For most people, the Seychelles islands evoke images of white sand beaches, lush green mountains and turquoise blue seas – an idyllic holiday retreat in the Indian Ocean – and little else.
But this is set to change in the months ahead, as the archipelago builds on its recent successes to come into its own as an investment destination.
Local capital markets are nascent. The Seychelles Securities Exchange, also known as Trop-X, launched in late 2012 and has four listings, two of them local companies. The debut listing, Sacos, a leading insurer previously privatised by the government, has performed well, with shares doubling over the past 12 months. Looking ahead, the leading beverages producer in the Seychelles has already announced its intention to float before year-end, and there is growing speculation that the government will announce partial privatisations of additional state-owned enterprises in the coming months, all of which should help to provide greater depth to the market.
These changes are taking place against a backdrop of forward-looking policy and improving economic conditions. The Seychelles economy has traditionally been highly dependent on tourism and canned tuna, leaving it vulnerable to external shocks, and the global financial crisis hit the country hard. The economy contracted in 2008 and 2009 as visitor numbers from key European markets dropped, necessitating a restructuring of the country’s external debt coupled with assistance from the IMF.
Since then the economy has rebounded, with growth averaging about 5.1 per cent per year in real terms over the past five years. In December 2013, the IMF declared that Seychelles had successfully transitioned to a market-based economy with full employment and a fiscal surplus. This March, the IMF upgraded the country’s growth forecast for this year to 3.5 per cent from 3 per cent. The latest year-to-date visitor arrival numbers show an increase of 18 per cent versus the same period last year to 161,500, well ahead of forecasts. Full-year numbers are expected to comfortably reach a record of 260,000.
Prudent monetary policy and measures enacted by the central bank governor, Caroline Abel, have struck a balance of fostering private credit growth and liquidity in the financial system. That is keeping inflation in check, and restoring gross foreign exchange reserves to a seven-year high equivalent to about four months of imports, providing a buffer against short-term external stresses. The sharp drop in global crude oil prices has been an added benefit to the country’s current account balance, given net oil imports represented about 26 per cent of GDP (at mid-2014 crude prices).
The Republic of Seychelles has been recognised as a global advocate of a strategy championed by its president, James Michel: the development of the Blue Economy, which seeks to harness locally available marine, land and other resources in a responsible, sustainable and connected manner as a mainstay of long-term development. The strategy is being watched with interest by other island and coastal states.
As a prelude, the past few years have witnessed the implementation of projects in renewable energy and social housing, with a number of Abu Dhabi government organisations, such as Masdar, providing technical assistance, and the financial backing of the Abu Dhabi Fund For Development.
Even more eagerly awaited is the soon to be published comprehensive development plan for the capital Victoria and the main island of Mahe, which has been drafted with the technical support of the Abu Dhabi Urban Planning Council. It is the first time such a comprehensive, large-scale urban development plan has been devised for the Seychelles, taking into account considerations such as demographic growth, protection of the environment, efficient use of land for development (half of the main island is a protected reserve) and renewable energy sources. This could herald a period of unprecedented investment across the country’s infrastructure and real estate sectors.
As a highly open and relatively small economy, the Seychelles remains exposed to potential external risks such as a significant downturn in Europe or global financial turbulence impacting the key tourism sector. However, the pace of reforms and economic development of the past few years has been impressive to say the least. At a time when large emerging markets such as China and Nigeria are witnessing downgrades to their growth projections, the Seychelles’s growth outlook stands out, and investors are starting to take notice.
Mohammed Al Hashemi is the executive director of asset management at Invest AD.