What role can Mauritius play as an investment hub for Africa, at a time where the continent continues to face financing gaps when it comes to the future development of its infrastructure? Energy projects are currently consuming around 60% of African infrastructure investment, and there continues to be significant demand for public and private investment to address the water supply, sanitation and ICT amongst others.
It has been estimated by Deloitte that Government and traditional donor financing could at best meet 50% of the requirements of infrastructure financing, and so innovative solutions combining international and domestic and public/private sources will need to be devised and implemented.
Private Equity financing is already becoming part of the solution, with the African Private Equity and Venture Capital Association noting that 86 Private Equity infrastructure deals were concluded in Africa between 2011 and 2016, with a total value of US$ 10.6bn, and it is interesting to note that 45% of PE infrastructure investment was in utilities, while only 10% was in energy.
Private Equity players are very much aware of infrastructure opportunities on the African continent, and GPs are already investing from both PE infrastructure-specific and generalist funds. A survey conducted in 2017 by the African Private Equity and Venture Capital Association revealed that African LPs actually identified infrastructure as the most attractive sector for PE investment over the next three years, while non-African LPs saw consumer goods as the most attractive, which suggests an interesting divergence of perspectives.
PE investments in infrastructure projects to date have included Amandi Energy (ARM-Harith Infrastructure Investment Ltd and other investors, 2016) and Sindila Micro-Hydro (Metier Sustainable Capital Practice, 2016) and there have also been a number of successful exits such as Bakwena Platinum Corridor Concessionaire (African Infrastructure Investment Managers, 2016) and HTN Towers (Helios Investment Partners, 2016).
Mauritius as a tried and tested investment hub
Private equity will clearly have a vital role to play in financing African infrastructure development in the future, and in order to attract Private Equity funding, there is a need for a tried and trusted investment hub. This is where Mauritius comes into the picture, with a highly conducive framework to generate growth and mitigate risk.
While in the past Mauritius has been noted for its favourable tax regime, the country is now moving into a new phase, away from tax-centric services and towards adding real value added services. Investors look beyond tax incentives when they invest through an IFC. In fact, more than 40% of the total investments from Mauritius into Africa are directed towards countries with which Mauritius does not have a tax treaty (or where the tax treaty is not yet into force).
So why Mauritius? Private equity investors can draw comfort from the fact that Mauritius leads Africa across a host of indices for political stability (1st in Africa for the Democracy Index 2017, The Economist Intelligence Unit); good governance (1st in Africa for the Mo Ibrahim Index of African Governance
2017); ease of doing business (1st in Africa in the World Bank Doing Business 2018); and economic democracy (1st in Africa for the Index of Economic Freedom – Heritage Foundation, and 1st in Africa in the Economic Freedom of the World – Fraser Institute).
Investors will also be keen to draw upon the many benefits of the wider eco-system of the Mauritius International Financial Centre (IFC), which offers a plethora of services, which enable successful cross-border investments into the African continent. The Mauritius IFC also offers full protection of foreign investments through its network of Investment Promotion and Protection Agreements (IPPAs), possesses a skilled and bilingual workforce, and a modern hybrid legislative framework. Its transparent legal regime, competitive operational costs, and efficient financial and legal professionals are amongst some of the factors that have emboldened investors to use the Mauritius IFC as a platform to invest in Africa.
Leading Africa as a well-regulated and compliant jurisdiction
If we look at the wider context, investors can take note that the Mauritius IFC is a well-regulated jurisdiction when it comes to international fiscal matters and the combatting of illicit flows.
For example, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes rated the Mauritius IFC as a “Compliant” jurisdiction alongside Norway and Ireland, which is the highest rating, in August 2017, whereas Australia, Canada and Germany, for example, are only regarded as “Largely Compliant”, and furthermore Mauritius was not included on the European Union of non-cooperative jurisdictions.
Mauritius has actively engaged with the OECD across a range of fronts in recent years to keep pace with international practices, having signed last year the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (MLI) and also joined the Inclusive Framework to implement the BEPS Recommendations and the new initiative on exchange of Beneficial Ownership information. In June 2015, the country signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and it currently has an exchange information mechanism with 127 jurisdictions. Furthermore, Mauritius is a member of the Early Adopters Group committed to the implementation, as from 2018, of the Common Reporting Standard (CRS) on the automatic exchange of tax and financial information on a global level, which the OECD developed in 2014.
In terms of its leading position in Africa, Mauritius was the first African country to have signed the Intergovernmental Agreement with the United States for the implementation of the Foreign Accounts Tax Compliance Act (FATCA) in December 2017. It is also a founding member of the Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG), which looks at combatting money laundering, the financing of terrorism and other forms of financial crimes.
Mauritius is currently finalising procedures to join the Yaoundé declaration, which is accompanied by a call for action that requests African Heads of State to support the substantial reduction of illicit financial flows through international tax cooperation. The Yaoundé declaration was made in the margins of the 10th plenary meeting of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.
Contributing to African infrastructure development
As the preferred investment hub for the continent, Mauritus is poised to play an important role in facilitating investment and FDI flows into Africa as a strategic development partner. Recent research published by SEO Amsterdam (commissioned by the Investment Facilitation Forum) shows that investment hubs are associated with higher inward FDI and economic growth. In the case that investors can no longer make use of investment hubs, the distance to possible investees is increased and FDI is reduced and diverted.
- So if, for example, an investor in a developed country can no longer make use of Mauritius as a hub for investments in Africa, the following effects could materialise.
- First, part of the investments will flow directly from the developed country to the African developing countries.
- Second, part of the investments will flow through other hubs or havens
- Third, part of the investments will no longer be profitable and will cease (FDI destruction).
- The overall effect is re-routed and reduced FDI. As a consequence, productivity gains associated with FDI may be lost by FDI recipient countries, and investment opportunities may be lost by investors.
Building the Africa of tomorrow cannot be achieved overnight, but in Mauritius we are ready to facilitate the investments that will lead to sustained growth for the long term.
Reference: SGG Group