With a sophisticated and diversified economy, well-educated multilingual workforce and sound democratic institutions, Mauritius is Africa’s pre-eminent business hub, says Anthony Leung Shing, Tax Leader at PwC Mauritius.
How has Mauritius done become Africa’s most competitive economy?
Mauritius doesn’t have any resources, besides water and people. So the foundation for our success has been our people itself, including our successive governments. Since 1968, Mauritius has been a democracy, with different political parties being in power and with a stable political environment. That democratic and stable environment has helped to promote economic development and that’s how the country started to diversify: from agriculture into textile manufacturing, then into tourism, then financial services. These activities developed based on the vision of the governments and the resourcefulness of the nation. And Mauritius has done that in a short time frame; today, the services sector accounts for nearly 75% of the country’s GDP and 65% of the workforce.
What explains Mauritius’ new reputation for excellence as an International Financial Centre?
Mauritius has one of the highest number of accountants per capita and many of these accounting professionals work in the financial services sector. Financial services account for 11% of GDP and the sector has been growing at an average rate of 5% over the past few years. If you look at the global business industry in particular, this accounts for about half of the financial services sector contribution. Today, there is in the region of 20,000 global business companies in Mauritius and around 100 new companies are incorporated each month in Mauritius. However, we should not ignore the fact that Mauritius does not depend solely on financial services and the economy is well diversified; the manufacturing and agricultural sectors account for 15% of GDP, tourism for a bit less than 10% and ICT/Education for about 10%. Our economy is well diversified and that’s one of the particularities of our economy.
Did the 2017 DTAA with India impact, or even reorient the country’s offshore sector?
The global business sector in Mauritius was launched in the 1990s and growth in the sector was on the back of the India-Mauritius tax treaty; investors took advantage of this framework and this has led to the development of our global business industry. There have been many attempts at renegotiating the treaty in the course of time, so the amendment in 2017 didn’t come as a surprise. Yet at the time that it happened, Mauritius which accounts for about 50% of all FDI flows into India, had already started to diversify and to look at Africa. If you look at the number of newly incorporated companies each month, more than 50% of these companies are Africa-bound. That diversification, from being Indo-centric into Africa-centric has been happening for some time, and is one of the major trends that we are seeing today.
What are the key challenges that Mauritius is facing now as an International Finance Centre?
There are challenges around the E.U. and the OECD, especially with the BEPS initiative. The whole debate about tax morality has also been around for some time, requesting that what is legal should also be morally acceptable. These, along with the issue of public perception, make it increasingly difficult for multinational corporations to use international financial centers.
From a Mauritian perspective, our challenges are to ensure that there is adequate substance in Mauritius so that companies are not merely coming to Mauritius to set up investment holding activities but to also bring other functions and create value. In Africa, there are lots of issues in terms of foreign exchange control, lack of staff resources, political instability, high operational cost; and so companies are using Mauritius to tackle these issues in Africa. For instance, with its established infrastructure and business friendly environment, companies are using Mauritius as a treasury center, or as a back office to service their needs in Africa. Running these pan-African operations from Mauritius is becoming common but, more of this needs to happen.
What would you say to foreigners who, rather mistakenly, think of Mauritius as a “tax haven”?
People would be surprised. We have a tax rate of 15% as opposed to zero. Although this may seem low compared to some jurisdictions, our corporate tax rate is higher than Ireland for example; the UK also offers advantageous rates, with a constantly decreasing corporation tax rate, down to 19% in certain cases. The issue about Mauritius being seen as a tax haven is a misperception, because people see Mauritius as a tourist destination. People often know Mauritius for its beaches and coconut trees; then when they hear of Mauritius as a financial center, they don’t associate it with a business place and, in their mind, think it’s a tax haven with not much going on here, but, if you look more closely, they’ll see tall buildings, a well-educated labour force, and a bursting economy with a wide range of activities.
Is Mauritius competitive enough to become, as many hope, ‘the Singapore of Africa’?
Mauritius’ location plays a part in itself. We are close to Africa and we are part of Africa. We are a member of the African Union (‘AU’, Southern Africa Development Community (‘SADC’) and the Common Market for Eastern and Southern Africa (‘COMESA’); so essentially, we have economic and political ties with Africa. Being within those free trade areas, also offers significant advantages. All these mean that, when it comes to Africa, Mauritius has a competitive edge over other IFCs. We have a wide range of South African businesses based on the island, and we also have a lot of Mauritian businesses operating in Africa; so that natural history and economic trail with Africa is an important feature for Mauritius. That’s our competitive edge. Besides, I believe, African people feel comfortable dealing with us!
What added value does Mauritius provide in terms of its human resources and economic system?
As previously highlighted, Mauritius faces an issue of perception and more can be done to improve our image and promote our country’s uniqueness, attributes and competitiveness. Our success has been due to our people; today, we have a well-educated bilingual workforce and our labour cost is a third of that of many other competing jurisdictions. This provides great value to multinational companies to locate their regional headquarters in Mauritius. Our people can service both Francophone and Anglophone Africa whilst our hybrid legal system of civil code and common law system makes it easier to deal with all parts of Africa. Also, in terms of the openness of the economy, there are various schemes to attract people to Mauritius, such as occupation permit, investor permit, investment manager tax exemption, etc but, too often, these are unfortunately not known by many.
Can Mauritius play a role in Fintech globally- and, could it even become Africa’s Fintech hub?
About 50 to 60% of new companies incorporated in Mauritius are going to Africa; so the investment flows to the African continent from Mauritius is already happening. Now, if you look at our ICT sector, we see that there is a great opportunity for synergies and for these sectors to come together to capture, not only investments into Africa, but also to provide financial services. If you look at the people with bank accounts in Africa, more than 50% of the adult population doesn’t have one. So there is a huge potential in terms of fintech opportunities, the digitalization of some of these markets in terms of financial products and services. Kenya is becoming a hot spot for innovation, for fintech, and there are increasing opportunities for countries to disrupt the way things are done. I believe that Mauritius can play a role because it’s already being used as investment platform to these markets, and now it’s a matter of leveraging on its technological expertise as well, in order to service some of the needs of African economies.
What are the key challenges and opportunities ahead for economic and social development?
The key thing will be how we position ourselves as a hub for Africa and for the region. That will offer new opportunities for our services industry and help further grow our services sector. The country’s positioning as a hub in terms of medical tourism, education, logistics, etc will play an important role. These can help to attract people to Mauritius and increase our population. We have challenges around an ageing population and how to open the economy. Our population today is of 1.2 million people and the workforce is about 600,000. If you look at the forecast, by 2030, nearly one third of the population will be above 60 years; and so, how to attract new people or seek ways to improve national productivity is critical. For example, in terms of students coming to Mauritius for education, they come to live on the island for a couple of years, they understand it and integrating them as part of the working population, can be an easier alternative. Our opportunity will be on how we leverage on our location and position as hub for Africa.
Also, some areas have not seen much investment and we should put more focus on these such as the ocean economy for instance. If you compare our land mass to that of our marine territory, you can see that it’s 1,000 times more than our physical land area, so we need to be able to explore those unchartered waters. This could offer a new wave of growth and a new dimension to our economy.
What are the top 5 things you’d like investors to be more aware of about Mauritius?
We are a well-diversified economy, even if people think of us as a tourism destination or a financial services location. There is a lot more happening in Mauritius in terms of regional hub, headquarters, shared services, education, medical, etc. The island has increased in sophistication with high quality shopping malls, new airport facilities, road infrastructure, and real estate; providing high quality life style as well as business facilities of international standards.
Mauritius is safe and stable, it’s a sound jurisdiction, it has an established banking system, a rule of law, and a business friendly environment. We are not a tax haven, and many people make judgements without even knowing what’s going on in the island.
Do you have any final thoughts for our readers about Mauritius and its role in the years to come?
We’ve been successful since the country’s independence in 1968. The GDP per capita is today just below 10,000 US$, and the country is aspiring to become a high-income nation. Going forward, the country has much to look up to. There are opportunities to grasp in relation to the African continent, and our destiny lies in our ability to service Africa. However, Africa is not without challenge, but the Mauritian people are adaptable and resourceful and have proven in the past to have the ingenuity to reinvent themselves. We have only just started our journey to greater success.