Small island nations Mauritius and Seychelles considered good prospects for foreign direct investment

Partial view of latest 5-star hotel to open in Seychelles an example of foreign direct investment in tourism. Savoy Resort & Spa, opened its doors on Beau Vallon beach on the main island of Mahe in mid- May. (Savoy, facebook page)

(Seychelles News Agency) - According to a new report by the United Nations Conference on Trade and Development (UNCTAD), Seychelles and Mauritius are two of the most attractive small island developing states for foreign direct investment (FDI) due to the competitive advantages they offer to foreign capital.

SIDS which are rich in mineral resources, such as Papua New Guinea, Trinidad and Tobago, and Jamaica as well as those with relatively bigger market size are also considered attractive for FDI, such as Mauritius.

Being geographically isolated and small in size, SIDS are often placed at a disadvantage to supply goods for local consumption and for export. Seychelles’ dependence on imported goods sees a net import rate of around 90 percent, driving up the price of consumables and the cost of living in general. These challenges often make SIDS such as Seychelles less attractive to foreign investors seeking to manufacture or produce consumables.

Although the remoteness and size of many SIDS limit the scope of options for foreign investors, FDI to SIDS as a percentage of their gross domestic product (GDP) is relatively high compared to the rest of the world.

The UNCTAD report assessed FDI in 29 SIDS, noting that many other island nations did not have statistics on FDI readily available, and found that the barriers to investing in SIDS became significantly reduced when “low competitive pressures result in relatively high market shares for market-seeking FDI, mitigating the impact of the small size of the market and making some SIDS – in particular those with relatively high purchasing power –attractive niche destinations for specific services such as retailing, telecommunications, and energy.”

The opportunity to provide services has presented a number of profitable opportunities for investors, and UNCTAD reports that the ratio of FDI inflows to GDP between 2004 and 2013 was almost three times the global average.

The services boom in Seychelles

Seychelles’ strong range of FDI incentives and high potential for earnings in sectors such as construction, tourism and ICT make investing in business ventures on the islands an attractive option, despite its relatively small population, remoteness and lack of natural resources.

Eden Island residential properties (Eden Island Development Company) The Eden Island project being undertaken by Eden Island Development Company (owned by group of shareholders, held through offshore structures representing the interests of South African and Austrian investors) on reclaimed land off the eastern coastline of the main island of Mahé, represents a total investment worth over $ 500 million since construction began in 2005. Eden Island is reportedly expected to contribute over $50 million as Foreign Direct Investment (FDI) to the Seychelles economy in 2014 which would represent up to 42 percent of the islands’ total FDI. Photo License: CC-BY

The report noted that foreign investors have also increasingly been targeting a number of other industries, including offshore business and financial services, which have been extensively developed as a vital sector to support the developing economy of the Seychelles.

Seychelles’ vast Exclusive Economic Zone (EEZ), which encompasses 1.3 million km² of the western Indian Ocean just off the eastern coastline of Africa, is being prospected as a potential source of possible oil reserves. Initial exploration by several multinational oil prospectors in some areas has already begun, and there is potential for further exploration in other, still unexplored areas.

There is also scope for investment in the renewable energy sector as the country seeks to reduce its dependence on imported fossil fuels in an effort to preserving its pristine natural environment. The government is working closely with several donors, including the International Finance Corporation (IFC), the Abu Dhabi Fund for Development, and the United Nations Development Program (UNDP) to facilitate cleaner energy production and energy efficiency investments.

US, Australia and China lead in FDI to SIDS

Although source country data for FDI is not available in Seychelles, the UNCTAD report noted that overall, China is becoming an increasingly large investor to small island states, coming in third after the United States and Australia as the top sources of announced Greenfield FDI projects.

Chinese transnational corporations have put $5 billion in capital expenditures for SIDS between 2003 and 2013, mainly targeting resource-rich Papua New Guinea and Jamaica.

UNCTAD has however warned that while FDI to SIDS target the precise activities that contribute to growth, the environment of the islands are in danger of exploitation at the cost of development, and advise that land and water resources are balanced wisely between tourism, agriculture and other growth sectors as the overdevelopment of any one sector may affect the long-term overall functioning of the economy