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Mauritius: Top 100 Companies – The Covid-19 putsch

One of the peculiarities of this annual foreword to Top 100 is the fact that there is always some amount of disconnect between the prime focus of this publication, that is the corporate results of the previous year, and the economic environment in which we have just been operating.

However, never in the history of this publication has this decoupling been more obvious and shocking than today, and it is due to this faceless, brainless, heartless little bug called Covid-19 which has terrorized governments into worldwide lockdowns and massive operating constraints, the like of which no one currently living has seen or imagined or even planned for during his lifetime.

The corporate results, as captured mostly up to June or December 2019, show signs of weakness and are far from being triumphant. Next year’s will be pretty awful, for sure, but corporate captains and employees must take solace from the fact that it will largely not be their doing, but mainly that of Covid-19. Besides which, everybody will be hurt simultaneously, except for government, of course, which has since found… a magic door.

The local economy was already in trouble before the lockdown, if only by reference to the GDP growth rate that was flogged to us at being close to 4% right up to election day and which turned out to be, in truth, just 3%! The newly elected government of November 2019 coming in on a promise of old age pensions being increased by Rs 3,200 (to Rs 9,000 per person) was already heading for larger budget deficits, increased debt levels or… more taxes. Indeed, lest we forget, the before- last budget of 2019, presented by the then PM and Minister of Finance, Honourable Pravind Jugnauth, had surmised that an old age pension increase of only Rs 500 per month could find room in ‘his’ pre-electoral budget…

But, ahead of the Covid-19 pandemic itself, the 2020-21 budget would have also had to reckon with the deficits to be inescapably entailed by the running of the Metro Express, the operating (and uncovered) costs of Côte d’Or, the maintenance, late delivery and repair costs of the Safe City project, an increase of the minimum wage, a large and growing trade deficit (see Table I), a fast deteriorating current account balance, a weakening export performance and a growing dependence on offshore influxes to keep our overall balance of payments positive and our forex reserves growing… As an aside, it is pertinent to underline that forex reserves were at least partly growing in rupee terms, because it was losing value all through 2019: 9.9% v/s Sterling, 3.6% v/s Euro, 6.1% v/s USD, 5.5% v/s Indian rupee and even 4.8% v/s the South African rand. This trend has not wavered in 2020. Actually, it takes about 35% more to buy a dollar now than in 2014 (Graph I).

On such a basis, I had openly pitied the new Minister of Finance, back in January, on the basis that he could not, unfortunately, blame the Minister of Finance who had been his predecessor, a convenient escape route for most, because that man turned out to be his current boss! It was also apparent that public debt, trade deficit and current account balances were growing faster than GDP over the last 5 years – which was simply unsustainable.

Then Covid-19 showed up and got us to close our borders. On 16th March for Reunion and midnight of 18th March for Europe. Government did not get all things perfectly right and indeed there have been accusations of cronyism on the acquisition of medical supplies, but the lockdown was a great success overall: the population was sufficiently disciplined and government’s plan thoughtful enough, namely with an adequately comprehensive Wage Assistance Scheme, for the virus to be rooted out. Completely. The last case of “indigenous” Covid-19 (as opposed to the occasional ones identified on repatriated passengers in quarantine) dates back to… 26th April! This is real cause for applause since, as of date, more than 200 countries are still battling to expel or quell the squatting, heavily infectious, occasionally deadly virus.

However, this success came about with a catch. A vicious catch at that, since the government has judged it necessary, this far, to keep our country’s borders closed to the rest of the world in order to hang on to our gloriously Covid-free status. The raging pandemic worldwide, which has slowed economies down, whacked trade, severely curtailed air travel and tourism, and softened demand for some of our exports, was already bad enough. But instead of realizing that Covid-19 is here for good, for years if not decades, whether a vaccine is found or not, and that we need to live with it as best we can, as we do indeed with the slightly less potent flu; we now seem to be caught up in some sort of “virginity trap”. This, as with the original version, carries the delusion that we can (and should) keep the rest of the world (and the virus) out of the country for good and that the consequences will just have to be lived with.

The 2020-21 budget, presented on the 4th of June, had to make do with the extremely difficult situation caused by the lockdown and rendered even more complicated by the fact that the incoming government elected in November 2019 had made the electoral promise of another pension hike of Rs 4,500 by 2024! The Minister of Finance came up with the proposal of freezing the National Pension Fund and replacing it with a Contribution Sociale Généralisée, loosely inspired by the Michel Rocard CSG idea of 1990. No detailed explanations have been presented so far, but, on the basis of what is known, this CSG will bring welcomed cash to the Consolidated Fund until 2023, allow the ‘top up’ pension of Rs 4,500 to be paid on the eve of the next elections and maybe for another year or two, before its ‘nominal kitty’ runs dry and taxpayers need to be called in.

The budget, it was much vaunted, was in perfect equilibrium. But there was no deficit because of the Rs 60 billion ‘magic door’ graciously opened by the Central Bank and because of a Solidarity Tax which has since been curtailed back a bit; a tax on turnover, which has since been cancelled and the hypothesis of re-opening our skies by 1st September 2020 which has not happened and has further implications for the government – revenue wise. Liverpool FC, on the other hand, has, on cue, started advertising Mauritius in its empty stadium since the Leeds home game of 12th September and anyone watching TV who might, as a result, get the urge to fly over, simply can’t! At least reasonably or unless one is lucky enough to be an oil spill expert.

Add in the additional (“Whatever it takes”, Draghi-like) costs in the wake of the Wakashio debacle, any consequences to being blacklisted by the EU and the empty kitty at Air Mauritius, which most people still want to save in the teeth of selfevident new realities, and there is cause indeed to be anxious about government finances.

The Top 100 rankings for 2020 (to the exclusion of banks) looked less satisfactory than the previous year. Turnover (ex-banks) managed to progress by only 2.5%, which was quite a slowdown from the 6.7% progress of the previous year. That progress can be traced back to Building and Civil Engineering (+68% – though it made a loss) which was the top mover for the second year running, Inicia Ltd (+43%), Evaco Ltd (+36%), Kolos Cement (+31%) and Compagnie de Beau Vallon (+30%). The top 5 of this metric, added to DLB Construction (+21%), Gamma Group (+19%), General Construction Co Ltd (+17%), Transinvest Ltd (+13%) – all amongst the top 20 companies when it comes to turnover change – surely confirm that square meters built mattered more than tonnage produced and exported last year.

That this year’s budget yet again relies on construction as the main driver of our recovery (highlighted government projects of some Rs 42 Bn and 34 private sector projects at EDB seemingly worth another Rs 62 Bn, on which little light has been cast so far) surely confirms saturation if we refer to stalling projects, weaker property sales, quivering prices and a closed airport which implies that no foreign purchasing power can fly to view any opportunities.

Within weak turnover growth, it is also apparent that fully 32% of our Top 100 companies could not grow and indeed witnessed some amount of regression of their revenue line from one year to the next, whatever be the reason.

At the same time, the crucial line of consolidated profits slipped significantly from Rs 25.7 Bn to Rs 23.2 Bn (- 9.8%), which is never a promising sight, even when taking account of Engen’s shyness! Indeed, even if banks are included in a Top 100 analysis, more companies see their profits slide (56 in total) than see their profits improve (51). Quite unexpectedly, on a sample of 16 banks, fully 10 of them saw their profits deteriorate, led by SBM (- Rs 1.1 Bn), SBI (- Rs 0.5 Bn) and Absa (- Rs 0.3 Bn).

Sectoral trends established on a wider sample of 340 companies (last year’s sample was at 337) are a tad more positive, in that Turnover improvement was better at and profitability improved by a full 2.2%, year on year. This would indicate that the ‘big boys’ had relatively more difficulty improving profits compared to smaller, up and coming units. That is a positive score of sorts for ‘democratization’, I guess. Consolidated profits as a percentage of turnover was at 5.3%, almost like last year.

The largest contributors to this percentage increase in turnover were the medical sector (+17%), printing (+16%) and automobile sales (+13%). The major improvements to profitability came from supermarkets (+15%), the hotel sector (+16%), the insurance sector (+28%), the medical sector (+52%) and printing (+155%); the latter, it is true, from an abnormally low base. It is worthy of note that the revenue line of two sectors, namely textile and construction, dropped year on year by 7.6%. The same two sectors saw their profits regress by 13% whilst the telecom, logistics and media sectors showed other notorious reductions of profitability year on year (by, respectively, -40%, mainly due to MT; -14% due to fiercer competition across the board and -33% in printed press products in the main).

The Mauritius Civil Service Mutual Aid Association, a finance company which cannot be listed in the Banking section, still towered the list of best companies in terms of profitability as a percentage of Turnover (51.3%) followed by Compagnie de Mont Choisy (38.3% – property transfers?), Evaco (32.3%), Ajanta Pharma (25.9%) and CIM group (25%).

The largest positive swings in profitability concerned mainly companies which were spilling red ink last year: Medine (a swing of +Rs 1,093 M to a profit of Rs 259 M), Air Mauritius (+ Rs 574 M, but still losing Rs 583 M for the 9 months to December 2019), Compagnie de Beau Vallon which swung losses of Rs 514 M last year to just Rs 18 M this year, Evaco which registered a profit of Rs 267 M from losing Rs 114 M last year and Swan insurance which doubled its profits, year on year.

IBL remains the largest corporate company, widening the turnover gap on CIEL from Rs 14.3 Bn to Rs 15.1 Bn. Of note; its total assets are smaller than both CIEL and ENL, the next two in the Turnover roll of honour. Seeing that the tourism sector has been at an almost complete standstill since the lockdown of last March, it may be relevant to note that 8 of the 34 hotel groups or operations reporting were already loss making upstream of the Covid-19 lockdown, some quite heavily. Plausibly, in most of those cases, it is because they had closed down, at least partly, to spruce up, ironically to cream off… the 2020 season! On the other hand, Esquel seems to have been the only textile company to lose heavily to June 2019. One must note, however, that this relative piece of good news is also due to several textile companies going bust over those last years, thus reducing the sample size from 29 to 21…

We are living truly exceptional times. Not only in Mauritius, but worldwide. The political leadership is under great stress everywhere and falters wherever it is not truly ‘on the ball’, science-led, transparent and truthful, appointing and trusting capable officers rather than cronies, and strong independent institutions rather than gutless lapdogs. In such instances, not nearly enough bucket loads of trust are being generated in government’s favour for it to do its job efficiently and credibly. In years to come, PhD students, think tanks and historians will no doubt reflect over the remarkable times brought about by an unruly, highly infectious virus that was born in Wuhan and they will have to question and eventually come up with conclusions about whether the world’s response was “proportionate” to the menace.

I doubt that the judgement will be generous.

I am convinced, though, that the “gestes barrières” that were engendered by the pandemic are here to stay…

This, anyway, deserves to be the longest lasting, rational and civilized legacy of the Covid-19 putsch. For surely, other malevolent viruses will be (are?) lurking around and travelling soon enough in this overcrowded, comprehensively linked up, over-exploited and thence more and more polluted planet of ours!

(Written on 22nd September 2020)