When Mauritius achieved independence some four and a half decades ago its main industry was sugar, which accounted for some 98 per cent of foreign earnings. Today it represents less than four per cent of GDP, while manufacturing (mainly textile and clothing) accounts for 18 per cent, tourism nine per cent, and financial services 15 per cent (of which global business is five per cent).
Its economy has grown in spite of the handicaps arising from its small size, its relative geographic remoteness from its main markets and sources of supplies, and despite having no natural resources. Its development model was based on a foundation that was made up of economic diplomacy on the international front, and continuous public-private sector dialogue domestically with a clear understanding that there will be a social welfare net for the vulnerable groups in terms of free education, healthcare, and old age pensions amongst others.
Economic diplomacy was directed towards ensuring market access for products and services from the island: the Sugar Protocol, which provided a guaranteed price and quantum to the European market, the Lome Convention, which gave access to exports and which catalysed the take-off of the Export Processing Zone (EPZ), the African Growth and Opportunity Act for access to the US market, and 36 Double Taxation Avoidance Treaties to support the development of a financial services industry.
From independence in 1968, however, Mauritius positioned itself squarely in Africa. It leveraged its colonial past and bilingualism to become a member of the now defunct OCAMM (Organisation Commune Africaine, Malgache et Mauricienne), which held a Heads of States Summit on the island in 1973. It also joined the Organisation of African Unity (OAU), which held its Heads of States summit here in 1975. Later it was part of the East African Preferential Trade Area, which became the COMESA (Common Market for Eastern and Southern Africa) and in the 1990s it joined SADC (Southern African Development Community).
In 1995 Mauritius was also one of the seven founder members of the Indian Ocean Rim Initiative, which became the Indian Ocean Rim- Association for Regional Cooperation (IOR-ARC) and now has 19 member states. The secretariat is in Mauritius. Interestingly, the coat of arms of the republic of Mauritius still has the motto: Stella clavisque maris indici (the Star and Key of the Indian Ocean) -this is the main reason it was first colonised. With the opening of the Suez Canal, it lost some of its strategic importance. However, with the advent of new technology and improved communications, its position in the international time zone (GMT+ 4) that allows it to straddle part of business hours in the East and the West, Mauritius has the ambition to be once more the star and key of the Indian Ocean.
The drive to be part of groupings emanates from the recognition that the continued growth and development of the island depends crucially on access to markets. Africa has always been considered as its natural hinterland. But the unstable political situation in Southern Africa, which delayed the economic take-off of the region did not provide the expected pull for the Mauritian economy. In fact, there was a belief that ‘the flying geese model of development’ of the Asian tigers, which had Japan as the lead goose would be replicated in this part of the world; unfortunately this has not materialised – so far! Now, as Africa becomes the centre of attention of the developed world and emerging countries because of its wealth of natural resources, Mauritius is in a strategic position to facilitate cross-border investment into Africa. Why?
Definitely the network of DTAs (the two latest signed with Kenya and Nigeria) and IPPAs does help. More important is the fact that Mauritius can offer integrated services as the ITES/BPO sector is well developed and is servicing global business ( Mauritius was ranked fourth in Africa in The AT Kearney Global Services Location Index, 2011 ). In addition, it ranks well in most competitiveness and doing business indices. The ease of doing business is borne out by the fact that there are 13 international banks in Mauritius today and some 10,000 global business companies, many of them facilitating business into Africa - as the two case studies below demonstrate.
Case Study: Funding for African Agriculture Growth
This case shows how the presence of an international bank (Barclays) in the Mauritius IFC has facilitated the raising of capital for and the financing of an agricultural project that has a funding requirement of over US$1.0bn on a yearly basis.
Barclays’ (BB) client is Africa’s leading entity engaged in the agriculture sector. The customer has benefited from Barclays ‘ONE AFRICA’ strategy, where Barclays Ghana and Barclays Mauritius partnered in providing a solution through a consortium of banks where Barclays Ghana plays a leading role with support from Barclays Mauritius. Each bank has leveraged on its strength showcasing an excellent team work and the capacities of Barclays ‘ONE AFRICA’ network. This co-operation was made possible for two reasons.
The first has to do with country strength. Mauritius being a reputable IFC attracts investors which helps build in the liquidity/treasury base of banks. This muscle (obviously foreign currency – US$ in here) allows the banks to assist in providing financial assistance to such big corporates. The same scenario is applied with various other multinational corporates banking within Barclays’ network.
The second reason is Barclays specific. BB Mauritius is a branch of BB Plc, UK whereas BB Ghana is a subsidiary. Hence, the ‘single borrower’s limit – SBL’ (which is a cap on lending capacity) does not apply here while BB Ghana is limited in its lending capability as it is a subsidiary. BB Mauritius muscle is equivalent to BB Plc London given the branch status. There is an internal arrangement in Barclays whereby BBM and BBG can use their strength to assist customers and keep these same customers within the Barclays network.
Mauritius as a Headquarter Location for Pan-African Firms
As a new era dawns on the African continent, African entrepreneurs with international know-how and expertise are beginning to bring in tailored solutions to real African problems. One such solution has been the introduction of an innovative pre-paid payment solution in seven West African countries to address the needs of a stratum of the population that does not have access to banking facilities. Indeed, the charges imposed to maintain a bank account in a number of African countries by practically all retail banks have made access to banking facilities a reserved of the elite. The solution proposed by the operator enables the transfer of money or payment of utility bills electronically - even if the payee does not have a bank account or bank card or not even a mobile phone. The operation occurs through accredited agents such as the local post-office or shopkeepers which utilise a pre-paid card to enable transactions on behalf of clients. A commission is paid by the client for each transaction, which is shared amongst the agent and the operator.
The operator established its headquarters in Mauritius in February 2011, whilst maintaining operational subsidiaries in most of the countries in which it is operating. The choice of Mauritius has been motivated by the fact that the island nation provides an eco-system conducive for business structuring, professional services and technology-enabled development and deployment. As one of the most prominent International Financial Centres of Africa, Mauritius offers tax-efficiency coupled with access to international banks, law firms and accounting and audit practices. As one of the leading outsourcing destination in Africa, Mauritius enables the provision of shared services in a cost effective, process optimised manner by bilingual (French / English) professionals.
The operator headquarters is organised as a group of companies engaged in the following activities in Mauritius:
Mauritius is well connected to Africa through the SAFE , LION and EaSSy Cables. The operator has decided to take advantage of this and to further enhancing its operations in Mauritius through hosting of its main servers in a data centre in Mauritius. All point of sale terminals are connected to these central servers, thus ensuring accessibility, reliability, security and stability of operations.
The group runs its back-office and reconciliation activities in Mauritius. This enables invoicing and billing of clients in a timely manner. The availability of bilingual professionals is a major advantage which allows the group to manage a central billing centre for both English and French speaking Africa.
Mauritius offers a good platform for central treasury management. First and foremost, there is no exchange control on foreign exchange on both entry and exit. Banks offer the ability to effectively manage sub-accounts in practically all hard currencies from a single main account. This allows the group to maintain its revenue in dollars and euros thus considerably reducing the risk of exchange rate fluctuations.
Relocation of Key Personnel
Mauritius allows professionals to be work and reside on the island through a single occupational permit. This is delivered in an expeditious manner with minimum administrative burden. The group has relocated its key personnel for the development and maintenance of its technology platform in Mauritius.
IT Applications Development
The group has an office in Mauritius which acts as a development centre for the technology platform. The latter is structured in a separate global business company such that it can effectively be marketed as a product in its own right.
Holding of the Intellectual Property Rights
Mauritius currently has the appropriate legal framework, which allows a business idea and concept to be protected. The model adopted is a central registration of the Intellectual Property which could be effectively licensed as royalties to other operators in Africa.
Employment of Staff and Wealth Management
Given that the group operates in many countries at once and employs staff who have to roam from one country to for operational and marketing purposes, all employment contracts are emitted by the holding company in Mauritius. A split contract arrangement allows salaries to be paid in the countries of operation as well as the bank accounts of the employees in Mauritius. The staff therefore have sophisticated instruments in the financial centre of Mauritius to manage their wealth. The payroll is run centrally in Mauritius avoiding single granular operations in each country of operations.
Signing of Partners
The group recently signed a contract with a leading Point of Sale (PoS) manufacturer. The contract enables the deployment of PoS in many more markets in Africa without capital investment from the group and with a revenue sharing mechanism thereafter. By signing the contract from the Mauritius companies, the group ensures that the laws of Mauritius become applicable. The hybrid legal framework of British Common Law and French Code Civile in force in Mauritius, ensures that the contract will be valid in all African countries. Furthermore, Mauritius is now a place for international arbitration with a dedicated international arbitration centre. Any dispute during the course of the engagement of the two parties can be effectively resolved in Mauritius in a very cost efficient manner.
Sales and Contract Execution
The group signs its contracts with its accredited agents through a global business company in Mauritius. By doing so, the group effectively is liable to a maximum corporate tax rate of three per cent. The fact that the operations are in several countries means that the contracts need to be managed in a central location. Centralisation of the sales, marketing, and contracts management operation in Mauritius enables the group to recognise its revenue in Mauritius and thus benefit from very efficient taxation. The retained earnings resulting from this consolidation process allows the group to envisage expansion in other African countries.
Corporate and Project Financing
As part of its vision to become a pan-African operator, the group is constantly looking for additional financing and investors. Private equity investors find it proper to enter at the Mauritius holding level. The company law in Mauritius enables easy allocation of different types of shares to additional investors. The financial operating system in Mauritius also enables efficient and tax free exit of the investors whenever the time is proper.
The operator has structured its investment in various subsidiaries through Global Business Companies in Mauritius. This provides a number of fiscal advantages in view of the fact that there is no capital gains tax and no taxes on dividend distribution in Mauritius. Thus at the time of partial or full exit of the shareholder(s) from the company, there will be full exemption on capital gains irrespective of the value created in the company.
Nikhil Treebhoohun CEO, Global Finance, Mauritius