When the Bank of China secured a Mauritian banking license in March, it was hailed as proof of the island’s potential as a staging post for Africa.
Its arrival was the latest addition to what the finance ministry describes as an “important number” of Asian state-owned enterprises using Mauritius as a launch pad to Africa.
Antony Withers, chief executive of the Mauritius Commercial Bank, says the move was the most tangible sign yet of Mauritius’s ability to become a centre for Chinese investment. “Mauritius has a wonderful opportunity to act as a conduit to spur the growth of the African continent,” he adds.
Until recently, mainland Africa had played a relatively minor role in the island’s evolution as an international financial centre. But over the past few years, the focus has changed. Africa is now driving Mauritius’s future development, at a time when a tax treaty change has thrown its traditional reliance on India in doubt.
The turning point was 2012, when more than half of the new investment flowing through Mauritian companies that are licensed to do offshore business went to Africa, according to the International Monetary Fund.
Amal Autar, director of the Mauritius International Trust Company and chairman of Step Mauritius, the professional association for tax planners, says business with eastern and sub-Saharan Africa has taken up much of the slack left by the sharp drop in its Indian business in recent years. “They say Mauritius is blessed. Doors open up at difficult times,” he says.
The timing may have been fortuitous but Mauritius’s ability to build its links with the continent can partly be attributed to its energetic pursuit of tax treaties with African nations over the past 20 years.
It has negotiated about two dozen such treaties — which restrict the right of states to tax foreigners investing via Mauritius — although several have not yet been signed or entered into force.
The future of some of these treaties is not assured. In Kenya, campaigner Tax Justice Network Africa has taken the government to court alleging that its treaty with Mauritius breaches “the principle of good governance, sustainability and accountability”. Other countries are watching closely, says Jared Maranga of Tax Justice Africa. Elsewhere, Rwanda re-established some of its taxing rights in a 2013 renegotiation of its treaty with Mauritius.
Martin Hearson, an expert on tax treaties at the London School of Economics, says Mauritius is facing a “a tide of re-examination by African countries”. But he points out that the country is not used only for tax purposes, putting it in a strong position to adapt if its tax advantages diminish.
More and more we are seeing the emergence of the market for high net worth individuals
Private client work is a growing strand of the financial sector’s business. “Traditionally Mauritius has always been known for corporate investment structuring because of the treaties,” says Mr Autar. “But what we are seeing now is the emergence of the market for high net worth individuals.”
In this, as in the corporate sector, China represents a growing market, says Samade Jhummun, chief executive of Global Finance Mauritius, which represents the financial services industry.
He says the number of Chinese investors with a net worth of more than $16m has grown by 14 per cent in the past year to 89,000. Many will be looking to invest outside China, using Hong Kong as a base and Mauritius as a platform to invest in Africa, he says. Some of the incentives in the government’s recent budget are aimed at encouraging such people to set up family offices to manage their wealth in Mauritius.
Mauritius is competing with other African nations, including South Africa, Kenya and Nigeria, in its ambition to be a regional hub. One obstacle has been its traditionally poor connections with Africa, but these are improving. In May, Air Mauritius launched its inaugural flights to Maputo and Dar es Salaam, on top of routes to Johannesburg, Cape Town, Durban and Nairobi.
Mauritius has some advantages over its rivals. It tops the African rankings for governance and for ease of doing business. It also has language skills. When insurer Axa Group launched a new venture in Africa this year, it chose Mauritius to process and issue policies, citing its “educated population which is equally fluent in English and French”
Richard Arlove, chief executive of Abax, a financial services group, says that bilingualism allows Mauritius to act as a bridge between different parts of Africa. But he insists there are other strengths, such as investment skills and legal expertise. Tax is still important for Mauritius, he says, but “these days it is not the main component at all”.