Financial ExpertSpeak: Mauritius must have dedicated financial promotion agency
Assad Abdullatiff, Managing Director, AXIS Fiduciary, highlighted that the reopening of the financial promotion agency is essential to strengthen Mauritius’ position as a regional finance centre and attract global businesses to the island economy. (Image: Company)
Assad Abdullatiff, Managing Director, AXIS Fiduciary, shared his views with AfricaMoney on the vast potential that Mauritius offers as a regional financial centre. Our financial expert commented on the enormous investment opportunities present in Africa together with the benefits that Mauritius inherently offers to attract global businesses. Moreover, he highlighted that the reopening of the financial promotion agency is essential for the growth of this sector.
Edited excerpts from an exclusive interview:
Mauritius aims to consolidate its position as an offshore financial center. How far has Mauritius come in this ambitious journey?
To start with, I would like to say that Mauritius should not be described as an offshore financial centre but rather a Regional Financial Centre since an Offshore Centre is typically one where there is no substance. Compared to other jurisdictions, Mauritius has always promoted economic substance in the conduct of global business.
Mauritius’ established itself as an international financial centre in 1989 and today the sector contributes more than 10% toward GDP and employs around 13,000 people. There are approximately 20,000 global business incorporated in Mauritius and 900 global funds registered here. We have therefore come a long way from our very humble beginnings.
‘Tax haven’ is the motto that has been and is being used to attract offshore activities to Mauritius. Do you consider that Mauritius offers benefits other than just taxation? What better marketing methods should Mauritius use to promote itself on the international front?
Mauritius is not a tax haven and has never been one, and it is unfortunate that an amalgam is made between a jurisdiction that offers legitimate tax planning opportunities (amongst other benefits) and a tax haven. One of the main features of “tax havens” is where one which has a system of financial secrecy in place. This does not apply to Mauritius which is a financial services centre of substance providing international clients with a safe and business friendly platform to conduct international business. The ability to mitigate taxation in a legitimate way (tax planning) is one of many benefits that the jurisdiction provides to international clients. This has to be distinguished from tax evasion which is unlawful. Tax avoidance is lawful and this is achieved (amongst others) through the use of Double Taxation Avoidance Treaties (DTAs). The ability to use DTAs to mitigate the effects of double taxation and to minimize the tax burden of an investor has been instrumental in the development of our financial centre. However, there are also a number of other benefits that Mauritius provides apart from tax. Mauritius has a very good reputation internationally and has never been black or grey-listed. The OECD has recently provided a rating of “Very Compliant” to Mauritius further to their peer review exercise. The country has sophisticated financial infrastructure, good bilingual human resource capabilities, a very good and legal system with the privy council being the highest court of appeal, and it has recently also become an important seat for arbitration of disputes. Having said that, where we need to improve is on the way in which we market Mauritius internationally. Whilst we have done extremely well in marketing Mauritius as a tourist destination, we have underperformed when it comes to showcasing all that Mauritius has to offer as a regional financial centre. Other jurisdictions such as Jersey, Dubai or Singapore have done much better.
Which sector of the economy has the greatest potential for attracting global businesses to Mauritius?
The investment cluster must be exploited as an area of focus within the wider economy. Cross border investments present inherent challenges and risks including but not limited to Investment Protection issues, Legal & fiscal uncertainty, Fund repatriation limitations, Political and Social situation. An investment in an emerging market whilst paving the way for increased returns also drastically increases those risks and challenges. The structuring of cross border investments thus requires careful consideration of the most appropriate investment vehicle to structure the investment together with the choice of the most favorable jurisdiction to invest from. This is where Mauritius fits in, offering the full suite of financial products, professional services and the inherent features of the jurisdiction to enable investors to manage those risks. Additionally as Africa’s HNW and UHNW population continues to grow at a rapid pace, issues of wealth preservation and succession planning are starting to be considered by the African HNWIs and the UHNWIs. Mauritius has also a lot to offer in the context of private wealth management services, which is an area of tremendous potential but is currently not well exploited.
To what extent does Mauritius have the expertise, infrastructure and technology to meet the requirement of global businesses in the country?
Mauritius has everything that a financial centre requires to meet the exigencies of global businesses. In terms of expertise, the country boasts a well-educated and bilingual workforce rivalling European and Western jurisdictions in competence — including lawyers, accountants, chartered secretaries, asset managers and trust and estate practitioners amongst others. Mauritius has excellent infrastructure, a very good legal and regulatory framework, a diverse product offering, a sound banking platform and a stock exchange that operates on two markets. The island also has absolutely no shortfalls in terms of technology infrastructure. There is good internet connectivity and a high threshold of IT literacy in the country. There is no inadequacy in my view to meet the requirements of global businesses.
Mauritius is also positioning itself as an Africa-focused international financial center that is promoting business and investments in Africa through Mauritius. Please provide your views as the Managing Director, of Axis Fiduciary Ltd (Eastern and Southern) Africa.
Africa has been described as the economic lion of the 21st century and investment opportunities are in almost all areas of the economy including Agriculture, Tourism, Mining, Infrastructure, fast moving consumer goods and financial services. According to IMF’s 2014 World Economic Report, African countries are projected to comprise 6 of 10 of the world’s fastest growing economies (by GDP Growth). These include Chad, DRC, Cote D’Ivoire, Mozambique, Ethiopia and Sierra Leone. Apart from the top 10 list, African countries also dominate the top 20 list of fastest growing economies in the world. Africa’s HNW and UHNW population continues to grow at a rapid pace. Lagos already hosts almost 10,000 dollar millionaires, Cape Town around 9,000. The number of dollar millionaires in the Kenyan capital, Nairobi, is expected to spike 62% to over 8,000 dollar millionaires. It is expected that Millionaires in Nigeria, Kenya and Angola will more than double by 2030. The wealthiest class in African countries is set to grow significantly. For example, Kenya’s Social Class A is projected to grow 28% from 2011 to 2020, one of the highest forecasts in the world; in China, for example, the Social Class A is only set to grow 4% to 2020. Oil-rich Angola’s super-wealthy population has grown by 482% since 2000 whilst Ghana recorded a 400% growth & Nigeria recorded a growth rate of 313%. The continent’s richest man, Aliko Dangote, hails from Nigeria and is reported to be worth more than $22bn! For the reasons mentioned previously, there are tremendous opportunities for Mauritius to tap into, both in respect of investment flows but also in the context of private wealth management services.
In fact, more than 90% of the business of Axis Fiduciary Ltd is Africa-focused. Since its inception, Axis has robustly championed an Africa focused strategy. As an affiliate of ALN (Africa Legal Network), Axis has a solid footprint in Africa where it has access to a depth of jurisdictional knowledge from experienced and qualified professionals which it can offer to its clients for their individual needs and to enable them to set up the best efficient structures for investments in Africa. With a presence in Kenya, Axis is further expanding its reach and strategic positioning in Africa. Kenya has consolidated its status as the gateway to East Africa and a leading trade hub in the region. The country tops the list of highest exporting countries in the COMESA trading bloc, emerging as the top performer in the regional East African market.
What can be done by the Government of Mauritius to channel more investment into the economy?
First of all, we need a roadmap on the promotion of Mauritius as a regional financial centre for Africa. It is important that Financial Services has a dedicated promotion body as it was the case in the past with the Financial Services Promotion Agency (FSPA) and in other jurisdictions. This organization should be provided with a clear mandate to promote Mauritius internationally as the jurisdiction of choice for investments/private wealth management services in Africa.
Secondly, I think that we also need to ensure that we stay competitive, given that there are a lot of challenges looming. One of the biggest challenges for Mauritius is the changing global attitude towards tax avoidance. Whilst the demarcation line between tax avoidance (lawful) and tax evasion (unlawful) used to be clear, the last years has seen the distinction becoming increasingly clouded. Laws known as General Anti-Avoidance Rule (GAAR) statutes which prohibit “tax aggressive” avoidance have been passed in several developed countries and judicial doctrines have accomplished similar purposes, through the “business purpose” and “economic substance” doctrines. Other jurisdictions are looking at reviewing their double taxation treaty with Mauritius. Furthermore, the OECD through the Base Erosion Profit Shifting (BEPS) report, are looking at ways to tackle multinationals who make use of offshore structures to transfer their profit base to low-tax jurisdictions. As the bedrock of our global business sector has for long been based on the opportunity for tax treaty based planning, these initiatives call for a re-engineering of our business model.
Another challenge is the erosion of confidentiality as the world moves to greater transparency and exchange of information in the fight against Anti-Money Laundering & Terrorist Financing, tax evasion and other financial crimes. The US Foreign Account Tax Compliance Act (FATCA) opened a new area in respect of automatic exchange of information by requiring foreign financial institutions to report to the Internal Revenue Service (IRS) about their U.S. clients. The UK was the first country after the US to have implemented its own versions of FATCA and others are likely to follow suit. At the same time, the OECD have in 2014 established new global Common Reporting Standard for automatic exchange of tax information in a multilateral context and Mauritius has already committed that it is taking steps to implement the new global standard for automatic exchange of tax information.
It is therefore clear that the future of the global business industry will involve a deepening and diversification of the range of activities and services that may be provided from Mauritius.
Please provide your views on the Mauritian economy and the way forward in a challenging global environment.
The economy has not been doing too badly on an average. Growth levels have been at a little over 3% and there is no denying that it could have been better. While the minister of finance wants to achieve a growth rate of 5.7%, which is laudable, the real question is how to get there, given that there will be an increase in expenditure to accompany growth efforts, and there only two options to finance such expenditure — an increase in taxes or an immediate increase in growth to fund itself.
Overall, to increase growth, there must not only be the requisite funds at our disposal, but these funds must be accompanied by a culture of hard work, being more competitive, being innovative and setting up new economic sectors with better efficiency and attracting more investment.
Moreover another important factor is to bring confidence back into the economy, which is the primordial element that will trigger consumption, growth and revenue.