The Mauritius Chamber of Commerce and Industry (MCCI) noted a worrying reduction of 2.6% in the business confidence index for the third quarter of 2014 to settle at 77.5 points, dampened by low consumer demand.
Between July and September 2014, the index lost 2.1 points or 2.6% to stand at 77.5 points, and this decline has been noted after an even more marked fall in the second quarter, when the index slipped below 80 point, to 79.6 points.
The MCCI observed that the responses of entrepreneurs on the growth of business in this quarter were muted to their lowest level since the launch of the indicators. Accordingly, it is felt that this consistent deterioration in the index only serves to further dampen any hopes that the Mauritian economy will bounce-back in 2014.
Indeed, on the level of activity in the third quarter, the evaluation of entrepreneurs is negative, at -7.9%.
More than 36% of the consulted entrepreneurs noticed a decline in their sales during the recent period, however some 28% asserted that they have observed an improvement in their business turnover.
This decline in demand and consequent sales had an impact on the level of stocks, causing it to pile up in the absence of demand; thus, most entrepreneurs responded stating that there was an unfavourable increase in stock volumes.
Mining the data deeper, it emerged that there were 11 factors that had a negative incidence on the performance of companies during this quarter.
The three main factors are poor demand; delays in payment; and mushrooming competition on the local market.
Since 2009, there has been a consistent and deep deceleration in the growth rate of consumption in Mauritius, which has gone down from 6.5% on average over the period preceding the economic crisis (2004-2008) to a mere 2.5% on an average, over the crisis and post-crisis period (2009-2013).
Furthermore, economic growth in the island nation over the recent past has been insufficient to stimulate any real demand dynamics, further pulling down companies’ performance.
The second factor causes creditors’ cash flows to dry out, which in turn heightens the risk of bankruptcy and commercial failure.
At the same time, marked by apathetic demand, rough competition prevails between economic operators, who are forced to drastically decrease their margins to maximize their sales volumes, while deriving lesser sales value as unit prices decline.
Hence, this has an adverse effect on their financial capacities, in particular regarding investment expenditure, which takes a beating in view of insufficient consumer demand to plan higher production capacities.
Other factors affecting the performance of companies are: lack of qualified workforce; unpredictability on variable costs; unfavorable and uncompetitive exchange rates for goods and services; staff turnover and attrition; lack of public support; high cost of capital; variations in the effective tax rate on companies; and difficulties in contracting and repaying loans.
However, island entrepreneurs assert that there are still opportunities because of favorable perspectives on certain markets, particularly the emerging markets.
The improvement in logistics and overall connectivity are motivating them to diversify their product offerings and markets served.
According to the MCCI, the fourth quarter is generally marked by a certain economic revival, due to holidays at the end of year, which spur greater demand for festive purchases.
Further, the business community believes in their ability to bounce back as they anticipate that growth forecasts for business remain positive at 5.6%.
Consequently, some entrepreneurs have decided to increase their investment expenditure during the next 12 months, to diversify their operations and thus take advantage of key opportunities posed by emerging markets in order to improve their growth prospects.
Image (My Continent): However, the MCCI also opined that the fourth quarter may be expected to be better, as it is generally marked by a certain economic revival, due to year-end holidays spurring greater demand for festive purchases.
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