MAURITIUS - DECEMBER ECONOMIC ROUNDUP

UNCLAS SECTION 01 OF 02 PORT LOUIS 000763

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SIPDIS

STATE FOR AF/EPS

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TAGS: ECON ETRD EFIN EAIR EAID EIND EINV SENV MP
SUBJECT: MAURITIUS - DECEMBER ECONOMIC ROUNDUP

REF: PORT LOUIS 761 (NOTAL)

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SUMMARY
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1. Topics in the December Economic Roundup include:

- Increase in Commercial Air Traffic to Mauritius
- Foreign Currency Shortage and the Depreciation of the Rupee
- Bank of Mauritius: New Building and Departure of Governor
- Mauritius Obtains USD 30 Million Loan from the World Bank
- Plans to Create a Land-Based Oceanic Industry
- New Urban Center Planned for Highlands

End summary.

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INCREASE IN COMMERCIAL AIR TRAFFIC TO MAURITIUS
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2. The Government of Mauritius' (GOM's) move towards air access
liberalization has enabled more carriers to fly to Mauritius. The
recent introduction of South African Comair and French Corsair to
the market has increased traffic from South Africa and France. In
2007, air connections between Mauritius and Russia, Italy, India,
and Australia will become more frequent and more varied as more
carriers offer flights and Air Mauritius expands its routes.


3. The GOM, led by the Ministry of Tourism, Leisure, and External
Communication, plans to target the Russian, Italian, Indian, and
Australian tourist markets. Russian airline Transaero will begin
offering a Moscow-Mauritius route, beginning in March 2007. In the
past year, the number of Russians visiting Mauritius has grown more
than 30 percent. Discussions are underway for increased Air
Mauritius routes, including a Rome-Mauritius flight and more
frequent flights between Mauritius and various Australian cities.
Speculation continues as to whether Air India will opt to restart
its service, which it suspended several years ago, to Mauritius. A
2005 bilateral deal foresaw Air India flying New
Delhi-Mauritius-Johannesburg in exchange for Air Mauritius being
allowed to fly to New Delhi and on to Beijing, but neither Mauritian
nor Indian airlines have taken advantage of the deal. While waiting
for Air India's decision, the GOM has considered allowing another
private operator to exploit the India-Mauritius route. The more
open air access policy complements the Ministry of Tourism's aim to
boost tourist arrivals.

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FOREIGN CURRENCY SHORTAGE AND THE DEPRECIATION OF THE RUPEE
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4. The Mauritian rupee fell nearly 9.5 percent against the dollar in

2006. In December, the Mauritian rupee continued to depreciate and
is expected to continue to fall, exacerbating a shortage of foreign
currency on the forex market. The Bank of Mauritius (the Central
Bank) relied on an assortment of tactics, including menacing
statements and arm-twisting, to prevent the market price of the
rupee from adjusting downward and to ensure other banks use the
exchange rates declared by the Bank of Mauritius as the market
rates. As a result, Mauritius saw the development of an unofficial
forex market and strong demand for forex by holders of rupees. A
"creeping dollarization" led some banks, particularly the foreign
ones, to view their rupee deposit base as unstable and thus motivate
them to reduce participation in government securities auctions.
Analysts have called for action by the Bank of Mauritius in order to
restore confidence in the rupe and stop the rupee's slide. On the
interest rae front, the Bank announced that on December 18 th Repo
rate will replace the Lombard rate, which as introduced in 1999,
allowing Mauritius to align itself with developed countries.

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BAN OF MAURITIUS: NEW BUILDING AND DEPARTURE OF GOVEROR
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5. Prime Minister Navin Ramgoolam inaugurated the new Bank of
Mauritius building on December 18. The 22-level "intelligent"
structure towers 98 meters high and incorporates a sophisticated
integrated security system. The building's total cost will reach Rs
1.89 billion (approx. 59 million USD). Mauritian firm General
Construction paired with British company Group Five to complete the
construction, which was designed by Mauritian firm Lampotang and
U.S. firm Loebl Schlossman Hackl. In 2003, Prime Minister

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Ramgoolam, who was then leader of the opposition, contested the
allocation of the construction contract. He alleged the Bank had
favored General Construction to the detriment of India-based Larsen
and Toubro.


6. The Governor of the Bank of Mauritius, Ramesh Basant Roi,
announced to his colleagues December 16 at the annual Bank dinner
that he will leave his post at the end of December 2006, when his
contract is due to expire. Roi has not yet confirmed the news,
stating he will hold a news conference following the opening of the
new building.

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MAURITIUS OBTAINS USD 30 MILLION LOAN FROM THE WORLD BANK
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7. On December 13, the World Bank Board of Executive Directors
approved an International Bank for Reconstruction and Development
(IBRD) loan of USD 30 million to support the GOM with the
implementation of its reform program. The First Trade and
Competitiveness Development Policy Loan (DPL) is the first of three
development policy loans. The loan aims to finance 10 percent of
the current year's budget deficit and to help diversify Mauritius'
debt portfolio, stabilize the economy, raise competitiveness and
growth prospects, and broaden participation. It was prepared
jointly with Mauritius' other key donors, including the European
Union, France, and the African Development Bank. The loan is a fixed
spread loan with repayment over 15 years and includes a five-year
grace period.

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PLANS TO CREATE A LAND-BASED OCEANIC INDUSTRY
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8. Mauritius aims to establish a land-based oceanic industry, which
would consist of the pumping and desalination of deep sea water to
be used for commercial purposes. Uses for the deep-sea water
include: mineral water, air conditioning, aquaculture, pearl
culture, pharmaceutical products, and fitness and health centers.
Arjoon Suddhoo, Director of the Mauritius Research Council and
initiator of the project, cited the example of Hawaii, which now
exports 1.8 million liters of the desalinated water per day.


9. Minister of Finance Rama Sithanen, who believes the industry
could become a pillar of the Mauritian economy, proposed the
establishment of a consortium of promoters comprised of private and
public sector enterprises, including foreign companies. In studies
thus far, Indian expertise was used for collecting the samples while
an Australian lab conducted the tests. Twelve sites have been
identified for pumping the water. Some Rs 200 to Rs 600 (approx. 6
USD to 19 USD) million will be required for the project.

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NEW URBAN CENTER PROPOSED FOR HIGHLANDS
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10. The GOM seeks to transform a site of 400-500 acres of
state-owned land located in the central part of the island near
Highlands into a modern urban growth center and knowledge hub. The
project would include the construction of a new parliament,
government offices, commercial and residential properties, and
learning institutions. The GOM has requested "Expressions of
Interest" from local and international firms, with a deadline of
March 30, 2007. The total project cost is estimated at USD 5
billion. (Note: Tender notice was transmitted in reftel. End
note.)

CABRERA