Is Africa the new India for Mauritius?
Standard Chartered, which has huge presence in Mauritius, is slowly diversifying its operation base from India to Africa, with plans to invest $100 million over the next three years for expanding its Africa business (Image: African Business Review)
Even as the sub-continent turns wary of investments routed through what the Indian government calls a ‘tax-haven’, Mauritius is seeing renewed interest by investors who see Africa as an emerging economic powerhouse.
This resilience and reinvention is not something that is entirely new to the island nation. In the early 1990s, Mauritius turned from being a small, manufacturing hub to what the world today holds out as an example to the rest of Africa – a booming, export-led mammoth.
Diversifying from sugar, textiles and tourism to a slew of financial services was not easy, but island used its small size to its advantage, educating and skilling a 1.3 million population to form its core strength. No wonder then that Mauritius has topped Sub-Saharan Africa on the World Economic Forum’s Human Capital index, released just last week.
Rama Sithanen, a former finance minister who led the economic boom in the 1990s with liberalization and globalization reforms, feels that the island is now positioned to be a preferred gateway for investments from the rest of the world into Africa.
The growing influence of Africa is already being felt. In 2012, more than half the investments made by global business companies (GBCs, the name given to shell companies) registered in Mauritius went to Africa. In 2010, it was only a third, Financial Services Commission figures show. India’s share, on the other hand, went down by half – from 32% to 16%.
But, while the growing investor attention on Africa did inform the island focus on the continent, it was also India’s wrangling over the tax treaty with Mauritius that had a crucial role to play in the strategic shift to Africa.
Standard Chartered Bank’s Mauritius chief executive Sridhar Nagarajan says the issue did prompt the bank to start focussing on Africa four years ago.
Nagarajan goes on to explain that, before 2009, 95% of the bank’s business was India-centric. On the other hand, the bank’s business today is almost equally spread out across Africa (30%), India (40%) and rest of Asia. Diversification leads to de-risking the business model, he points out.
For India, an estimated 40% of the foreign direct investment routed through the country transits through Mauritius, though Singapore is increasingly becoming an investment gateway of note for the sub-continent.
Delays in amending the Double Tax Avoidance Agreement (DTAA) are not helping matters. A joint working group last met in April 2013 but there is still little sign of an agreement, despite this being its tenth meeting.
Just this week, the Financial Services Commission proposed stringent amendments to the treaty for global business companies in Category 1 to ensure that some Indian concerns are addressed. From January 1, 2015, onwards only those businesses which comply with a slew of regulations covering directors’ experience and qualifications, requirements for an office space, minimum asset holding in Mauritius and ‘reasonable expenditure’, will be eligible for benefits under the India-Mauritius DTAA.
However, despite the Indian experience turning sour, Mauritius is building its Africa strategy on similar pillars. It has signed DTAAs with 19 African countries, most recently with Gabon in July.
The island nation may soon find itself running into ghosts from its past though, especially in its dealings with the other African major, South Africa, which competes with Mauritius for investments into the continent. In May, South Africa’s finance minister Pravin Gordhan announced proposed changes to the 1996 DTAA that would alter rules on dual residency, capital gains tax and withholding taxes on interest, dividends and royalties.
South Africa’s parliament has not ratified the new deal, however, and Mauritius’s finance minister Xavier-Luc Duval said that both sides should look at the agreement again.
So, even as Mauritius readies itself to welcome investors with an eye on Africa, it must learn from its experiences with India and diversify its productive base with an “ocean economy” focus. More economic substance and less low-cost led considerations must inform global business companies as they position themselves on the island to route investments into the continent at large.
Source: The Africa Report