Wednesday, December 25, 2013

Grooming an Africa-focused financial centre of substance

Rising Africa next door is thriving with opportunities. However it would be limiting to see the role of Mauritius as just a structuring platform and thus overlook the possibilities Africa offers us to develop into  a financial centre with enhanced value addition. The challenge though is probably the toughest since the inception of our global business sector. It entails offering much more than a low-tax jurisdiction and being effectively positioned to benefit from growing South-South trade and investment.

There are currently over 900 global funds operating from Mauritius. It is revealing that many of these funds have as investors Development Finance Institutions (DFIs) which are not liable to tax. It is the comfort provided by our IFC which explains their presence here. Mauritius can be a bridge for private equity investors looking for interesting returns and Global Business companies looking for seed capital to develop in Africa. Private equity investors could also be encouraged to invest not only through Mauritius but increasingly with Mauritian investors across a range of African sectors where the country has a demonstrated know-how.

The experience of well-established International Financial Centres (IFCs) in the world clearly underscores the role capital markets have played as key generators in their transformation process. Mauritius will be no exception. It needs to move up the value chain and position itself as an attractive listing, trading and capital raising platform for Global funds, Global Business companies, African issuers, Africa-focused exchange traded funds (ETFs), corporate and government bonds and derivatives. We are firmly engaged on this path. Listing rules have already been amended to cater for the listing of Global Business companies, funds and recently ETFs. But still more needs to be done.

Our local banking sector stands to take full advantage of emerging opportunities on the continent. Over the past years, Indian banks have been making serious inroads in Africa. Our expertise combined with our cultural, historical and political proximity with the continent should allow our local banks to do more. Africa’s growing trade needs financing as much as its growing middle class needs innovative banking and insurance products.

Though clearly embryonic, the African wealth management sector also holds much potential. Services can be offered complementary to our existing trust and foundation structures.

Mauritius existing ecosystem can be further leveraged to benefit Global Business companies doing business in Africa. There is ample justification to use the Mauritian company as regional headquarters, providing services to other group entities such as the running of sales and/or procurement functions, treasury services, payroll and HR administration, Intellectual Property management amongst others. Our advanced technology platform can help host servers and provide for disaster recovery. Such moves will go a long way towards creating more commercial and economic substance for these companies while enabling us take a more active role in their deployment over the continent.

Some of the measures announced in the Budget Speech 2014 definitely go in the direction of strengthening our IFC for Africa. The announced introduction of a bill on captive insurance will contribute to widen our jurisdiction’s offering. Similarly, the Stock Exchange of Mauritius endeavour to develop a social impact exchange is noteworthy as impact investing grows in importance across the continent. Mauritius’ intention to adhere to the Multilateral Convention on Mutual Administrative Assistance in tax matters jointly developed by the OECD and the Council of Europe will add to the jurisdiction’s compliance and good reputation.

That the Mauritius IFC is gearing up for Africa is indubitable. However, we face two major hurdles. One is the human factor. To develop further, Mauritius will require skills and expertise that it lacks currently. Fund managers are such an example. Due emphasis ought be placed on capacity building within an industry that has so far concentrated more on product development and promotion. Physical connectivity with Africa is the second hurdle. Mauritius will not attain its full potential vis-a-vis the continent unless it develops a network of direct flights to its main business hubs. 

There is no dearth of growth opportunities for the Mauritius IFC from rising Africa. In our positioning to benefit the most from these opportunities, we must seek to become this IFC with a difference. 

Sources: Bourse Africa; Stock Exchange of Mauritius; Mauritius Budget Speech 2014; 
Financial Services Commission 

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