After The Honeymoon: Seychelles Economy Vulnerable To External Shocks
Seychelles is the country that hosted Hollywood actor George Clooney and his human rights-lawyer wife, Amal Alamuddin, for their honeymoon in 2014.
The Clooneys may have chosen the Indian Ocean archipelago for their honeymoon after the Seychelles government introduced stronger laws in 2014 to protect the privacy of celebrities seeking a quiet getaway away from media coverage and constant onlookers, otherwise known as paparazzi.
The country is a top 10 honeymoon destination spot, but is not normally a major topic of discussion when talking sub-Saharan African economies.
It is not necessarily a major economy or a diverse one, relying largely on tourism and fisheries. Lack of economic diversification leaves the country vulnerable to external shocks. The recent downturn in the economic fortunes for other sub-Saharan African countries, a slowing global economy, and Brexit are creating an unexpected tropical storm for this ever-sunny patch of islands.
In the eye of a European tropical storm
Economic growth is trending downwards for the small country. At the beginning of the year the International Monetary Fund (IMF) suggested 3 percent-plus growth for the country in 2016 and 2017. Recent data however suggests that growth may fall to about 2.5 percent in 2016 and 1.5 percent in 2017. The dim outlook is strongly correlated to the European economic outlook. As the uncertainty takes hold in the short term in several European economies, Seychelles faces the reality that 90 percent of its domestic exports and more than 60 percent of it tourist arrivals are now more vulnerable.
Seychelles leadership has long known that tourism was susceptible to shocks in the global economy. But when specific exports including food processing took a hit at the end of 2015 and continued into 2016, the country relied on stronger growth in tourism and related industries, including construction and services. Yet the buoyancy provided to economic growth will not be available if Europeans close their check books and hold back their credit card payments in any significant measure.
Balancing the Seychelles account
Spending for growth
Seychelles is following the ways of previously challenged economies, including its British brethren. The leadership introduced fiscal measures, including income tax cuts, higher minimum wages, and pension increases, to spur economic growth and help those struggling in slowing times. The IMF concluded in its review of the country that the proposed measures could be about 3 percent of GDP and recommended that the country implement measures to offset the fiscal pressure of the new spending on inflation and public debt.
Foreign aid to help
The Seychelles short term outlook remains stable due to existing commitments, Seychelles Minister for Foreign Affairs Joel Morgan recently told the National Assembly. But he also added that regional bodies, including the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) which rely on E.U. contribution, will have to review their activities after 2020.
Seychelles leaders are confident that funding by the European Development Fund (EDF), with the U.K. as its third largest contributor, will continue for already-approved projects until 2020.
The Finance Minister Jean Paul Adam has acknowledged that a quick change in budgeting in the midst of slower economic times raises eyebrows at home and abroad. Betting on an uptick and strong Seychelles nationalism, he also says there is little to worry about. Then again, if the Clooneys are flying in to hide out, you cannot exactly stay under the radar. And, at the same time with 90,000 inhabitants for 115 islands, you do not have to go far to rally support and explain your position. Confidence is easily understandable in this situation.
Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at email@example.com