NEWSLETTER No. 1 – December 2009

Zayd Soobedar

Credit Risk Underwriter 31/12/2009

Analysis of the domestic car market

Dear all,

The 2009 year has been a milestone for us with the setting up of

our company, carrying out awareness campaigns in respect of

credit insurance among market players, adapting the product to the

local context and tailoring it for domestic business needs and finally

the issue of our first policy.

This is our first Newsletter and we promise there will be more to

come in 2010. We will cover various topics relating to the domestic

market including economic indicators, sectorial analysis &

performance, amongst others.

2010 will be a challenging year for CGI but the prospects are

bright. The CGI Team is looking forward to challenges and rewards

along with your support.

We take this opportunity to wish you a Happy New Year 2010.

And to conclude, YOU TRADE, WE COVER!

Johan Crabeels

General Manager

(On behalf of the CGI Team)

2

3

Domestic car market

Supply

New cars

Reconditioned cars

DemandMarket

demographics

OUTLOOK OF THE DOMESTIC CAR MARKET

With its stable political and social environment, Mauritius is business friendly country. Over the years, the

number of new car dealers and reconditioned car dealers has thrived. Car taxes, however, are quite high and

this is one of the main reasons why many Mauritians opt for second hand and reconditioned vehicles instead

of new ones. For motorcars of 1600cc or less, the duty rate is 55%, while for motorcars above 1600cc, the

rate is 100%.

Despite the global economic crisis, Mauritius has not been adversely affected and is even expected to post

sound macroeconomic indicators for the current year. As such, for 2009, the Central Statistics Office projects

the domestic economy to grow by 2.5% compared to world output which is expected to decline by 1.1% as

per the IMF World Economic Outlook October 2009 report. The main impact of the crisis on local customers

was on their confidence level, which

resulted in slackened consumption. As per

the Mauritius Vehicle Dealers Association

(MVDA), new car trade has been affected

during 2009, mainly the sub-compact (0-

1250cc) and compact (1251-1600cc)

segments, while the luxury division has

been rather stable. For the period January

to September, around 3,482 new vehicles

were sold, which is 40% lower than the

figures achieved for same period last year.

For the year 2009, total new car sales is expected to stand around 4,500. However, as per recent statistics

and stakeholders’ opinions, the recession is behind and the Mauritian economy is expected to pick up in 2010.

Another important economic factor to take into consideration for the local car market in 2010 is the rising

disposable income of domestic consumers. With the Pay Research Bureau report 2008 detailing an upward

revision in salaries and benefits of public servants coupled with low inflationary tendencies, can be synonymous

to a favourable outlook for car traders next year. In addition, interest rates are low and are not expected to

soar in the short to middle term, thus implying that leasing facilities or bank loans can be contracted for

purchase of motorcars at lower financing charges.

Importantly, there are some drivers in the market that cannot be quantified, but they play a determining role

for the car trade. The Mauritian culture defines wealth and power as indicators of success and influence in

Figure 1: Overview of domestic car market

4

society. Thus, owning a car is often tantamount to a measure of achievement. Apart from just being simple

transportation medium, cars are considered as social tools in the Mauritian culture. It is one of the reasons

why the luxury car sales have been rather stable.

DEMAND SIDE – MARKET DEMOGRAPHICS

Population

As per the Population Census 2000, the population of Mauritius stood at 1,142,955 individuals, of which 49%

were males and 51% females. The distribution of the population by age and sex is given by the population

pyramid (Figure 1).

Latest statistics from the Central Statistics Office (CSO) indicate that the population growth rate for Mauritius

during the period 2000-05 was 0.9% p.a., lower than the estimated world’s population growth rate of 1.2% p.a.

As such, the CSO estimates that the population of Mauritius reached 1,237,286 as at 1st July 2008.

Household

Based on the findings of the Population Census 2000, the number of households in Mauritius amounted to

288,156 with an average household size of 3.9 (same was reviewed downwards to 3.7 in the Household Budget

Survey 2007). As per the Household Budget Survey 2006/07, average monthly household disposable income

amounts to Rs19,083 compared to average monthly consumption expenditure of Rs14,300. The following

graph and table provides breakdown of households in terms of location, average monthly income &

expenditure and household size.

Figure 2: Population distribution by sex and age group (population pyramid)

Figure 3: Breakdown of population by major occupational group

150,000 100,000 50,000 0 50,000 100,000 150,000

0-9

10-14

15-17

18-20

21-24

25-29

30-34

35-44

45-54

55-64

65-74

75+Male

Female

Legislators, senior officials & Managers

3% Professionals3% Technicians and

associate professionals

9%

Clerks9%

Service workers & shop & market sales

workers

14%

Skilled agricultural & fishery workers

3%

Craft & related trades workers

19%

Plant & machine operators & assemblers

18%

Elementary occupations

22%

5

DEMAND SIDE – DRIVERS IN THE MARKET

Driven by psychological factors…

A demand function for cars was modelled to include the price of cars, taxation, exchange rate, fuel prices,

financing options, purchasing power, population and economic growth. The findings of the model revealed

that in terms of measurable items car demand in Mauritius is price driven. The price component is

predominantly influenced by changes in taxes and, surprisingly, in a much lesser extent by exchange rates. It

was interesting to note however that the residual term of the model was very significant. This suggests that

non-observable items such as psychological factors could well be the significant component of demand.

Main details Urban Rural All

regions

Average monthly household

income (Rs)

22,677 16,977 19,083

Average monthly per capita

household income (Rs)

7,027 4,981 5,739

Average monthly household

expenditure (Rs)

16,215 13,174 14,300

Income class (Rs)

Distribution of

household

income (%)

Average

monthly

household

income

Households Income

Average household

size

Average no. of

persons deriving

income per

household

Average monthly

household

income

Average monthly

per capita income

< 2000 0.0 710 3.1 0.5 710 314

2,000 to < 5,000 1.2 3,657 1.8 1.2 3,657 2,530

5,000 to < 7,500 2.9 6,338 2.9 1.4 6,338 2,900

7,500 to < 10,000 5.3 8,787 3.3 1.5 8,787 3,265

10,000 to < 15,000 16.1 12,323 3.7 1.7 12,323 3,875

15,000 to < 20,000 15.2 17,162 3.9 2.0 17,162 5,077

20,000 to < 30,000 21.5 24,200 4.2 2.3 24,200 6,651

30,000 and above 37.8 49,506 4.2 2.4 49,506 13,747

All classes 100.0 19,083 3.7 1.9 19,083 5,739

0

20,000

40,000

60,000

80,000

100,000Pamplemousses

Riv. Du Rempart

Flacq

Grand Port

SavannePlaines Wilhems

Black River

Moka

Port Louis

No. of households

Figure 4: Breakdown of household by location Table 1: Average monthly household income and expenditure

Table 2: Breakdown of household by income and household size

6

0

50

100

150

200

250

300

350

400

450

500

0

20

40

60

80

100

120

1983 1988 1993 1998 2003 2008

Cars

Inde

x

Dep

reci

atio

n In

dex

Rs/U

SD

Depreciation Rs/USD Growth of cars

1. Changes in tax policies

The observed change in growth rate

after a tax reduction is clear evidence

of the fiscal effect on demand and

supports the findings of the model. The

years characterized by duty changes

are 1987, 2001, 2004, 2005 and 2006.

Figure 5 shows the jump in growth

rates following the implementation of

tax cuts. The increase in growth rates

in the period 1987 – 2000 compared to

1980 – 1986 is in marked contrast as

shown in the Table 3.

2. Exchange rates

All the major currencies affecting the

car industry have appreciated vis-à-vis

the Mauritian Rupee during the period

1980-2008. However, according to the

model, the dollar elasticity of demand

is –0.15. It suggests that the

appreciation of the dollar has not

significantly reduced the demand for

cars. Figure 5 shows that while the

Mauritian Rupees lost 138% of its value

against the USD between 1980 and

2008, the number of cars more than

quadrupled. As such, tax cuts and

rising incomes have out-weighted the effect of exchange rate depreciation. Unfortunately, in the absence of a

counterfactual we cannot establish the growth in the number of cars had the Rupee not lost its value.

Arguably, the impact could have been significant.

Growth rates 1980-1986 1987-2000 2001-2004 2004-2008

Car 1.3% 5.5% 10.0% 9.5%

Taxi -2.0% 3.2% 5.2% 0.7%

Dual purpose 4.6% 10.8% 3.2% 3.1%

Total 1.7% 6.9% 7.3% 7.0%

Figure 5: Growth rates in number of cars registered, 1980-2008

Figure 6: Effect on exchange rate depreciation on demand for cars

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Year

Growth in car registered

Table 3: Change in CAGR following tax reforms

7

3. Credit facilities

The leasing market has considerably evolved since the set up of the first leasing company in 1970. Presently,

the market is made up of 13 leasing companies that provide a wide variety of leasing facilities. In 1995, Finlease

Co. Ltd was the first to introduce leasing facilities for the purchase of vehicles, and others followed including

some car dealers. In addition, commercial banks also provide loans for the purchase of cars as an alternative

financing option to leasing. As such, the ever-increasing facilities for the acquisition of a vehicle can contribute

to the level of cars sales and consolidate the growth potential of the car market.

4. Non measurable items

The high significance of the stochastic variable in the model provides evidence that there are other strong

factors that influence Mauritians in their choice of car acquisition. The appetite for cars is real. Mauritians

spend 23% of the household income towards car loan repayments. Given that this amount as a % of income

hardly buys a decent car, then personal savings should make up for the gap. In fact, the lower income segment

is more likely to dispose a disproportionately higher amount of income and savings towards a car purchase.

Psychological factors like status, social and personal aspirations, and emotional aspects that Mauritians attach

to their cars explain this situation. The need for tangible demonstrations of achievement is so prominent that

families contract large debts to make acquisition material belongings. As the Household Budget Survey 2006/07,

46.5% of the surveyed households reported having at least one loan repayment. As such, about 11.6% of

domestic households declared having a motor vehicle (average monthly repayment of Rs4,036).

8

CONSUMER BEHAVIOUR

Based on DCDM Marketing Research’s “Socio-Style de Vie©”, the following gives an overall idea of the various

consumer behaviours.

Characteristics Category

1 2 3 4 5 6

Quality sensitivity Very High Moderate to High Moderate Low Low Low

Price sensitivity Low Low to Moderate Moderate to High High High Low

Elasticity of demand 0<Ed<0.5 0.5<Ed<1 Ed> 1 Ed>1 Ed>1 0<Ed<1

Income group High High Middle Low Low Low

Social grade A, B A, B C1, C2 D, E D, E D,E

Age group 30-40 30-40 30-40 30-40 18-29 Above 40

Ethnicity Caucasian, Chinese

origin

Indian origin Multi-ethnic Multi-ethnic Multi-ethnic Indian origin,

General population

Level of literacy & in

harmony with technology

High High Average Low to average Low Low

Informed choice (aware of

different promotions and products on offer)

Highly aware.

Decision guided by quality

Highly aware.

Decision guided by both price and

quality

Highly aware and

value for money deals

Highly aware and

price is the main driver at the

expense of quality

Moderate awareness Poor awareness

6

4

3

Adaptive to change Wisdom

Conservative Opportunist/Image conscious

Clan

Adventurous Stability

1 2

Mixed

5

9

SUPPLY SIDE: CAR MARKET TRENDS

Evolution in number of cars registered

The number of cars registered

(including private car, taxi and dual

purpose vehicle) has increased by a

compound annual growth rate

(CAGR) of 6.9% over the past 10

years, with the growth of the

private car segment averaging 8.8%

p.a. The upward trend in demand

for cars have been mainly driven by

increasing purchasing power of

Mauritians, rising income, declining

taxes on vehicles over the period,

changing lifestyle and psychological

factors like status, social and

personal aspirations, and emotional aspects.

Tug-of-war between new cars and reconditioned vehicles…

Following the 2001 tax reforms, the market witnessed an outburst of reconditioned car imports at the

expense of the new car market and around 50 licenses were granted to second-hand vehicle dealers in 2002.

The result was a systematic fall in the market share of new cars since 2001.

Year Private Car Growth yoy % Dual purpose

vehicle

Growth yoy % Taxi Growth yoy %

1999 47,987 3.7 32,262 9.3 4,905 3.0

2000 49,872 3.9 34,912 8.2 5,039 2.7

2001 52,764 5.8 36,984 5.9 5,318 5.5

2002 57,506 9.0 38,129 3.1 5,801 9.1

2003 62,545 8.8 39,383 3.3 5,979 3.1

2004 70,860 13.3 40,667 3.3 6,482 8.4

2005 78,020 10.1 42,026 3.3 6,798 4.9

2006 85,051 9.0 43,221 2.8 6,860 0.9

2007 92,885 9.2 44,635 3.3 6,885 0.4

2008 102,566 10.4 46,021 3.1 6,941 0.8

Table 5: Number of car, dual purpose and taxi registered, 1999-2008

Figure 7: Number of taxi, car and dual purpose vehicles registered, 1979-2008

0

40,000

80,000

120,000

160,000

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Nu

mb

er

of

ve

hic

les

Year

Dual purpose vehicle

Car

Taxi

Table 4: Number of car, dual purpose and taxi registered, 1999-2008

10

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000New cars Imported 2nd hand cars

89,823

118,009

155,528163,862

191,769

219,676

2000 2004 2008 2009 Forecast

2012 Forecast

2015 Forecast

Figure 8: Growth in the number of new and reconditioned cars and ratio of new cars to reconditioned cars

However, with the introduction of new duty rates for cars in 2006 (with only 2 duty brackets), sales of new

cars are on the rise again. In 2008, 46% of private cars sold were new compared to only 37% in 2004. As per

the Motor Vehicle Dealers Association, this tendency is expected to persist in coming years, with new the

new car segment projected to forge further its market share.

The growth potential is here…

Based on the past trend in number of cars

registered, we have tried to determine the

growth potential of the sector. As such, we

have forecasted the evolution of the cars

registered over the period 2009 to 2015.

In that line, we expect the number of cars

registered to reach 219,676 in 2015, that is,

1.4 times higher than the number of cars

registered in 2008. This implies that an

average annual growth rate of 5.1% for the

period 2009-2015.

Figure 9: Forecasted evolution of number of cars registered (incl. private car, taxi and dual purpose

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

New cars Imported 2nd hand cars

11

APPENDIX

New vehicle dealers

Car Dearlers Car make

ABC Motors Ltd Alfa Romeo, Nissan, Porsche

Allied Motors Ltd Audi, Volkswagen

Axess Ltd Citroen, Ford, Isuzu, Jaguar, Land Rover, Mazda, Suzuki

Eldomotors Ltd Chevrolet

E.A.L Man Hin & Sons Ltd Honda

Hummer (Mauritius) Ltd Hummer

Iframac Ltd Chery, Chrysler, Jeep, Mercedes, Mitsubishi, Peugeot

IMC Ltd Hyundai

Leal & Co Ltd BMW, Mini, Renault

Magic Motors Lifan

Ring One Ltd Kia

R. Dusmohamud & Co Ltd Perodua, Proton

Toyota Mauritius Ltd Lexus, Toyota

United Motors Ltd GWM

Please note that the above table is not fully exhaustive, but gives an indication of the various brands provided by the main new car dealers

For 1H09, the top 5 car dealers based on sales of vehicles is given below:

Figure 10: Top 5 new car dealers by sale of new vehicles, 1H09

Reconditioned vehicle dealers

Based on latest statistics, there are around 50 businesses operating in this imported 2nd hand vehicle segment.

Most of them are mainly specialised in Japanese vehicles.

139

121

94 9184

Iframac ABC Motors Axess Toyota Leal & Co