Mauritius eyeing Africa

Read our article in the Cayman Financial Review Magazine, eversion 

Mauritius has been known for its beautiful beaches and its resorts offering impeccable service. It has also established itself as an international financial centre and been known for being the biggest hub for Foreign Direct Investment (FDI) in India. 

Is Mauritius positioning itself to take the crown for being the biggest hub for FDI in Africa? It is clear that Africa will play a more important role in the world’s economic growth in the years to come.

Three of the world’s 10 fastest-growing economies of the past five years were from Sub-Saharan Africa and the IMF predicts seven of the top 10 places over the next five years will be countries in Africa. (The Economist) 

With oil, gas, timber, diamonds, gold, coltan and bauxite, Africa is home to some of the largest deposits of natural resources in the world.

The global recession has had an effect on Africa´s economic growth, however Africa’s economies have rebounded since. In 2010, Africa´s average rate of growth amounted to 4.9 per cent, up from 3.1 per cent in 2009. Economic growth for 2011 has slowed from 4.9 per cent to 3.7 per cent.

For 2012 Africa´s average growth is expected to accelerate to 5.8 per cent assuming that economic normality will return after the debt crisis in Europe and the civil unrest in some North African countries will come under control. (Africa Economic Outlook)

FDI to African countries peaked in 2008 at US$72 billion, five times the value of FDI receipts in 2000.  The majority of FDI flow to African Countries has been from developed countries, accounting for 72 per cent between 2000 and 2008 (UNCTAD, 2010c). 

During 2007-2009, FDI from the OECD countries were mainly concentrated in a few countries, namely South Africa, Egypt and Nigeria. The largest OECD investors in Africa are companies from the United Kingdom, France and the United States, having historically mainly invested in extractive industries. OECD countries accounted for 83 per cent of FDI inflows between 2005 and 2010. The Middle East constituted the second most important region of investors, followed by African countries (intra-African investments).

China and India made up roughly 3 per cent of FDI.

Intra-African investors are an equally important source of more diversified FDI. African investments in Africa are mainly in the manufacturing and the service sector. (African Economic Outlook)
The potential for highly profitable foreign investment in Africa is enormous.

The profitability of foreign companies in Africa has been consistently higher than in most other regions of the world, reports a UNCTAD study. Since 1990 the rate of return on foreign direct investment (FDI) in Africa has averaged 29 per cent.

It is evident that FDI to Africa will only increase as African countries become more politically stable and developed countries scramble for Africa’s natural resources and investors see the attractiveness of the return from investments in Africa.

Intelligent structure is key when considering investing into Africa. Structured intelligently, a lot of the risks and headaches involved in an African investment can be substantially mitigated and Mauritius has played a very important role in that respect.

Historically Mauritius has been known as the star and key of the Indian Ocean due to its strategic location between Europe and Asia. With the pace of economic development in Africa will Mauritius transform itself to be the star and key to Africa?

Risk and return are two words very familiar to all of us. If risk is managed intelligently, risk return ratio could be significantly increased.

Mauritius offers the right attributes to become the ideal hub for African investments and the help increase that risk return ratio. Firstly, it has a signed a number of Investment Promotion and Protection Agreements (IPPA) also commonly known as Bilateral Investment Treaties (BIT) which are mainly bilateral agreements between governments.

Its purpose is to promote and protect the interests of investors of either country by providing the mechanism for compensation in case of expropriation, war etc. To date Mauritius has 5 IPPAs signed and in force with African countries and there is another 11 already signed which are awaiting ratification.

Using a Mauritius company for investments into an African country where an IPPA is in force practically offers a free ride, providing free political risk insurance. Free rides are not easy to find in this world nowadays.

The other fall back, in case an IPPA is not in force is that Mauritius is a member of Multilateral Investment Guarantee Agency (MIGA) which is a member of the World Bank group. MIGA’s mission is to promote FDI into developing countries to help support economic growth, reduce poverty, and improve people’s lives.

MIGA provides political risk insurance guarantees to private sector investors and lenders and protect investments against-non-commercial risks. MIGA insures cross-border investments made by investors in any MIGA member country into a developing member country.

Obtaining political risk insurance may not be an easy task. MIGA currently has 175 members of which 150 are developing countries. It is interesting to note that most of the traditional offshore jurisdictions such as the BVI, Cayman Islands, the Channel Islands or the Isle of Man are not members of MIGA. Choosing an investment platform which is a member of MIGA can be very useful and should be considered when making a decision to invest in a developing country.

Through its network of Double Tax Agreements (DTA) and a simple tax regime ROI could be enhanced through lower withholding taxes and zero capital gains tax compared to when a DTA is not in force.

Mauritius currently has 13 DTAs in force with African countries, two more awaiting ratification, five awaiting signature and three more under negotiation. (See Figure 1).

Mauritius tax policy has been to make it as simple as possible, hence, there is also no complicated thin capitalisation rules or CFC rules. Tax rate for a company with a global business licence is normally between 0 per cent to a maximum of 3 per cent. But in most cases it is 0 per cent when foreign tax credits are applied.

The government in Mauritius has made it a priority to extend its network of IPPAs and DTAs. In his 2012 budget speech the Minister of Finance announced the appointment of 2 roving ambassadors who will contribute to better position.

Mauritius at the regional level.

Crucial to further promote trade and investment in the region. These agreements will provide more investor confidence to use Mauritius as the platform for investment structuring into Africa.
To add the icing to the cake, there are also several other attributes making Mauritius a very attractive hub for investments into Africa:

  • Mauritius forms part of various regional trade blocks, namely the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC), allowing preferential treatment for movement of capital and return.
  • No exchange control.
  • Highly educated, bilingual work force, able to deal with the English or the French part of Africa.
  • Socially and politically very stable with a democratically elected government.
  • Very well established legal and regulatory framework where the rule of law is upheld.
  • Very well developed banking system.

Mauritius is very well placed. A few high profile companies have set up physical base in Mauritius with staffs and the trend is set to continue given that cost of operation is relatively cheaper in Mauritius compared to many developed economies and highly qualified workforce in law, accounting, tax and finance is readily available. Nearly a dozen global business companies have been listed on the Stock Exchange of Mauritius (SEM) adding substance and more flavour to the jurisdiction.

The Mauritius route has been tried, proven and tested over nearly two decades, there is no doubt that Mauritius has a great competitive advantage compared to other jurisdictions.

Double Taxation Agreements 

  Dividend

Interest RoyaltiesCapital Gain 
 Non-TreatyMU TreatyNon-TreatyMU TreatyNon-TreatyMU TreatyNon-TreatyMU Treaty
Botswana7.5%5%/10%15%12%15%12.5%25%0%
Lesotho25% 10% 25% 10% 25% 10%25% 0%
Madagascar 0% 5%/10%22% 10%
 
10% 5% 25%
 
 0%
 
Mozambique 20% 8%/10%/15% 20%
 
 8% 20%
 
5% 22%
 
 0%
 
Namibia 10%/20% 5%/10%10%
 
 10% 10.20%
 
0% 32%
 
0%
Rwanda 15% 0%15%
 
0% 15%
 
0% 0%
 
 0%
 
Senegal 10% 0% 16%
 
0%
 
 20%
 
0% 30%
 
 0%
 
Seychelles 15% 0% 5%/15%
 
 0%
 
 15%
 
0% 25%
 
 0%
 
South Africa 0% 5%/15% 0%
 
 0%
 
 12%
 
7.5% 0%
 
 0%
 
Swaziland 15% 7.5% 10%
 
 5%

15%2.5% 14%
 
 0%
 
Tunisia 0% 0% 20%
 
 2.5%
 
15%
 
7.5% 0%
 
 0%
 
Uganda 15% 10% 15%
 
 10%
 
15%
 
10% 30%
 
 0%
 
Zimbabwe 10%/15% 10%/20% 15%
 
 10%15%
 
15% 30%
 
 0%
 
Rep. of
Congo**
20%

0%/5%

20% 5%20%0%36%0%

 **The treaty has been signed but not yet ratified. Note: (1) Treaty with Zambia is awaiting ratification. (2) Treaties with Egypt, Ghana, Kenya, Malawi and Nigeria are awaiting signature. (3) Treaties with Algeria, Burkina Faso and Tanzania are being negotiated (4) Mauritius also has DTAs with non-African countries

 

 

 

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Clifford To

Clifford has had several years experience in the Mauritius global business industry, before moving to Australia where he worked for more than 10 years in the banking industry. Clifford is a CPA and also holds a Bachelor of Commerce from the University of Western Sydney, a Master of Commerce from the University of New South Wales and a Master of Taxation from the University of Sydney.  

Clifford To
Vice President
Intercontinental Trust
Level 3
Alexander House
35 Cybercity, Ebene
Mauritius

T: 230 403 0800       
E: cto@intercontinentaltrust.com
W: www.intercontinentaltrust.com 

 

Intercontinental Trust

Intercontinental Trust Limited ("ITL") is licensed by the Mauritius Financial Services Commission to provide a comprehensive range of financial and fiduciary services to international businesses. We endeavour to provide at all times first class service to our clients in structuring their international affairs and using Mauritius as a base for international transactions.

We are one of the leading Management Companies in Mauritius and our principals have been actively involved in the global business sector in Mauritius since its inception
    
Our client base ranges from large institutional, high profile clients / organisations to small private enterprises and individuals

We have successfully completed an ISAE 3402 Type II audit by Pricewaterhouse Coopers.The ISAE 3402 certification provides peace of mind that the internal processes of our group are of internationally accepted standards which in turn means that you will benefit from high standards of service

We ensure provision of the highest levels of service based on Continuity, Stability and Consistency

We are the first Management Company in Mauritius to be accredited as an Authorised Training Employer (“ATE”) by the Institute of Chartered Accountants in England and Wales. As an ATE, we have a framework that guides us towards achieving this goal

 

Intercontinental Trust
Level 3
Alexander House
35 Cybercity, Ebene
Mauritius

T: 230 403 0800       
E: cto@intercontinentaltrust.com
W: www.intercontinentaltrust.com