Key highlights:

• Mauritius faces fiscal strain and political transition after recent elections
• Investment grade rating is under pressure due to revised economic data
• Tourism is rebounding, but growth may be capped by limited capacity
• Sovereignty gains over Chagos Islands bring strategic and financial benefits
• Listed companies are expanding into mainland Africa and Indian Ocean markets
• New taxes may impact corporate profits and investor sentiment

Even though Mauritius is an island positioned in the Indian Ocean between Western Australia and Madagascar, it is an African country. Despite the challenges associated with being an island economy, it has always come across as a well-managed, well-developed country. Its economy, initially centred around sugar, then textiles, the mainstays of the economy today are financial services and tourism.

With one of the world’s longest Covid travel restrictions, of around three years, Mauritius’ fiscus and many corporates, particularly the hospitality industry, experienced significant strain. This has put the island nation on the backfoot, and its investment story certainly feels like it has gone backwards since my last visit.

Since tourism is its economic mainstay, it is no surprise that Mauritius experienced one of the highest economic declines in 2020.

The cracks are starting to show

Mauritius is currently undergoing profound political transformation after a new government was elected in November 2024. There are two main political families that govern Mauritius, and they tend to win alternating elections. In a landslide victory at the polls, the Ramgoolam family is now governing and has accused the Jugnauth family (governed from 2019 to 2024) of misstating the numbers. The Ramgoolam’s are saying that less revenue was collected, more money was spent, and the GDP growth was lower.

The net result is that the fiscal deficit and debt are greater than previously reported – a massive blow to its credibility. Mauritius, long hailed as a beacon of democracy in Africa, typically vies with Seychelles for the title of Africa’s best governed country.

Losing credibility, and worse than previously thought numbers, mean that the country’s credit rating is at risk. Currently Mauritius and Botswana are the only African countries with an investment grade rating. Maintaining this investment grade rating is very important, particularly for its financial services industry.

None of the following – a deteriorating fiscal balance, slowing GDP growth and low revenue collections – are conducive to exchange rate stability. Its central bank (Bank of Mauritius) is using reserves to protect the currency, indicative of an outflow and some pressure on the exchange rate. However, holding one of Africa’s highest foreign reserves as a percentage of imports – at around 14 months – Mauritius is coming off a solid base.

Mauritius’ role in the Middle East conflict, provides some buffer

The timing of the Chagos Resolution is also helpful. Chagos is a group of 60 small islands in the Indian Ocean. Mauritius has been arguing over the sovereignty of these islands since its independence from Britain in 1968. In May 2025, the UK agreed to return sovereignty of Chagos to Mauritius, except for Diego Garcia, which it will lease back for 99 years at £100 million per year for use as a military base. The UK and US both use Diego Garcia as a military base. Interestingly, Diego Garcia was used by the US to stage its recent attack on Iran in June 2025. It appears that Mauritius must be informed of any third party attacks that emanate from Diego Garcia.

This rental income equates to about 5% of the total budget and will fill the gap of the shortfall.

The Stock Exchange of Mauritius has over 50 listings. The listings are centred around tourism, financial services, hotels and conglomerates managed by a handful of families. Many of these businesses have outgrown the island and are expanding to other Indian Ocean islands like Réunion, Madagascar and Seychelles. Many have also invested into mainland Africa, particularly in East Africa with countries like Kenya, Uganda and Tanzania.

From all our accounts the new government is aware of how important it is to maintain Mauritius’ investment grade credit rating. To boost revenue (in response to the rising fiscal deficit) the authorities have introduced new taxes, which can diminish investors’ confidence. Mauritius Commercial Bank (MCB), the largest bank, indicated that its tax rate will rise from around 20% to 28%. These new taxes will hurt profits across the stock exchange. The new tax is called the “fair share” tax, the idea being that those with greater means contribute more.

The best performing industry currently is hospitality. The listed hotel groups are reporting occupancies of 70%-80%, and room rates are up to 40% higher than before Covid. However, this earnings growth is likely to slow as 80% is near full effective capacity. Additionally, airlines have not increased flight capacity, which limits the number of new tourists who can enter the country. With few new hotels being built, and the shift from hotels to Airbnb having stabilised, further growth in the sector may be constrained.

Old Mutual African Frontiers Strategy

Our strategy has exposure to MCB, which continues to benefit from 50% of its business in mainland Africa, where growth rates are stronger and exchange rates have been firm. The strategy also has exposure to Phoenix Beverages, the dominant beer and soft drinks maker on the island. It too has been diversifying both in product lines and geographies. In 2025 alone, Phoenix acquired a 50% stake in Seychelles Breweries and was awarded the Coca-Cola bottling license in Réunion.

Navigating complexity, creating value

Mauritius may be showing signs of strain, but our deep, on-the-ground research reveals a more nuanced story – one of resilience, adaptation, and opportunity. While cracks have emerged in its economic and political landscape, the island’s strategic relevance, regional expansion, and robust foreign reserves offer a foundation for recovery and reinvention.

Our Old Mutual African Frontiers Strategy is built on decades of experience navigating the continent’s complexities. We have consistently delivered returns by identifying undervalued assets and backing businesses that not only generate profit but also contribute meaningfully to Africa’s development. Our exposure to companies like MCB and Phoenix Beverages reflects our confidence in Mauritius’ ability to evolve and in our ability to find growth where others see risk.

Africa’s investment story is layered and dynamic. By staying close to the ground, maintaining a disciplined approach, and leveraging our long-standing track record, we continue to unlock value for our investors while supporting the continent’s long-term progress.