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AfricaMoney | October 17, 2017

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Financial ExpertSpeak: Mauritius still the best route for India investments

Financial ExpertSpeak: Mauritius still the best route for India investments

AfricaMoney spoke to Clairette Ah-Hen, Chief Executive of Mauritius’ Financial Services Commission (FSC), over the way forward on the Mauritius-India tax treaty and how Africa is increasingly emerging as an attractive investment destination. 

AfricaMoney spoke to Clairette Ah-Hen, Chief Executive of Mauritius’ Financial Services Commission (FSC), over the way forward on the Mauritius-India tax treaty and how Africa is increasingly emerging as an attractive investment destination. The down-to-earth CEO, the first woman to head the country’s premier regulatory authority for non-banking financial services, declared that the island economy continues to be the best route for India investments. Besides, having travelled the length and breadth of the African continent for work and otherwise, the dynamic CEO is actively leading from the front on regional best practices in the financial services sector.

Edited excerpts from an interview:

How did the Financial Services Commission (FSC) come about?

The banking sector in Mauritius is more than 175 years old and is well regulated by our central bank, the Bank of Mauritius (BOM). The other financial services, however, are somewhat more recent in origin, having gained currency in the island economy not more than 70 years ago – Mauritian insurance companies have existed for a little over 65 years and global businesses for over 20 years.

Once the financial sector in Mauritius became more diversified, we consciously decided against having different regulators corresponding to all the various types of financial services (insurance, investment, pension and so on) as in certain other African countries. Instead, we decided that we would let the central bank look after banking in its entirety, while another umbrella regulatory body would look solely after all non-banking financial services. That is how the FSC was born in 2001. Currently, with financial services contributing around 10.3% of our GDP in 2012, BOM and FSC play an increasingly critical role in the economy.

Mauritius has recently been declared as “largely compliant” by OECD on financial transparency. Is it success or a part victory alone as the island has yet to become “fully compliant”? Also, what steps are being taken to achieve full compliance?

I would definitely say it’s a success story as it is a step forward in the right direction. We have always said we will respond to the needs for greater compliance but it is equally important that we must ramp up gradually to ensure that the changes introduced are sustainable. It is critical to first cement a strong base and only then progress further. Imagine how it would look if we were to be declared fully compliant today but in a review two years down the line we are found to be falling short!

Regarding how we reached this high threshold of compliance, it has certainly taken foresight to get to a demanding level of “largely compliant”. For instance, in 2010, the FSC requested the government for changes in laws to ensure financial disclosures were made in time and in the right format. Also, apart from trying to preempt future requirements, we have widely invested in communicating regularly with stakeholders, be it government, investors or the public.

In its latest move towards greater compliance, Mauritius has shown interest in entering an Intergovernmental Agreement and Tax Information Exchange Agreement with the US Internal Revenue Service to fall in step with the latest international laws in tax disclosure – the FATCA (Foreign Account Taxation Compliance Act). The aim of the Act is to ensure that all financial institutions operate under a system that allows the US to impose its stringent tax laws on US individuals who might otherwise use a maze of foreign investments and accounts to hide their income and assets offshore.

Africa-driven investments are increasing being routed through Mauritius, and are becoming a significant proportion of total FDI. Some steps that can help give further impetus to Africa-focused investments?

Mauritius has built up its image as an International Financial Centre (IFC) of choice in the African region. The share of Global Business Companies in Category 1 (GBC 1) registered in Mauritius with investments into Africa has increased considerably from 40.12% in 2011 to 50.95% in 2012.

Also, Africa is projecting a more robust image to investors, with changes in the political landscape and increased good governance on the continent spurring on global investors to look past the risks and put their money behind large projects which involve pooling of funds. Investors are looking for a jurisdiction with good governance and sound regulation as well as one that is compliant with international norms and standards, from which to safely manage their portfolio and investments into the emerging continent.

This is where Mauritius comes into the picture, as it provides the stability, predictability and security that investors are looking for. Meanwhile, it is a win-win situation for Mauritius and the jurisdiction to which funds are flowing, because even as the other African economy benefits from new business opportunities, the island economy also enjoys employment value creation as the GBC 1 sets up base in our country.

India’s share is dwindling, but the emerging economy remains an important source of Foreign Direct Investment (FDI) for Mauritius. Your views on the bilateral relationship, and, how do you envisage the ‘greater substance requirements’ affecting India-Mauritius ties?

We have had a good time with India and global investors too have enjoyed a great experience with the Mauritius-India investment route. At the time the existing tax treaty was signed, which was almost 30 years ago, India needed to attract investments and Mauritius was there to help. Traditionally, the two nations have enjoyed a very strong relationship and Mauritius is still the best route for investments into India. Moreover, the trust factor has historically been extremely high between the two countries. Imagine, Singapore had to comply with “substance requirement” clauses in its tax treaty with India at inception, while Mauritius is only now being asked to include the same.

Many believe that the renegotiation of the Mauritius-India DTAA (Double Tax Avoidance Agreement) may have caused uncertainly and it has been reported that   some investors now prefer the Singapore route – but we still believe that Mauritius offers the most efficient and economically sound route for investments into India. “Substance requirements” are all about demonstrating that investment corporations in Mauritius are genuine businesses and that we have more to offer that just tax benefits. If and when there is a doubt, we believe it is better to clarify the matter in advance. In this context, establishing clear criteria against which business operations can be measured through “greater substance requirements” is a sound way to address India’s concerns.

Finally, at the FSC, we leverage our close ties with India to facilitate exchange of human resources from India’s central bank (Reserve Bank of India) and securities regulator (SEBI). After all, there is no better way to learn of on-the-ground developments and prepare for them than from the people involved in their implementation.

How do you balance the tightrope-walk of greater regulations on one hand and business growth on the other?

As a regulator, we do not compromise on the fact that our licensees must abide by laws, regulations and rules. Having said that, informing the businesses of these rules and any changes in them is critical for ensuring compliance. That is why we believe in constant communication with our stakeholders on changes affecting the sector, so that businesses realize the value of being compliant. We invest in both upskilling human resources on technical and soft skills, as well as building up cutting-edge IT systems, to achieve the highest standards in information dissemination. In this regard, comparing notes with emerging economies like India has been a valuable learning experience.

Also, understanding the business is critical. Investor needs may look simple on the outside, but is a complex maze to negotiate on the inside. International norms must be followed to ensure that investments keep coming. For instance, Scandinavian countries have reached a level of economic growth where higher profitability on investments is not their only concern but equally important is the identification of investments which have the least climate change impact. Sophisticated investment products are needed to satisfy such demanding investors, for which the FSC actively looks at investor needs, benchmarks externally with the best-in-class globally and monitors products constantly.

How is Mauritius influencing regional practices, given that it is widely considered a leader in the African financial services space?

The FSC actively participates in regional groupings, and works closely with SADC’s Committee of Insurance, Securities and Non-Bank Financial Authorities (CISNA). Till 2013, the FSC CEO held the Vice-Chairmanship of the CISNA and contributed to the development and implementation of the CISNA Strategic Plan for harmonization of rules and regulations among SADC member countries.

We also work with African countries through the Africa Middle East Regional Committee (AMERC) of the International Organization of Securities Commissions (IOSCO). In September, the FSC signed a Memorandum of Understanding with AMERC to enhance mutual cooperation and exchange information with African counterparts.

The FSC is considered a model for many other regulators in the region and regularly hosts study tours for African counterparts to learn from the Mauritian experience in the financial services sector and gain a deeper understanding of the regulatory framework established by the FSC. In addition, each year we host several regional and international conferences to consolidate the image of Mauritius on the international stage and share our best practices with regional regulatory bodies.

Can you comment on some steps that the FSC is taking to ensure greater financial literacy in the public?

We started our consumer education campaign by targeting the youth with talks on the financial sector for students on an annual basis. In 2011, we launched the Young Talent Competition (YTC), now an annual feature, to encourage secondary and tertiary level students to gain a deeper understanding of non-banking financial services.

In 2012, the FSC broadened its target audience and conduced several Consumer Education Roadshows for the general public, covering Rodrigues as well.

In 2013, besides continuing with the above initiatives, we additionally organized information sessions with public officers from Citizens Advice Bureau and Social Welfare Centres.

Finally, at the beginning of December 2013, the FSC has launched the first in a series of Consumer Education posters, published in a simple language to target the masses.

Besides financial literacy, we also hold financial inclusion close to our heart. Accordingly, the government has asked the Finmark Trust to conduct a survey on demand for, usage of, and access to financial services across the entire population of Mauritius. The findings are expected to greatly assist in devising a national strategic plan for greater financial literacy and inclusion.

The Bank of Mauritius recently issued a communique against the use of bitcoins. What are your views on the virtual currency and its acceptance in Mauritius?

The FSC would like to join its voice with the central bank in warning the public against the use of bitcoins. First of all, virtual currencies operate on an unregulated platform and expose their users to greater risks of fraud or scam. Secondly, virtual currency is a payment system, under which payments made are irreversible. At the FSC, we have refused to grant a license to businesses using virtual currency payment platforms since they do not meet international norms. To trust a virtual currency controlled by a person or entity that has repeatedly refused to reveal its identity is inconceivable. Thirdly, their price is extremely volatile, as the recent experience of China shows. The value of bitcoins crashed recently when China’s central bank clamped down on the virtual currency. Finally, it is critical to evaluate risks and returns before investing in any form, including virtual currency. If a virtual currency gains wide acceptance and circulation, it may jeopardize financial stability, due to increasing linkages with the real economy. Then, to avoid destabilizing the economy, the same criteria as those for real currency should apply to virtual currency as well, ending its unauthorized and anonymity-clouded run, and ceding to control by central banks.

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