Mauritius: Focused On Finance

Last Updated: 8 March 2017
Article by Kervin Victor

Fending off charges that the country is a tax haven, the government of Mauritius is looking for ways to improve governance, attract investors and diversify sources of revenue as the days of the country's billon-dollar ties to India come to an end

Of all the countries that trumpet themselves as the 'Singapore of Africa', Mauritius probably has the strongest claim. It has a solid education system, a robust banking system and stable politics, all of which attract investors. But, while the glittering white sands and rolling turquoise sea beyond buoy the spirits, there may be storm clouds ahead for the island. It will need to shake off concerns about governance if it wants to stake its claim to a greater share in the logistics of global capital.

Three significant challenges lie ahead: fighting off repeated accusations of laundering dirty money; the end of the tax break to investors in India; and the issues raised by local corporate governance, such as the 2015 collapse of the British-American Investment Company (BAI)and the recent dismissal of the chief executive of Air Mauritius.

Mauritius is a regular target of international tax-justice campaigners. The most recent criticism comes from the non-governmental organisation Oxfam, which published the report 'Tax Battles: The Dangerous Global Race to the Bottom on Corporate Tax' in December2016. In the Oxfam report, Mauritius ranked 14th out of 15 tax havens across the globe. The administration of Prime Minister Anerood Jugnauth is trying to clean up the country's image and promote transparency. To this end, the government created the Ministry of Financial Services, Good Governance and Institutional Reforms in December 2014. Its minister, Roshi Bhadain, tells The Africa Report that he was entrusted with a clear mission: "I had to ensure that the fundamentals of good governance were adhered to and [bring]much-needed reform."

The country introduced an Organisation for Economic Cooperation and Development initiative called the Common Reporting Standard on 1 January, with the first reporting to begin in July 2018. Ravneet Chowdhury, chief executive of Bank One in Mauritius, says: "That will automatically give account balances for non-residents from most major countries around the globe [...] which should make things much cleaner."


But since the arrival of Alliance Lepep, an alliance of three political parties, in 2014, the Mauritian financial sector has been shaken by a more serious challenge: the end of a lucrative tax arrangement with India that helped investors into the subcontinent avoid paying Indian capital gains tax. The double taxation avoidance treaty had bolstered the financial sector for more than 30 years and was responsible for billions of dollars of investment In India. Upon the Indian government's insistence, in 2016 Jugnauth's government agreed to amend the treaty to make using the Mauritius route less attractive (TAR82-83 July-Aug 2016).

Most operators in the Mauritian offshore sector have criticised the decision. Kamal Hawabhay, director of Global Wealth Management Solutions, says: "With India, there is virtually no new business." However, Mauritians keen to mirror Singapore's success will be happy to note that Singapore itself had a double taxation agreement with India that was amended in New Delhi's favour in 2016.

Mauritius is focusing on diversification to fill the gap left by this amendment, which some operators had seen coming. Last year, 58% of structured investments in Mauritius were routed to Africa, according to figures from the Financial Services Commission. Structured investments in India accounted for only 9%.

The government has crafted several laws offering new avenues for the financial services industry. The sector is creating new services in captive insurance, global headquartering, treasury management and overseas family offices.

The third obstacle the country needs to overcome in its bid to become a financial hubis domestic governance concerns. As the forced liquidation of the conglomerate BAI – after the government accused it of running a Ponzi scheme – shows, there are still problems to fix.

The surprise October dismissal of Air Mauritius chief executive officer (CEO) Megh Pillay in questionable circumstances highlights other challenges in corporate governance. As a company listed on the stock exchange, Air Mauritius is supposed to follow local best practices in terms of good governance.

However, Pillay was sacked following differences with Air Mauritius chairman Arjoon Suddhoo, who is known to be close to the government. There were many faults with the dismissal: the meeting of the board was attended only by the members representing the government and it was called in the morning for the afternoon of the same day.

The sacking provoked an outcry, and the government was divided. Good governance minister Bhadain says: "As far as Air Mauritius is concerned, I cannot comment on the substance of this case, which comes under the administration of a listed company. In the form, I think the CEO's contract has been terminated in a way that is not in accordance with the principles of good governance."

Member of parliament Sangeet Fowdar says that the recent event at Air Mauritius is not the norm: "Most of the chairmen of the board, they are not chairmen of the company and they do not interfere in the day-to-day operation of the organisation." Bank One's Chowdhury also points out that Mauritius has regularly been at the top of various African governance rankings, from the MoIbrahim Foundation's to the World Bank's. The latter endorsed the original Code of Corporate Governance in its governance evaluation of the country. Nevertheless, this code is now more than 12 years old.

The government hired expert Chris Pierce, CEO and founder of Global Governance Services, to propose new corporate governance standards, which were adopted in 2016. Pierce explains: "If Mauritius wishes to maintain its position in the [Ibrahim] Index of African Governance, it must continuously improve its governance practices since other countries are catching Mauritius up!"

Pierce says all public-interest entities and other entities required to report on corporate governance will need to apply all the principles contained in the new governance code and to explain in their annual reports how these principles have been applied.


Former Bank of Mauritius governor Dan Maraye says the new guidelines are a step in the right direction, but he adds that the code of corporate governance will not help increase transparency in companies where the state is the major shareholder. "We often hear ministers refusing to divulge information when answering parliamentary questions on these entities, arguing that they are private companies. We should seek a solution for this," he says.

Maraye adds that this code will not work because it is based on the principle of voluntary compliance. "[It] should be imposed on institutions by law. Otherwise, we will simply be wasting our time. In most parts of the world, such codes are voluntary and we have seen how institutions were gripped by crisis," he adds.

Annabelle Ribet, a legal executive with international lawyers Juristconsult, explains that Mauritius's business code is on a par with those of other sizeable financial centres: "Voluntary codes are increasingly being adopted worldwide because they are seen to be flexible instruments. There is some degree of non-compliance with the provisions, which is expected, in contrast to the more rigid and mandatory nature of legislations."

Minister Bhadain says that the government could modify the law to address problems of non-compliance. "When you issue a code of best practice, you expect people to follow it. Now of course, if there are material departures from the code in terms of non-compliance and chairpersons and chief executives are not acting as they should, then that will be the logical next step and we will come [...] with amendments to the Financial Reporting Act," he says.

Originally published in the africa report n° 87, February, 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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