Prudential approach as the market is hit by an unprecedented 14% rise in the Construction Price Index

According to Statistics Mauritius, at the end of year 2022, the Gross Fixed Capital Formation (GFCF) of the country had risen by 16%, from Rs 62 Bn in 2021 to Rs 71.5 Bn in 2022. The GFCF is the net addition to the physical assets of the country in a year, such as investment in buildings, plants, machinery and transport equipment, all valued at market prices. In Mauritius, the GFCF associated to Residential Buildings (+26%) increased from Rs 25 Bn to Rs 33.4 Bn. Meanwhile, the GFCF related to Non-Residential buildings rose by only 10%, from Rs 19.7 Bn in 2021 to Rs 21.7 Bn in 2022.

During the year, 7,971 permits were delivered for Residential Buildings (59% for new buildings and 41% for Additions to existing buildings). And a further 533 permits were allocated for Non-residential buildings. However, this latter figure concerned only 448,000 square metres, a -58% decrease from year 2021 where 1.1 M square metres were constructed for 529 permits. This indicates that constructions were more prudential in year 2022, especially for business ventures, while Mauritians preferred investing in their houses.

This trend can be understood by analysing the rise of the Construction Price Index over the 4 previous years. From the baseline of 100 points at the end of Q1 in 2018, the CPI stood at Q4-2018 at 100.5; it slightly increased to 102.6 by Q4 2019; then continued rising slowly to 106.9 by Q4-2020 after then jumping to 119.5 by Q4-2021 to finally reach a staggering 131.1 point by Q4-2022. Since 2009, the percentage change in the yearly average had only risen once to 3.5% in 2012. In 2019, it reached a 3.6% increase; in 2021, it increased again by 7.3% and in 2022, the year-to-year increase spiked at 14%, an unprecedented situation which means a very strenuous crunch in savings and investment capacity for the individuals and corporate organisations.

In this conjuncture, the Construction sector has seen the profit before tax decrease for many stakeholders, including the leading Mauritian Company, The United Basalts Products Ltd (UBP). UBP’s new Chairman, Jean-Claude Béga, comments on the annual financial results, highlighting: “UBP made the voluntary decision to absorb inflationary pressures rather than transfer the burden of high costs onto customers.” As for Stéphane Ulcoq, Group CEO and Executive Director, he explains that Year 2022 is the “Year Zero of a new era of growth” for UBP, with major investments both in Mauritius and abroad. UBP acquired all shares of LafargeHolcim Mauritius into Pre-mixed Concrete Limited (Premix) and increased its shares up to 71.8% in Drymix Ltd. Additionally, it seeks to strategically position itself as a regional actor by exploring vertical venture opportunities in Reunion Island.

Year 2022 cannot be commented without mentioning the exceptional performance of Gamma Civic Group which has a diversified investment portfolio. The Chairman Tommy Ah Teck stated: “Our top-line revenue increased by 24% in 2022 to Rs 5.6 billion, which represents the highest figure ever reported by the Group. (...) Group operating profit amounting to Rs 347 million was higher by 18% whilst contribution from joint ventures and associates of Rs 226 million increased by 56%.” In April 2022, the Group diversified by concluding a strategic investment in LudWin Group SAS (“LudWin”), a French-based company with gaming operations in various African countries. Real estate also supported the overall profits. Tommy Ah Teck mentions: “The pre-contracted sale of seven property units in early 2022 for Rs 180 million allowed us to recognise Rs 48 million of additional profit in 2021.The partial re-investment of the sale proceeds in our first ultra-luxury residential development in the north of Mauritius allowed for incremental profitability of Rs 126 million in 2022.”