The real purchasing power of households will improve this year with the increase in the minimum wage. This should push employees to consume and plan more leisure activities.
Those earning minimum wage will spend more
Low-income people, estimated at 141,700, benefit from a 42.5% increase in the national minimum wage this year. “If the inflation trajectory remains unchanged, this would represent significant support in terms of real purchasing power for households,” says Swan Securities. Given the high propensity to consume among low-income people, Swan Securities estimates that the additional Rs 700 million in monthly salaries will go directly to consumption.
Households will focus more on leisure
With such an influx of household income, Swan Securities says it expects an increase in spending on discretionary products, that is, non-essential products or services. “The expected increase in discretionary spending is expected to boost sales in the leisure and hospitality sector,” adds Swan Securities.
Companies will be able to catch up on price adjustments
The increase in the minimum wage will allow companies to catch up in terms of price adjustments, argues Swan Securities. “This will be an opportunity for companies, which may have delayed any increase in the prices of their goods or services in recent years, to finally revise their selling prices upwards in order to support their margins after a long struggle against the increase in operating costs,” it is argued. To date, continues Swan Securities, construction companies have not yet seen their operating margins return to their pre-pandemic level (8% to 10%), due to increased price monitoring by authorities, which resulted in control of cement prices for example.
Tourism
While the recovery of the tourism industry has mainly benefited high-end service providers, this year could see the recovery of the low-end segments of the accommodation industry, supported by local demand. The increase in room rates is expected to complement the recovery of arrivals to pre-pandemic levels. “In 2024, global tourism is expected to return to pre-pandemic levels, as is Mauritius, where arrivals are expected to reach 1.4 million this year,” underlines Swan Securities.
Arrivals up, workforce down
The downside
The hotel and restaurant sector is expected to reach near full operating capacity in the coming quarters, according to Swan Securities. However, continued tension in the labor market will make it increasingly difficult to maintain an adequate level of efficiency, as around 3,200 employees have not returned to the sector after the pandemic. “This could have a negative impact on customer satisfaction. A first glimpse of this scenario can be observed through the recent operational difficulties encountered by Air Mauritius. Greater reliance on imported labor will likely lead to increased personnel costs, which should however be offset by greater productivity,” notes Swan Securities.
Source: Swan Securities Earnings Digest and Outlook 2024 (report released this week)
