small planters are also being
protected as custom duty has been increased on imported sugar from 15% to 80%. However, there were no bold measures from the
government to help the big sugar conglomerates despite the difficult situation prevailing.

The cherry on the cake for this pre-election budget is the reduction in the price of Mogas (petrol) by Rs 2.35 to Rs 49.65 , diesel by
Rs 1.90 to Rs 40.00 and cylinder LPG of 12 kg by Rs 30.00 to Rs 240.00.

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Banking, Finance & Technology

Banking, Finance & Technology

Sector Review Parameter Year Year Year Year Year Trend


2014 2015 2016 2017 2018F

Financial & % contribution to GDP


insurance 11.9 12.0 12.1 11.9 12.2
activities
Sector Real Growth Rate (%) +5.5 +5.3 +5.7 +5.5 +5.5

ICT Sector Real Growth Rate (%) +6.6 +7.1 +5.4 +4.4 +4.5

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Banking, Finance & Technology


Theme: Measures announced have been put forward to address several challenges that the industry is currently facing, along with measures
taken to tap in opportunities including innovation and the preparation of Mauritius to adapt to the digitalisation era. As such, the mission of
the budget is to “maintain Mauritius as an International Financial Centre of repute”

Mauritius has been criticised a few times as a jurisdiction whereby companies may implant themselves for tax evasion purposes. As such, the
budget is making provision for the adoption of international best practices and transparency in disclosure requirements.

Global Business Segment


The global business sector contributed around 5.5% to GDP and is expected to grow by 4.7% in 2018 (2017: +4.5%).

Measures:
 New fiscal regime to be introduced for domestic and GBCs and a specific fiscal regime for banks
 No GBC Category 2 licence shall be issued as from January 2019 including a grandfathering provision for existing companies;
 Application of more stringent compliance for GBCs with improved oversight of Management Companies.

Technology - Innovation to drive economic growth


 New growth pole revolving around Artificial Intelligence, Blockchain Technologies and Fintech
 Setting up of a Mauritius Artificial Intelligence Council (MAIC) whereby we will benefit from the skills of international experts
 Fintech – Government will set up a National Regulatory Sandbox Licence Committee to consider all issues relating to Sandbox licencing for
Fintech activities; FSC to put in place guidelines on investment in crypto currency as a digital asset
 Regulatory framework against money-laundering and terrorist financing will be updated in line with development in Fintech.
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Banking, Finance & Technology


Banking Sector
Taxation of Banks
Currently, banks were enjoying a substantially lower tax rate of its Segment B operations. However, as per the Budget, the Deemed Foreign
Tax Credit regime available to banks will be abolished as from 1st July 2019. In its place, a new regime specific for banks will be introduced
and will make no distinction between Segment A and Segment B income. The new tax rates will be as follows –
(i) chargeable income up to Rs1.5 bn will be taxed at 5 %;
(ii) chargeable income above Rs1.5 bn will be taxed at 15%.

Mention has been made about the possibility of an incentive system for banks with chargeable income above Rs1.5 bn and under this system,
any chargeable income in excess of the chargeable income for a set base year will be taxed at a reduced tax rate of 5% if pre-defined
conditions are satisfied.

Special Levy on Banks


The Special Levy on Banks is currently at 10% of chargeable income for Segment A banking business; and 3.4% on book profit and 1% on
operating income for Segment B banking business. The current formula which is scheduled to end by June 2018 will be maintained up to June
2019.

A new Special levy will be introduced under the Value Added Tax (VAT) Act and will be charged on the net operating income derived by banks
from its domestic operations.

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Banking, Finance & Technology


Listed Companies Impact Industry Comments
MCB Group  The Abolishment of the foreign tax credit available to banks in 2019 may have a negative
impact. Both Segment A and B will be subjected to a tax of 5% below chargeable income of
SBM Holdings Rs1.5bn and a tax of 15% above that threshold.
ABC Banking  We would require further details on the special levy under the VAT to analyse the possible
impact on banks as from July 2019.
 SBM and Mauritius Africa Fund have set up an Africa Infrastructure and Industrialisation Fund
to assist Mauritian investors to execute projects in the SEZs on the African continent. No details
have been provided on how SBM could benefit from this arrangement.
 In order to finance some the projects announced in the budget speech, Rs 27.4bn would be
raised from domestic sources which should be positive for banks.

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Tourism

Tourism

Sector Review Parameter Year Year Year Year Year Trend


2014 2015 2016 2017 2018F

Tourism % contribution to GDP 7.0 7.4 7.8 8.0 7.8

Sector Real Growth Rate


+6.3 +7.2 +11.5 +5.2 +4.7

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Tourism
Theme: Enhancing our Tourism Product

 The strategy of the government concerning one of the flourishing pillar of 2,500 140
our economy is to increase the number of tourists during low seasons
and to create new tourists attractions. 117
120
 Airlift capacity increased by 2.5 percent following the arrival of Saudi 2,000
Airlines, KLM Royal Dutch Airlines and additional flights by British
Airways. Introduction of two new airlines has been announced, namely 100
72
Saudi Airlines and Kenya Airways, and should help further grow arrivals.
1,500 60.3 62.5
 Our National Airline which will be equipped with two new aircrafts shall 55.9 80

(000's)

(Rs'bn)
be able to increase capacity, flight frequency and access new destination. 40.6
 Two cruise liners namely AIDA and Boudicca are using Port Louis as home 44.4 44.3 50.2
60
porting and more cruise rotations from Costa Crociere. Construction of a 1,000
dedicated cruise Terminal Building to position Port-Louis as a cruise hub
in the Indian Ocean with a capacity of 4,000 passengers. 40
 Tap the rich historical and green assets of Mahebourg to fully harness the 500
potential of the latter as a ‘Village Touristique’. Also develop further 20

1,038

1,151

1,275

1,342

1,410

1,600

2,500
existing advantages of Mahebourg to offer new facilities for cultural

965

993
shows.
 To increase visibility of our Island a digital platform will be implemented. 0 0

2018F

2020F

2030F
2012

2013

2014

2015

2016

2017
The latter will inform tourists about the different tourism products, costs
and exchange rates.
Tourist Arrivals (000's) Tourism Earnings (Rs'bn)

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Tourism

Listed Companies Impact Industry Comments


NMH   Improved connectivity should help boost occupancy rates
 Enhanced visibility through the digital platform
LUX 
 Cultural and Eco-tourism concept could help diversify our offering and attract more
SUN  visitors
 An annual growth of at least 5% in arrivals and earnings.
CHSL   Market diversification into ASEAN countries could help increase hotel occupancies
during low seasons.
Morning Light 

Southern Cross 
Tourist
Tropical Paradise 

Air Mauritius   Increased capacity and frequency should help grow arrivals

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Manufacturing

Manufacturing

Sector Review Parameter Year Year Year Year Year Trend


2014 2015 2016 2017 2018F

% contribution to GDP 7.0 7.4 7.8 8.0 7.8


Manufacturing
Sector Real Growth Rate
+1.8 +0.1 +0.3 +1.4 +1.3

Textile Sector Real Growth Rate


+4.2 -2.8 -5.8 -0.7 +1.0

Sugar Sector Real Growth Rate


+0.8 -5.1 +6.6 +2.4 0.0

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Manufacturing
Theme: The manufacturing sector contribute only to 13% of the GDP as compared to 24% from 1968 to 2001. The objective of
the Government is to revive this important sector of the economy which has been on decline over the recent years .

I. Expansion of the the industrial infrastructure and logistic facilities such as the setting up of new business park around the
island
 A High-tech Park at Côte D’Or extending over 150 acres of land;
 A Logistic Park at Riche Terre
 A Pharmaceutical and Life Sciences Park at Rose Belle.
II. Protectionist measures
 Using economic diplomacy and mechanism to counter flooding of imported goods on local markets (ii) Setting Higher
standards of quality and safety for imported products.

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Manufacturing Cntd’

III. Development of new markets for our local products such India, Free Trade Agreement with China, enhanced bilateral
cooperation with Saudi Arabia and Middle East counter, renewed partnership with the member states of the Common
Wealth as well as the signing a framework agreement for the continental FTA in Africa.

IV. Following the African Strategy – new cross border opportunities for the Mauritian entrepreneur into Africa For instance,
(i) the launching of the Twin Technology towers project in Cote D’Ivoire driven by Mauritius Africa Fund (ii) The
development of Phase 2 of the ‘Parc Industriel International” in Senegal which will start this year.

V. 5 year tax holiday for Mauritian companies collaborating with the Mauritius Africa Fund for the development of
infrastructure in the Special Economic Zones (SEZ)

IV. Working with EU for the setting up of loan guarantee facility to support cross border facility in Africa

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Manufacturing Cntd
V. Preferential access to markets- Engage in negotiation with UK and Eastern and Southern Africa to preserve our
preferential access on the UK Market after BREXIT

SMEs
SMEs offer a viable solution to unemployment, with their development offering significant opportunities
for direct and indirect job creation. The SME sector accounted for around 55 percent of total
employment creation in Mauritius in 2016
Bold measures have been announced to support this sector of the economy such as:
 SME Employment scheme- HRDC will pay graduate a salary of Rs14,000 per month over two years
while the SMEs will have to pay only travelling costs
 Ease access to finance- DBM and Maubank will grant loan at a low rate of 3.0%
 For development of agri business (SME), the Food and Agricultural Research & Extension Institute
(FAREI) will give the necessary technical assistance and mentoring
 DBM will operate an Enterprise Modernisation Scheme aimed at providing finance
 Lease facilities to SMEs with turnover up to Rs 10 million to modernize their plant and equipment

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Agriculture
Theme In 2018 there was only 50,000 hectare of land under sugarcane cultivation while in 2006 land under cultivation stood
at 70,000 hectares. Sugar represents approx. 23.1% of the agro-industry in Mauritius. Mauritius produced 386 277 tonnes
of sugar for 2016 compared to 355 213 tonnes in 2017. Special sugar production increased from 122 423 tonnes in 2016 as
compared to 139 740 tonnes in 2017.

Contribution of Sugar cane Sector

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Agriculture

Key challenges face by the sugar industry

Overproduction of sugar on the world market and tough competition


from big producers such as Brazil, India, Pakistan and Indonesia offering
more competitive prices.

The end of sugar quotas in the EU which led to the flooding of beetroot
sugar on the European market coupled with Brexit remain key challenges
for the Mauritian sugar sector.

The cost of production of sugar is at Rs17,000 per tonne while the selling
price is at Rs11,000 per tonne

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Agriculture Cntd’
Measure announced for the Cane industry

Protectionism on home-grown sugar- Increasing the customs duty on import of sugar from 15 percent to 80 percent

Our expectation

We expected the Government to have taken bolder measures such as:

 Moving up the value chain - Production of special sugar for the European and American markets as well as Indian and Chinese market.
 Negotiation for new markets such as COMESA and SADC for our sugar.
 A better pricing for bagasse specially for the small sugar planters

Our Opinion

We expected bolder measures from the Government due to the importance of this sector to our economy. We believe that this has been
a major deception for the operators in the cane industry. We believe that this sector need to be reformed otherwise it may cease to exists
due to very tough competition

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Manufacturing
Listed Companies Impact Comments
ENL Land 
Alteo 
 No bold measures has been announced for the industry . This sector needs to be
Terra  reformed vigorously to ensure its continuity
 Increase in duty on imported sugar will be to the detriment of some sugar millers
who have been importing raw sugar from Brazil, refining it in Mauritius and then
Omnicane  re-export

Medine 

PBL, Phoenix  No additional tax has been imposed on alcoholic drinks


Investments and Decrease in income tax rate from 15.0% to 10.0% for those earnings less than Rs650k
Eudcos annually thereby increasing disposable income of customers

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Construction

Construction

Sector Review Parameter Year Year Year Year Year Trend


2014 2015 2016 2017 2018F

% contribution to GDP 4.8 4.4 4.2 4.3 4.5


Construction
Sector Real Growth Rate
-8.5 -4.9 0.0 +7.5 +9.5

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Construction
Theme: In 2017, the construction industry recovered from a 5 year contraction with a growth rate of 7.5%. Growth is expected
to rise further to 9.5% in 2018, driven mostly by investment in major public infrastructure projects notably the metro express
project, Road Decongestion Programme ,Cote D`or sports complex, drainage projects and social housing projects (NHDC).
Rs37bn will be invested in transport infrastructure over the next 3 years.

Metro express and Road Decongestion programme & expansion of port facilities:

 Phase 1 of the metro express project linking Port Louis to Rose Hill will be operational in Sept 2019. An additional 13km from
Curepipe to Rose Hill will be operational by Sept 2021.
 Construction of Victoria Urban Terminal project is expected to start in Feb 2019. Two additional terminals are in the pipeline
to be constructed at Immigration Square and Rose Hill.
 Rs12bn has been earmarked over the next 3 years for the construction and upgrading of roads among which ten major
projects are either in progress or will be implemented under the Road Decongestion Programme.
 Rs3bn will be invested in 3 major projects to expand our port facilities and improve its productivity, namely the construction
of breakwaters, a fishing port at Fort William and the Cruise Terminal Building.

Cote d`Or smart city projects:


 In addition to investment in the Cote d`Or Sports Complex, an amount of Rs375 million will be provided for the upgrading of
17 sporting facilities, including 2 in Rodrigues.
 Hence 1,178 new drainage projects with a total cost of Rs5.6bn will be allocated to support development.

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Construction
Other Projects:

 Also around Rs12.7bn allocated to NHDC with the construction of 6,800 new social housing units over the next two years.
 As for our Rodrigues, a new runway for a cost of Rs3.2bn will start mid-2019 to improve Plaine Corail Airport in an attempt to
enhance air connectivity, tourism development and socio- economic conditions on the island.
 50 housing will be constructed by the NHDC in Agalega.

 Investment in building and construction work, which accounts for 63.0% of total investment, increased by 7.6% to Rs46.4m
in 2016 to Rs49.9m in 2017. It is expected to increase by 12.8% to Rs56.3m in 2018.
 Focus for 2018/2019 budget has been on construction industry which will benefit key players in the sector.
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Construction

Listed Companies Impact Industry Comments


Gamma Civic 
Many projects were identified for the next three years among which infrastructure
UBP  and transport projects got the lion’s share. Other projects include social housing,
sports, education and healthcare. Companies involved in building, material and
KOLOS 
engineering are well poised to take advantage of these on-going projects.
IBL 

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Ocean Economy
Theme: Mauritius has a total maritime zone of 2.6 million km square, of which 2.3 million km square represents the Exclusive
Economic Zone. An additional expanse of 396,000 km square is co-managed with the republic of Seychelles. The government will use
ocean economy for its import substitution strategy and for export growth in the medium to long term.

 Real growth rate for the seafood sector is forecasted to +1.6% for the 2018 from a +4.0% growth in 2017 as shown in the graph
above.
 Measures taken to fully tap the economic possibilities are the setting up of an ocean economy unit with the responsibility of
preparing a National Ocean policy paper. Boosting up research capacity on the ocean economy, also to increase availability of fish
locally in line with the import substitution strategy. Moreover, a grant of 60% of the cost of acquisition of outboard engines and
fishing nets, by fishermen cooperatives. We feel that this sector is being underutilized despite its enormous potential and would
expect more measures to exploit these resources.
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Annexure
Expenditure by Ministries for 2018/19 (Est.)
6%
10% 26%
GENERAL PUBLIC SERVICES 9%
SOCIAL PROTECTION
EDUCATION
10%
ECONOMIC AFFAIRS
PUBLIC ORDER AND SAFETY
26%
HEALTH 13%
Others

Research Desk Email: securities.research@swanforlife.com

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completeness or correctness. The information contained in this document is published for the assistance of recipients but is not to be relied upon as being authoritative or taken as substitution for the
exercise of judgments by any recipient. Swan Securities Ltd accepts no liability whatsoever for any direct or consequential loss arising from any use of this document and its contents.

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