Seychelles: Seychelles Economy Profile

Overview

After the collapse of the economy, which saw GDP growth drop from 10.4% in 2007 to -2.1% in 2008, Seychelles’ growth turned positive, averaging 2.7% per year. In 2013, the economy rebounded further, with real GDP growth estimated at 3.5%, up from 2.8% in 2012. Higher growth was due to tourism with a 10% increase in tourist arrivals as the country diversified its markets beyond Europe to new markets in Asia, Eastern Europe and Africa.

Robust tourist earnings also led to a reduction in the current account deficit to 20.5% of GDP in 2013 from 24.7% in 2012. FDI inflows increased in 2013, largely in the construction sector, which also had a positive impact on growth. Private sector consumption continued to be the main driver of growth. Inflationary pressures that had plagued the country in 2012 abated in 2013 as international food and fuel prices steadied. This led to a reduction in inflation to an average of 4.4% in 2013 compared to 7.1% in 2012. The weakened demand also led to a slight appreciation of the Seychelles Rupee (SCR) in 2013.

Five years since the commencement of broad economic reforms, the government has maintained a consistent policy framework. In December 2013, the country successfully concluded the International Monetary Fund (IMF) programme that underpinned these reforms, the Extended Fund Facility (EFF) signed in 2008. The government has continued its robust fiscal consolidation in line with its objective to reduce public debt to 50% of GDP by 2018. This translated into a debt decrease from 150% of GDP in 2008 to 70% in 2013. In addition, the country experienced a primary fiscal surplus of over 5% of GDP from 2010 to 2013. At the same time, the monetary policy stance has been successful in stabilising inflation at low levels and in building up international reserves.

Going forward, the government will focus on completing regulatory reforms that are underway to improve the business environment, address access to finance and increase Seychellois’ participation in the main economic sectors. This means more opportunities for local private sector investment especially in fisheries and tourism. This should also create more local employment.

In 2013, the government designed its first Public Sector Investment Plan (PSIP) to guide public investments and was mid-way in implementing its Public Financial Management (PFM) action plan that aims at enhancing value for money in government expenditure. Tourism (the main employer) and fisheries (the main foreign exchange earner) will continue to be the main drivers of growth in the foreseeable future.

Seychelles’ success in benefiting from global value chains is limited by its small (semi-skilled) population, insufficient land, small market size and limited natural resources. Consequently, regional integration is seen as an important factor towards increasing such opportunities for the country. In addition, the government’s conducive policies towards attracting more investment are seen as key enablers.

• Seychelles’ GDP growth increased to about 3.5% in 2013 (up from 2.8%) and is expected to be above 3.5% in 2014 and 2015 due largely to a rebound in the tourism sector that has seen a 10% rise in tourist numbers.
• In 2013, the country marked five years since the commencement of comprehensive economic reforms that have achieved economic stabilisation, debt reduction, liberalisation and public sector restructuring but challenges remain going forward: to make economic growth more inclusive, generate more local employment and unlock constraints for the private sector.
• Ranked 1st in terms of human development in Africa, the Seychelles has met most of the Millennium Development Goals (MDGs) and is looking forward to the development of a Post-2015 agenda that better integrates issues relevant to Small Island Developing States (SIDS).

Recent Developments & Prospects

In 2012, the Seychelles’ real GDP increase slowed further to an estimated 2.8%, from 5% in 2011. Despite this, the performance was positive considering the uncertain world environment on which Seychelles’ economy depends heavily. Exogenous factors such as reduced FDI and increased world food and fuel prices affected the economic fundamentals in 2012. These led part other things to exchange rate pressures and depreciation of the rupee for the initial half of 2012 and a rise in inflation to over 9% by mid-year, the highest in over 4 years. Though end of year inflation fell back to 7.1% (largely as a result of Government intervention in the money market) it was significantly higher than the end of year rate of 2011.  While the government intends to limit intervening in the money market in order to reduce exchange rate fluctuations, efforts will be made to ensure that inflation falls further. Inflation is estimated to reduce to 4.4% in 2013 and further down to 3.9 % in 2014. GDP is expected to increase slightly to 3.2 % in 2013 and 4.3% in 2014, as the economy diversifies further and domestic request rises again as inflationary pressures fall. However, due to the country’s high reliance on imports, the current account deficit is expected to increase further to 28.4% of GDP in 2013 and -29.2% of GDP in 2014.

The country continued to implement broad reforms in 2012, as agreed under the IMF-backed Extended Fund Facility (EFF) programme. The government maintained a fiscal policy (a primary fiscal surplus of about 6.7% of GDP, above initial targeted level) in line with its objectives of public deficit reduction to a deficit to GDP ratio of 50% by 2018. The government aims to continue to be in surplus in 2013 and 2014. Due to increased borrowing on the domestic market (in an effort to assist monetary policy) and the restructuring of some public enterprises,² the end of year deficit stock increased from the previous years’ levels and ended at 84% of GDP, not far from the IMF programme estimate of 82% by end year 2012.

The services sector, led by tourism, continues to be significant to the economy in terms of its contribution to employment, which stands at 22% of formal employment, and of its contribution to GDP, representing 20% in 2011. The sector as well contributes significantly to foreign exchange earnings. Despite the continued financial crisis in Europe, which accounted for 75% of visitors to Seychelles, the sector showed some resilience in 2012 and number of visitors grew by about 8% in 2012 driven by an increase in arrivals, particularly from non-traditional markets such as Asia, Eastern Europe and Africa. The sector is expected to grow by 3% in 2013 as new tourist markets are explored further and will continue to be the major driver of increase in 2013-14.

The highest increase in 2011 was in the construction sector, which grew by 27.7% and accounted for 12% of employment and 7.3% of GDP in 2011. This increase was largely driven by increased FDI to finance the construction of hotels. Someday, it is expected that GDP increase will be supported by the rise in other services sectors, such as data and communications which grew by 13% in 2011, and financial services which grew by 8% in 2011. These sub-sectors contributed approximately 14.3% of employment and 8.3% of GDP and are expected to grow further, particularly as a result of the completion of the undersea optic-fibre cable linking the island to Tanzania in August 2012. This is likely to reduce data costs and increase service provision and development of financial products. Other potential sectors for next increase include real estate as additional private housing is built on reclaimed land. While the manufacturing sector is not at its peak, having suffered a massive decline in 2008 and 2009 (following the international crisis and as the country began to liberalise its economy) the sector has seen a steady resurgence, largely driven by new local investment in the manufacture of beverages, largely spirits. In addition, fisheries, which accounted for approximately 11% of formal employment and contributed 0.9% of GDP in 2011, experienced a increase of 7.7%, up from -13.7% in 2010. Evolution in combating piracy in the region; as well led to an increase in the artisanal fish catch (mainly for domestic consumption) by 10.79%, but this is still below pre-2009 levels. Nevertheless, the sector accounted for 33% of current account receipts and approximately 85% of export receipts the same year.

In 2013 GDP increase is expected to increase slightly to 3.2%, as the country continues to pursue consistent economic policies, new infrastructure developments come on stream (e.g. new wind farms and hotels) and private spending increases, marginally, on the back of reduced inflationary pressures. In 2014, GDP increase is expected to be 4.3%, as infrastructure development slows down but before results from efforts undertaken to diversify the economy, strengthen spending fundamentals, improve service provision and improve business environment begin to bear fruit.

The government has continued to undertake economic reforms focused on improving public finance, such as through the enactment of the Public Finance Management (PFM) Act in 2012; development in the trade environment through reforms to customs government, which would lead to the country’s migration to the Automated System for Customs Data (ASYCUDA) in early 2013. Work was as well underway on improving the regulatory environment for public-private partnerships and public sector investment ; this should be completed in 2013. Actions were as well taken to improve the business environment through reforms in licensing, investment and business promotion and addressing access to finance.

The government is currently finalising the development of a National Development Plan, which supersedes the previous plan, “Seychelles 2017”. The government as well intends to formulate a public ­sector investment plan (PSIP) in 2013 to provide better guidance and data on investment priorities from 2014 onwards.

Macroeconomic Policy

Economic & Political Governance

The business environment in Seychelles is challenging. Seychelles stands at 117 in the ranking of 183 nations for the relieve of starting a business according to the World Bank statement Doing Business 2013; closer to the regional SSA average of 123 but much lower ranking than its Indian Ocean Commission neighbours Mauritius (15) and Madagascar (20). While the cost (% of gain per capita) has reduced over the years, the number of procedures and the time taken to open a business failed to improve significantly. Apart from the difficulty in accessing credit, the other most problematic factors identified are the tax rates, government bureaucracy and restrictive labour regulations. The World Bank statement Doing Business 2013 as well identifies bottlenecks in the time needed for dealing with construction permits and accessing the electricity supply. In addition infrastructural deficiencies, such as access to communications, inadequate water supply and expensive energy, challenge the private-sector environment.

Recognising the challenges that the country faces, the government of Seychelles set up a High-Level Committee on Doing Business in 2012, whose objective is to address some of the challenges being faced in company registration, payment of taxes and obtaining construction permits. In order to improve the business climate and bolster investor confidence, the government as well established a Commercial Court in March 2012, within the Supreme Court Civil Division, which will focus on cases of a commercial nature thereby reducing the time required to resolve commercial disputes. Additionally, evolution has been made with regard to registering businesses by introduction of online registration which provides a tax identification number (TIN). The requirement for a notary to sign documents for the creation of a company has been removed, an online import and export application system introduced, and the application for work permits streamlined.

The IMF Financial Access Survey (FAS) 2011 showed that while financial services are widely available in Seychelles with an average of 37.21 commercial banks per a hundred thousand adults (compared to 22 in Mauritius) access to finance is not as readily available. This is seen in the disparity between outstanding loans from commercial banks, which stood at 36.23% of GDP, while outstanding deposits with commercial banks stood at 112.31% of GDP. Furthermore, deposit accounts with commercial banks per thousand adults were 1373.52 while loan accounts with commercial banks per thousand adults stood at 173.93. In addition the Doing Business indicators show that the country’s ranking in the relieve of getting credit at 166 out of 183 is lower than the SSA region average of 110. As a result of this challenge, the government approved policies regulating credit sale and hire-purchase in May 2012. In addition, financial leasing policies were to be reviewed at the end of 2012. It is expected that Acts regulating these sectors will be passed in 2013.

The financial sector is dominated by seven banks (mostly foreign), 25 bureaux de change, four domestic insurance companies, five non-domestic insurance companies plus the Seychelles Credit Union, Development Bank of Seychelles and the Housing Finance Company. The two major banks account for around 69.5% of the industry’s total assets. Whilst the government has a majority shareholding in two of the banks, the remaining five are owned by foreign entities. Three of the foreign-owned banks are incorporated in the country and are subsidiaries, while the other two are branches. Indications of a lack of competition in the country’s banking sector include: a high liquidity ratio of 51.35% as at the end of November 2012, while the regulatory requirement for the ratio is 20%; a low private-sector credit to GDP ratio; a large spread between lending and savings rates and difficult terms and conditions for accessing credit. The introduction of the single licensing regime with the amendment of the Financial Institutions Act 2004 in December 2011 has however attracted potential entrants in the banking sector. In December 2012, the insurance market in Seychelles consisted of four domestic insurance companies, five non-domestic insurance companies and 50 insurance intermediaries. The government has a majority stake in two of the four domestic insurance companies whilst the remaining two are owned by local private shareholders and foreign partners. Currently only life assurance is available locally in the long-term insurance category. A number of classes are provided under the general insurance category. The insurance sector has recently sought to introduce new products, with the new being health insurance in 2011. There is currently one Pension Fund in Seychelles, which is under the authority of the Ministry of Finance, Trade and Investment . The Stock Exchange was licensed and became operational in 2012 and is regulated by the Seychelles International Business Authority.

The amendment of the Financial Institutions Act in 2011 aimed at improving competition and transparency in the sector by introducing single licensing regimes, strengthening prudential standards and instituting remedial measures. The FIA as well lead to the creation of a Credit Data System (CIS), which will improve credit data. In 2012, a new housing finance policy was implemented. Under this, government aims to work closely with financial institutions to encourage additional active participation in providing finance to the housing sector. In addition to this the government provided further resources in 2012, to the Housing Finance Company, to enable individuals with salaries less than SCR 8 000 per year access to low interest loans. The government of Seychelles as well re-organised the Development Bank of Seychelles, incorporating it as a company in April 2012, under the new Companies Act. The new mandate will be to focus on small and medium-sized enterprises (SMEs) and limit the size of individual loans to SCR 2 million. In addition, a complementary new financing agency is being set up to facilitate micro businesses’ access to credit by improving their capacity. In 2013 a new Financial Services Commission (FSC) bill will become operational, which will regulate the non-bank financial institutions, inclunding insurance.

The Department of Public Government (DPA), which is mandated by the President, under article 70 of the Constitution, is responsible for the development and government of an efficient and effective public service. Although improvements in public management have been recognised, according to the Mo Ibrahim African Governance statement, the area has one of the weakest governance indicators. The country ranks 30^th out of 52 nations in public management in 2012 (its lowest sub-category rank — up by 8 places from 2011 score). One of the areas that the DPA is currently undertaking to improve further public-service efficiency is the public-sector fee review. The major outputs will be a new, integrated, 20-Grade fee structure (for universal application within the Seychelles public services), a revised Job Evaluation Plan, a revised Schemes of Service and revised Public Service Orders. The current Public Service Orders were drafted in 2003.

Government inefficiency and bureaucracy are part the areas identified by the private sector as a hindrance to doing business in Seychelles, according to the Global Competitiveness Statement 2013. However government regulation and transparency were one of the higher-ranking areas in the domain of institutional strengths, at 18 and 37 place out of 144 nations respectively, in the same statement. This is as well confirmed by the World Wide Governance Indicators that place Seychelles in the top 62% of nations for government effectiveness. The national development strategy, “Seychelles 2017”, recognises the need to provide an efficient and transparent service through government restructuring and development of service delivery through technological innovation. The United Nations ranked Seychelles initial for e-government development in the Africa region in 2012. According to the UN statement on the survey, in 2012 Seychelles undertook further consolidation of infrastructure and its e-government development. Major improvements in government data systems, infrastructure, and integration of thematic services in finance, health, and a lot of other sectors have allowed it to improve its world ranking. It is as well noted that the government of Seychelles took the initiative to enhance its e-government service in line with an integrated and interdependent strategic approach, which focuses on data communication technology (ICT) infrastructure, government data systems, legal framework, and human resource development, to improve the efficiency in delivery of government services.

A Public Finance Management (PFM) performance statement was published for Seychelles in 2011. The statement, which underpinned the result of the 2008 Public spending and Financial Accountability (PEFA) assessment, found some weaknesses with regard to PFM. Recognising the need to improve the framework, government is in the process of developing a PFM Action Plan 2012-14 to improve government efficiency, transparency and accountability in public finance. A new Public Finance Management Act 2012 (improving the PFM bill 2011) was passed by Parliament in late 2012, aimed at harmonising budgetary exercises, improving efficiency, ensuring budget discipline inclunding better accountability in the manner that government funds are spent. As part of the reform efforts, the government as well began developing a policy document in 2012, to guide the country’s move towards Programme Based Budgeting. The 2013 budget as well saw the introduction of a three-year fiscal framework to support the introduction of the Public Sector Investment Programme (PSIP).

Seychelles is an archipelago of 115 islands in the Indian Ocean. The government recognises the fragility of the islands (particularly following the December 2004 tsunami) and thus provides resources to protect their ecosystems. As of 2010, 50% of the land was protected. The country has ratified several international and regional conventions with regard to natural-resources management and the protection of bio-diversity, fauna and flora and the ozone layer. The country as well has two sites listed by UNESCO; they are the Vallée de Mai of Praslin and the Aldabra Atoll. Next successful implementation of two Environmental Management Plans (1997-2010), the government launched the Seychelles Sustainable Development Strategy (SSDS) 2011-20 in March 2012. The new sustainable development strategy is comprehensive and overarching, providing a clear roadmap towards a Seychelles where environmental integrity, social equity and economic increase are in tune with each other. While the strategy provides for a robust and comprehensive plan for achieving sustainable increase in a wide range of sectors, it as well highlights the measures required to maintain the balance between ecology and development. The Vision of the SSDS is to realise a knowledge-led and innovation-driven approach to sustainable development that balances the quality of life with the need to conserve the integrity and potential of the Seychelles’ natural environment for all generations. In order to implement the strategy, the government will establish a multi-stakeholder council that will oversee the policy guidance. In 2012 the government made provisions for the initial Command Centre for the Department of Risk and Disaster Management. The aim of the centre is to enable better co-ordination of rescue operations and emergencies arising from natural disasters. In 2012, the government provided resources towards a new fund, the Natural Disaster Fund, the aim of which is to carry out rehabilitation that may be required as a result of natural calamities. The country has met the MDG goal (7) on ensuring environmental sustainability.

Presidential and parliamentary elections were held in 2011. The incumbent President James Michel, from the People’s Party (as well known as “Parti Lepep”) was re-elected for a second five-year term claiming 55% of the national vote. In the Parliamentary elections later that year, the People’s Party claimed a resounding victory, largely as a result of a boycott by the two major opposition groups – the Seychelles National Party and the smaller New Democratic Party. With the People’s Party having won both the Presidential and Parliamentary election, Seychelles is not scheduled to hold elections until 2016.

Social Context & Human Development

In Seychelles education is free and compulsory for 10 years, or up to the age of 16. The government provides various benefits for post-secondary school students inclunding transport subsidies and allowances. As a result, Seychelles has completed MDG 2 for a lot of years, with a near 100% primary completion rate and about a 94% secondary school enrolment. There are however, concerns about the quality of education and the pass rates at secondary and tertiary levels. Furthermore there is a 10% differential in secondary school-enrolment rates in favour of girls, as a lot of boys drop out of secondary and tertiary school as a result of social problems. Nevertheless, universal access to education is close to 100% while adult literacy rates are high at 96%. In late 2011, Seychelles adopted a National Framework for Early Childhood Care and Education (ECCE). The country is a signatory to international conventions on children’s rights and the proposed framework would seek to improve the quality of education and care provided for children aged 0 to 7 years (which is 14.7% of the people). The ECCE programme will provide a variety of services in the areas of education, health, nutrition, protection of vulnerable children. Following the establishment of this framework, the government provided SCR 1 million to the ECCE Trust Fund in the 2012 budget. The government has an adult training programme — Adult Learning and Distance Education Centre (ALDEC) — which aims to provide adults and out-of-school youths with an education that complements the formal schooling. The programme is aimed at equipping the people with relevant post-secondary skills. In addition, there are 8 institutions providing tertiary education in Seychelles. In 2012, the country’s only University saw its initial graduates⁴.  Despite the availability of the technical and training institutions, an inadequate supply of educated labour is one of the challenges identified by the private sector.

The Government of Seychelles is the principle health-care provider and continues to spend significant budgetary resources in the sector. As a result, the country has met the MDG goals 4 and 5 (reductions in infant mortality and maternal mortality). In addition, life expectancy rates are high at 73 years in 2010, as are the Human Development Index (at 0.773 in 2011, compared to the SSA average of 0.463). However, some areas of concern that remain in the provision of health care are the control of non-communicable diseases (NCDs), related to unhealthy lifestyles, such as diabetes, cardiovascular problems and substance abuse. This is as well seen in the areas of HIV/AIDs. The MDG 2010 statement, noted that while there is 100% access to anti-retrovirals (ARVs) for people with HIV, the incidence rates show that the disease has spread, largely as a result of drug abuse and the use of soiled syringes. According to the World Aids Response Country statement (2012), Seychelles has recently developed a new policy on HIV/AIDS and sexually transmitted infections (STIs) (2011) and adopted a National Strategic Framework (2012-2016), to ensure the comprehensive, co-ordinated and coherent design of programmes.

Over the completed two decades Seychelles has successfully promoted high living standards and social development. In Africa, Seychelles had the second highest GDP per capita (next Equatorial Guinea, which is an oil exporter) in 2010. Thus, it is one of nine upper-middle-gain nations, and leads in human development. On the Human Development Index (HDI), it was ranked 57^th in the UNDP’s Human Development Statement of 2009, a level comparable to a lot of OECD nations.

The MDGs statement 2010 notes that while abject visible poverty does not exist in Seychelles, there are still pockets of poverty. While the country has a poverty food line of USD 3 per day, which is above the World Bank line, it does not have a national poverty line for measuring poverty. Recognising the change in economic environment post financial crisis in 2008, the Government of Seychelles with support of the UN decided to undertake a living-conditions survey in 2011 to assess the impact of the 2008 macro-economic reform programme on the majority vulnerable groups in society and to support the establishment of a system to better target welfare help. The survey will be the basis for establishing the poverty line and profile in preparation for the poverty-monitoring system. Preliminary findings were discussed in August 2012. The workshop aimed at reviewing the results of ongoing work being carried out by the National Bureau of Statistics and the Social Protection Agency. Work on the agreement of the poverty line is still ongoing, however it was proposed to use an gain measure of poverty rather than a consumption-based measure.

According to the Social Protection Agency, the number of households seeking welfare assistance additional than doubled over the completed two years, as the impacts of the reforms have been increasingly felt by poorer households and vulnerable groups, particularly female-headed households. As of January 2012, the agency catered for 18 000 people (approximately 20% of the people) through payment of various benefits from government, of whom 6 000 were on welfare. However, government is implementing a programme to assist the beneficiaries in finding employment, so as to reduce benefits payable.

The government remains committed to the provision of adequate resources towards social sector and social welfare programmes – mainly in health, education, social services, housing, community development, social programmes of central Government, benefits and approved programmes of the Social Security Fund (SSF), and transfers to public entities fulfilling social functions. Furthermore government undertook a comprehensive review of welfare payments in 2012 to align them to increases in living costs (food, fuel and utility prices).

In 2012 the allocation to social programmes and SSF was approximately 15% of the budget, while allocations to health and education were approximately 22% of the budget.

The Constitution promotes non-discrimination and guarantees equal rights and protection for both men and women. The country has as well signed and ratified the principal conventions related to gender discrimination, such as the Convention on all Forms of Discrimination against Women (CEDAW), the African Union Protocol, the SADC Declaration on Gender and Development and the IOC Gender Policy. As a result, access to human capital opportunities are provided to both women and men. However, while women are active in all walks of life, they tend to be less visible at higher levels of political power. Nevertheless, there have been improvements in some areas. For example the country had 44% of women parliamentarians in 2012, compared to 24% in 2010. In addition, while statistics show that there were fewer women ministers (less than a third), there were additional women heading local government and directors, in 2010. Despite this evolution, women generally earn less than men. National employment statistics (2011) show that there are additional women employed in government than men (63%), while there were fewer women than men in parastatals (38%). The statistics as well showed that parastatals had average higher monthly earnings (SCR 10 907/ USD 830) than government (SCR 8094/ USD 613).

In addition, although it is authentic that tremendous steps have been made in conference the basic practical needs of everyone and providing equality in the public sphere to women, men, girls and boys, such as equal access to free education, equal access to free health care services, the right to vote, the right to own land and property, and full economic participation of women in the labour market, certain gender-related problems still persist, such as domestic violence; risky sexual behaviour; alcohol and substance abuse; gender stereotyping in schools; gender stereotyping in the labour market, etc. This is because equality in higher strategic needs has not from presently on been completed between the genders. Thus, although the situation of women has changed with respect to economic activity and education, their social position has not from presently on improved. A symptom of this is the high prevalence of domestic violence, even amongst highly educated and wealthy women; 92% of gender-based violence (GBV) cases affect women. As a result the country developed a National Action Plan (2010-2011) to address GBV.