Mauritius’ government, working together with its corporate and ﬁnancial sector, has designs on turning the country into the “gateway to Africa”. Shannon Manders reports from Port Louis on the tactics that are being implemented to achieve this goal.
For more than two decades, Mauritius successfully positioned itself as an offshore ﬁnancial services hub, with a strong reliance on tax treaties. More recently, however, the country has had its sights set on economic transformation, and has been looking to establish itself as an international ﬁnancial centre (IFC) to act as a conduit for cross-border investment and trade between Africa and the rest of the world.
To this end, the Financial Services Promotion Agency (FSPA), operating under the guidance of the ministry of financial services, good governance and institutional reforms, has teamed up with various stakeholders to develop and promote the image of Mauritius as an IFC of “excellence”.
The country is making progress: it’s currently the 10th-largest source of foreign direct investment into the African continent, and, according to the World Bank, is the easiest country in Africa to do business.
The African continent is central to Mauritius’ future economic plans. “The government’s expanded Africa strategy really seeks to attract Asian as well as African and European sources of investment and trade and channel it through Mauritius,” Robert Besseling told delegates at the GTR Mauritius Trade Finance Conference in November. This is an essential part of Mauritius setting itself up as the gateway to Africa, he said.
Amongst other measures, the Africa strategy, ﬁrst introduced in the government’s 2012 budget, seeks to establish partnerships with emerging Asian countries, and to provide technical aid for Asian investment into key sectors in Africa, including the agriculture, energy, transport, urban development, digital, healthcare, tourism and entertainment industries.
Despite these good intentions, many believe a complete transition won’t be smooth sailing for the island nation: “Mauritius sold itself the wrong way from the start,” one conference delegate told GTR at the event in Port Louis. “It attracted the wrong interest – as a tax haven – for too long.”
One of the ways in which it currently falls short is in the absence of relevant ﬁnancial institutions – and accompanying personnel. While there is certainly evidence of an increasing number of trading companies looking to take advantage of the country’s tax treaties by registering their headquarters in Mauritius, these numbers are not yet matched by the arrival of banks, law ﬁrms, brokers and other companies that provide ancillary services.
“They have all they need to be able to develop a platform, but before they are able to do so, they have to bring scale,” Gustavo Seco, head of structured trade and commodity ﬁnance at BMCE Bank International, tells GTR. “The majority of people [in Mauritius] are accountants and fund managers. Why? Because this is what the island is focused on. If they want to diversify their economy to develop the ﬁnancial sector, they’ll have to bring these skills in – and facilitate their move into the country.”
Nevertheless, great potential lies in Mauritius’ ability to become a facilitator of intra-regional trade. The country is a member state of the Common Market for Southern and Eastern Africa (Comesa), an agreement that allows for trading on a full duty-free and quota-free basis among members, and of the Southern African Development Community (SADC), members of which are largely exempt from customs duties.
Together with Malawi, the Seychelles, Mozambique and Zambia, it is also part of the Accelerated Programme for Economic Integration (APEI), a voluntary initiative aimed at speeding up regional integration by eliminating trade barriers.
In September 2016, Mauritius signed a memorandum of understanding for the facilitation of movement of business professionals between APEI countries in a bid to expand its economic horizons by providing business permits or short-term ﬂexible employment permits to enable such people to undertake a wide range of business activities in the country.
In another deal, back in April, the World Bank approved US$29.9mn-worth of funding for three of the APEI countries – Mauritius, the Seychelles and Mozambique – sourced from the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD), to support their efforts to collaborate and create regional reforms that will improve the trading environment with Africa.
“In terms of Mauritius as a facilitator of intra-regional trade, there is a real opportunity, because for many [international and African] countries that want to invest and conduct trade with Africa, there are too many stumbling blocks in place at the moment,” said Exx Africa’s Besseling at the GTR event last year. “Mauritius can smoothen this process and take away some of those obstacles in terms of developing its tertiary services, such as information and telecommunications technology (ICT), which many Africa countries don’t provide at all, for example.”
There is a limit, however, to how much intra-regional trade Mauritius itself can engage in. “I think we need to be honest and say that Mauritius may lack the economy of scale to beneﬁt trade with various African countries: there’s only so much Mauritian sugar, for example, that African countries will need,” Besseling added.
Still, the country is looking to improve the operation of its hard infrastructure to facilitate efﬁcient trade.
With maritime connectivity, plans are afoot to transform the Port Louis harbour into a regional logistics hub. “There has been massive investment in port infrastructure and we are awaiting signiﬁcant developments,” Stephanie Ah Tow, senior relationship manager at the Mauritius Commercial Bank (MCB), told delegates at the conference.
By 2025, container trafﬁc in the port is expected to double and exceed 1 million twenty-foot equivalent units (TEU). It is believed that the port has the potential for a double-digit contribution to GDP in the long term (it currently contributes 3%).
The port is set to become a key part of the development of the country’s so-called ‘ocean economy’: the idea is that it will become a hub for bunkering, transhipment, ship repairs, ship registering and other related activities, and will connect all the ports in the region.
The government is promoting the ocean economy as one of its main pillars of development, and to this end has created a ministry of ocean economy, marine resources, ﬁsheries, shipping and outer island, dedicated to ocean-related activities.
Mauritius has a total maritime zone of 2.3 million square kilometres: according to the Board of Investment’s website, investment opportunities exist in seabed exploration for hydrocarbons and minerals; ﬁshing, seafood processing and aquaculture; and marine renewable energies, amongst others. Direct contribution of this sector to GDP is expected to be around 20% in 2025.
The soon-to-be-launched Mauritius International Derivatives and Commodities Exchange (MINDEX) is expected to enhance the country’s position as a wealth and asset management centre. According to the FSPA, the platform will “revolutionise the trading of ﬁnancial derivatives, as well as the physical trading and storage of precious metals and stones through a state-of-the-art exchange and vault, in the region”.
But speakers at GTR’s conference agreed that in order to realise its potential as a regional hub for trade, Mauritius needs to look beyond the trading of currency alone.
Panellists advocated the development of an exchange for commodities – a derivatives platform that allows for the physical delivery of goods – which they said would bring about greater transparency and ease of trade, both for the country itself and for the continent at large.
Although it was mooted that Mauritius would be the ideal host nation for such an exchange, subsequent conversations that GTR has had with commodity trade ﬁnanciers have suggested that this may be a step too far outside of the country’s comfort zone.
“The development of a commodity trade exchange will be a fantastic development vehicle for Africa, and for the country that will host such an exchange. It would not only deliver market knowledge and liquidity, but also allow for traders, producers and buyers to hedge their price risks, and if you allow such services to happen, you will have a massive increase in terms of business,” explains Seco at BMCE. “But Mauritius does not seem to have the infrastructure to host such a platform.”
Although the country may have access to liquidity, it is lacking in terms of the required infrastructure for the commodities exchange to become viable and to have the minimum scale required for investors to be interested in it. A more obvious choice for host nation would be Nigeria, Kenya or South Africa (which already has its South African Futures Exchange in place), Seco suggests. “For the platform to exist, you would need to be able to transport goods quickly from one place to another, which is not an option in Mauritius at the moment.”
The issue of ﬂedgling logistics – whether that be human resources or physical infrastructure – may just prove to be a sticking point for the country until it has fully implemented all of its touted improvement measures.