Mauritius is increasingly becoming the springboard for investment and trade into and within Sub-Saharan Africa. Rebecca Spong reports.
Following the merger of Mauritian sugar producers Deep River-Beau Champ and Flacq United Estates in June, the press was full of bold reports of how the newly-created company Alteo would build upon its existing African presence. Various announcements suggested the company would boost its production by over 100,000 tonnes in the coming years from its Tanzanian and Mozambique operations.
Fuelled by similar ambition, Mauritian bank AfrAsia is set to become even more active on the African mainland after it acquired a 35% stake in Zimbabwe’s Kingdom Bank earlier this year. The Mauritian bank is presently looking at possibilities of providing finance to support commodity flows in and out of the relatively high-risk market of Zimbabwe.
Both developments illustrate the growing strength and aspirations of the small island in the middle of the Indian Ocean, as it looks to become the springboard for companies, both Mauritian and foreign, to move into mainland Africa.
Dean Lam, head of corporate finance at HSBC Mauritius has observed this trend: “What we are seeing is local, large corporates investing in Africa. In the sugar sector there are two main factories operating in Mozambique and Tanzania, where they are producing sugar for local demand, not for export. There are local corporates in poultry farming in Mozambique and local textile and garment companies with production factories in Madagascar and Tanzania.”
But it’s not just the Mauritian corporates that are leapfrogging from Mauritius onto the mainland; international companies are looking to the island as a way into the African market.
Chinese telecoms company Huawei has been in Mauritius for over a decade and from that has built up a significant African presence. The island also provides a base for Indian oil company Essar, private equity firm Actis and banks such as HSBC, Deutsche Bank and Standard Chartered.
Some firms are investigating the possibility of listing on the Mauritian stock exchange (Sem). The exchange welcomed its first offshore company listing in March this year with Evisa Investments, a holding company with investments in Kenya. In early July, Bharat Telecoms, a joint venture between Indian and Mauritian investors, was given the green light for a listing.
HSBC has been busy in the last few months running marketing roadshows in Australia, which included promoting Sem to Australian investors looking for a means to break into Africa.
Yet central to Mauritius’ future success is its changing role in international trade. Traditionally the economy and its exporters have been reliant on European demand. That demand has now been constrained by the euro crisis. Total export proceeds for the fourth quarter of 2011 decreased by 2% compared to the previous quarter, and declined by just over 3% compared to the same quarter in 2010. Real GDP growth remains strong, although it marginally slowed to 3.9% in 2011 from 4.2% in 2010, according to estimates from Mauritius Commercial Bank (MCB).
Such figures are not disastrous, but with GDP growth forecast to further slow to 3.4% this year, the island must look for alternative sources of revenue and growth.
A new role
Given increasing south-south trade flows between Africa and Asia, Mauritius is geographically well-positioned to capitalise on this trend. It already has a Freeport, which provides certain benefits to traders docking in Mauritius on their way to and from Africa. However, there is increasing momentum behind efforts to promote the island’s many other business-friendly attributes.
James Boucher, managing director at HSBC Mauritius, expands on these aspirations: “We want to see increased volumes of trade come through Mauritius. Durban is a major thoroughfare for Africa. A lot of trade flows go via Dubai. But the relevance of Mauritius is emerging with
the rapid growth in the China-Africa
HSBC is working closely with the government-backed Board of Investment on workshops and roadshows that promote Mauritius as the gateway to Africa, with the next event scheduled to take place in Hong Kong in September. Kamben Padayachy, general manager, head of global banking, treasury and markets at AfrAsia Bank, a bank specifically set up five years ago to capitalise on growing Africa-Asia trade flows, is similarly hopeful.
“What Singapore was for Asia in the 1980s and 1990s, Mauritius could be for Africa,” he declares.
A re-export centre
The volume of trade flowing between Africa and Asia is growing. Already Africa sells 25% of its total exports to Asia and sources around 45% of its imports from the same region, according to HSBC research.
One way Mauritius can capitalise on these trade flows is by being a re-export centre for goods moving between the two continents. The country has had relative success in this already. According to official statistics, in 2010, out of its total exports of Re61.9bn (US$2bn)-worth of exports, Re11.36bn (US$228mn)-worth of exports were re-exported, meaning almost 20% of its exports are re-exported goods. This proportion of re-exports only marginally declined in 2011.
Although Europe is still Mauritius’ main export market for domestic Mauritian goods, Africa is now the largest market for Mauritian re-exports, accounting for almost 45% of the country’s re-exports in 2011, according to official government numbers.
“Mauritius has made major strides towards entrenching itself as a natural conduit for exponential growth in the emerging Africa and Asia trade corridor,” Raoul Gufflet, head of international banking at MCB remarks.
With Africa’s economic influence growing, Mauritius is on the way to reducing its reliance on European export markets as well as its historic business links with India. Traditionally, the island has acted as a conduit for tax-efficient investment into the sub-continent.
“Despite the difficult international economic conditions, Mauritius has successfully established a diversification strategy to position itself as the gateway to Africa,” notes Ashish Gowreesunker, head of business development, global business, at HSBC Mauritius.
He adds: “The number of global business companies (GBC) being registered to target African markets is increasing, and this is encouraging. In 2001, 75% of all global business companies in Mauritius were targeting Indian business. In 2011, 40% of our global business companies were focusing on Africa.”
A number of initiatives will help further boost the volume of trade and investment passing through Mauritius into Africa. The country has double taxation avoidance agreements (DTAA) with 36 countries, of which 14 are in Africa. In August the Mauritian government signed a DTAA with Nigeria, and earlier in May Mauritius signed a DTAA and an investment promotion and protection agreement (IPPA) with Kenya.
Mauritius has another 18 IPPAs in place with other governments globally. These are international bilateral agreements between governments aimed at protecting and encouraging Mauritian investment abroad.
Mauritius’ membership of the Common Market for Eastern and Southern Africa (Comesa) free-trade area and its involvement with the Southern African Development Community (SADC) present further benefits for companies looking to operate out of Mauritius.
As a member of Comesa, exports from Mauritius to other member states do not get charged customs duties.
“This means that exports from Mauritius enter other Comesa countries on the best terms possible,” explains Francis Mangeni, director of trade at Comesa.
Mangeni observes that exports from Mauritius to other Comesa countries are increasing in line with general increased intra-Comesa trade which has risen from US$3.1bn in 2000 to US$18.8bn in 2011.
Traders from Asia can reap the benefits of Mauritius’ Comesa membership by carrying out some processing of their raw goods within Mauritius. To be exempt from customs duties, goods either need to have been produced in the Comesa region or evidence needs to be provided to demonstrate that at least 35% of the value of the product has been added within the member state.
“So it does not matter if the product originally comes from China or any other country, provided that it has undergone further processing in Mauritius to come within the criteria,” explains Mangeni.
HSBC’s Boucher believes that Mauritius should promote its Comesa links to encourage more foreign companies to set up on the island.
“For instance, a Chinese company exporting to Africa can use Mauritius as a regional logistics and distribution trading hub,” he notes.
“A similar preferential access to SADC market exists on certain products, provided there is a change in the tariff heading or a percentage rule on products arising from processing in Mauritius,” he adds.
As Mauritius’ position in regional and international trade shifts, so too does the banking sector’s focus. Both Mauritian and international banks are keen to offer a widening range of banking services, not
just to Mauritians, but to the whole of the African market.
Services being provided include trade and commodity finance, but also other products such as treasury and securities services.
“There is a clear objective that the financial services sector in Mauritius should diversify into Africa. Three years ago, most of our trade facilities were for Indian clients, today that has come down to 44% of our portfolio, and instead Africa constitutes 30% of our portfolio,” explains Sridhar Nagarajan, CEO at Standard Chartered.
“We see large countries such as Kenya, Nigeria, Tanzania and Uganda accessing Mauritius for trade finance for their customers. We also witness investment flows from South Africa to Kenya via Mauritius,” he adds.
Standard Chartered Mauritius has made a number of new launches to expand its portfolio. By the end of this year it will have entered the domestic Mauritian wholesale banking sector to support domestic companies in their expansion plans. It is also looking to provide global liquidity management solutions from Mauritius for its global clients.
The bank’s security services business for Africa, which it manages from Mauritius, aims to provide a single service point to clients investing into Africa. Furthermore, since 2010, the bank has supported global corporates by offering them the chance to set up regional treasury centres in Mauritius.
“This is a significant trend and we expect more clients to follow suit,” Nagarajan adds.
HSBC is also expanding its portfolio of products. Lam comments: “On the financial services side we are developing new products and new markets. We are moving away from being a plain transactional platform to providing more specialised products, like project and export finance for infrastructure projects and our unique renminbi (Rmb) trade settlement products to service the China-Africa trade corridor.”
Looking beyond the international banks, it is the domestic banks that are proving particularly ambitious.
Gufflet at MCB explains that the bank is working to promote itself as the “bank of banks”, so that it becomes a regional focal point for handling trade finance, payments and card outsourcing activities.
“We want to become the bank for the second-tier African banks,” he explains. With that in mind MCB has been holding annual seminars in Mauritius for the last three to four years, inviting African banks to see how MCB could handle their payments, trade and other needs.
The bank is very active in trade and commodity financing and has a master risk participation agreement in place with 41 correspondent banks. Under these agreements, MCB is regularly called to take on some of the risk of African trade deals originated by other banks.
Eyes on Zimbabwe
Returning to the exploits of AfrAsia Bank, it is likely the institution will become increasingly active in trade and commodity finance in mainland Africa. Not only did it acquire a 35% stake in Zimbabwe’s Kingdom Bank in January this year, the bank then signed a bilateral structured trade and commodity finance agency agreement with Rand-Asia, a South African-based financial institution, in May.
AfrAsia already had a relatively long-standing relationship with Rand-Asia, having taken funded participations along with other banks in a number of Rand-Asia-arranged and managed structured trade and commodity finance transactions in Africa for the past two to three years. Now the relationship has been taken a step further and, under the terms of the new agreement, AfrAsia is set to become the lead bank on a number of deals, specifically looking at the SADC region, including Zimbabwe.
“Having already participated in deals, AfraAsia understands Rand-Asia’s business model and now that they have acquired the Zimbabwe bank, AfrAsia can leverage on this,” explains Eric Finaughty, CEO of Rand-Asia.
He explains that the partnership is starting from a small base with the initial objective to place US$15mn-worth of financing on a revolving basis in respect of Zimbabwe commodity flows over the next five to six months. To date, the partnership has already won two mandates.
“It is a small beginning; we are not talking about mega bucks in terms of your commodity finance portfolio,” Finaughty explains.
Some of the transactions the two institutions are targeting include domestic and external flows of metallurgical coke and metal concentrates. By having the benefit of AfrAsia’s links with Kingdom Bank, Finaughty explains that they are looking at how AfrAsia could fund the procurement and import-export of commodities into Zimbabwe, while the processing costs and domestic commodity financing could be done by Kingdom Bank.
Finaughty sees huge potential in Zimbabwe. “I see a lot of new capacity. The banks that are already in Zimbabwe are sufficiently exposed on their credit risk appetite and there is certainly space for new entrants.”
“I am positive about Zimbabwe. I am amazed when I travel around the country. The sugar refineries are working, new coal mines are opening up and there is investment in mining and resource production capacity. Just understand the rules and don’t ignore the politics,” he adds. Finaughty’s enthusiasm and optimism for the potential mainland Africa holds seems to be a sentiment shared throughout Mauritius. GTR
It is evident that Mauritius is keen to diversify its economy, but it is the pace of this diversification that will determine the success of the country’s ambitions.
One development that is taking longer than expected is the JinFei special economic zone in the north of the island. China chose Mauritius as one of six African regions where it planned to establish a special economic zone back in 2009. There were estimates that the Chinese would invest around US$1bn into the project.
It was intended that the Jinfei zone would benefit from liberal tax policies and house Chinese companies looking to invest in Africa. It was predicted the project would generate tens of thousands of jobs.
Initially the strategy envisaged that the zone would help Mauritius diversify away from being reliant on financial services, tourism and sugar into becoming a centre for light engineering and high-tech industries. Priorities then changed, and the zone was set to become more of a business hub, providing commercial property to house the headquarters of Chinese companies moving into Africa.
Phase one of the development was kick-started in 2009, with phase two set to be wrapped up this year.
Yet to date, the zone remains relatively empty. The project has been plagued by doubts, including complaints that the development is bringing little real value to the Mauritian economy.
Critics cite reports that only a small percentage of the jobs will go to Mauritians and that much of the initial construction is being carried out by Chinese labour rather than local workers.
GTR was in touch with government representatives, but they were unable to provide official comment on the progress of JinFei before we went to press.