Swan Securities Study: Rs 700 Million Wage Boost Fuels Spending Surge

According to a study by Swan Securities: an additional Rs 700 million in monthly wages will go directly to consumption. The real purchasing power of households will improve this year with the increase in the minimum wage. This should encourage employees to spend more and plan more leisure activities.

Those earning the minimum wage will spend more. Low-income earners, estimated at 141,700, will benefit from a 42.5% increase in the national minimum wage this year. “If the trajectory of inflation remains unchanged, this would represent significant support in terms of real purchasing power for households,” says Swan Securities.

Given the high propensity to consume of low-income individuals, Swan Securities estimates that the additional Rs 700 million in monthly wages will go directly to consumption. Households will spend more on leisure. With such an influx of income for households, Swan Securities expects an increase in spending on discretionary products, that is, non-essential products or services. “The expected increase in discretionary spending should 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 on price adjustments, according to Swan Securities. “This will be an opportunity for companies, which may have delayed any price increases for their goods or services in recent years, finally to raise their selling prices to support their margins after a long struggle against rising operating costs,” the report states.

To date, construction companies have not yet seen their operating margins return to pre-pandemic levels (8% to 10%), due to increased price surveillance by the authorities, which has resulted in price controls on cement, for example.

While the recovery of the tourism industry has mainly benefited high-end service providers, this year could see the recovery of the lower-end segments of the accommodation industry, supported by local demand. The increase in room rates should complement the recovery of arrivals to pre-pandemic levels. “In 2024, global tourism is expected to return to pre-pandemic levels, as will Mauritius, where arrivals are expected to reach 1.4 million this year,” notes Swan Securities. Arrivals up, workforce down.

The hospitality and restaurant sector is expected to reach almost full operating capacity in the coming quarters, according to Swan Securities. However, persistent labor market tension will increasingly make it difficult to maintain an adequate level of efficiency, as around 3,200 employees have not re-entered the sector after the pandemic. “This could have a negative impact on customer satisfaction.

A first glimpse of this scenario can be seen through the recent operational difficulties faced by Air Mauritius. Greater dependence on imported labor will likely result in increased personnel costs, which should be offset by increased productivity,” highlights Swan Securities.

Swan Securities Earnings Digest and Outlook 2024

Source: Defi Media