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The World Bank names Mauritius as Africa’s top business destination

28 May 2016 Comments (0) Africa, Business, Featured

business mauritius

An annual report from the World Bank has picked out Mauritius as the best place to conduct business in Africa, so just how has the island nation achieved this?

Mauritius has been named as Africa’s most business friendly country by the annual “Doing Business” report from the World Bank. The report seeks to help potential investors (and governments) identify how easy it is to create startups and investment opportunities across the globe. While Africa as a continent does not fare particularly well, Mauritius came in at number 32 on the global list, which made it the comfortable winner in Africa.

The top 5 African nations showed a diverse geographic spread, with Rwanda, Botswana, South Africa and Tunisia following, in that order, on the heels of Mauritius. A quick glance at Africa’s worst performing nations would provide no surprises, as Eritrea propped up a bottom 5 of the DRC, Central African Republic, South Sudan and Libya.

Any nation struggling with armed conflicts and political unrest is not going to provide the ideal base for creating new business opportunities, so while the bottom of the table comes as no surprise, what is it about Mauritius that has seen it take the top position?

Stability, simplicity and low taxes

Mauritius is first and foremost a fairly safe country. Not only does it not suffer from the unrest of many African nations, but it has low crime rates, and a small population which is governed by what the Economist Intelligence Unit called Africa’s only “full democracy” back in 2011. While this may no longer be fair to other nations, it is clear that Mauritius is a society with low levels of corruption and good personal safety.

Prime Minister's Office in Mauritius

Prime Minister’s Office in Mauritius

In addition to this, the Mauritian government has gone out of its way to reduce the amount of red tape involved in starting up a business. This ongoing strive to create a business-conducive atmosphere is highlighted by the 2014/15 changes to building permit rules, in which the process was streamlined to allow new ventures to start running as quickly as possible.

It now only takes 14 days to register a property, and 3-6 days to start up a new business. To help ensure the wheels on each sector of the economy run smoothly, the government has also invested heavily in education. The net result of this focus is that Mauritius has the highest rate of literacy in Africa, at 86%.

South Africa’s high commissioner to Mauritius, Nomvuyo Nokwe, told South African media that not only had Mauritius made it simple to register new businesses but that its development of education was also key. Nokwe stated, “It has highly skilled professional people…it’s made doing business easy, because you have [educated] people to work for you.”

Perhaps one of the most significant aspects to Mauritius’ burgeoning business growth, and yet one with some controversy, is its low taxation. The Africa 2016 Wealth Report referred to the huge growth in millionaires in Mauritius, but this included many from other nations who had moved there. The report found that “Mauritius was the top performing African country for millionaires during this period, with growth of 160 per cent…company and personal income tax rates are only 15 per cent, with no inheritance or capital gains tax.”The controversy around this is that some feel the nation is just a tax haven for the wealthy, and moreover that much of the money coming into the country is simply passing through. There are concerns around the rich, from nations like Kenya, using Mauritius for tax purposes, as its income tax rate is an attractive 15%.

Does the economy match the reputation?

Dipolelo Moime, chief executive of business risk consultancy Legato Services, believes it is more innovation that has attracted outsiders, saying, “Mauritius is continually reinventing and reforming itself massively to ensure the country is as business-friendly as possible, in order to attract multi-national corporations.”

Despite this, the issues around money just passing through cannot be ignored. There is an entire business strategy known as “The Mauritius Route”, which describes how investors in India use the island nation as a conduit to connect them to Indian markets. In fact, 39.6% of foreign direct investment to India, between 2001 and 2011, made its way via Mauritius.

However, this money does not pass through Mauritius in a vacuum, and the banking and legal processes it utilizes are legitimate businesses which create revenue streams for the host nation.

As things stand, Mauritius is not one of Africa’s largest economies, but the World Bank report did not base its findings on GDP, it based them on how easy it was to set up a new business in a nation, how well developed infrastructure was, and how attractive a destination was for new investment. In these measures, Mauritius must warrant its ranking.

As of 2016, Mauritius can boast the highest per capita GDP in Africa, with a 2016/17 predicted GDP growth of 5.7%. In addition, the nation’s stock exchange is widely regarded as one of the best in Africa and is worth over $7 billion. These figures are for a nation of only 1.2 million inhabitants.

Most significantly, the government is not resting on its laurels. The Mauritian government has drawn up a blueprint to diversify the economy, and invest in new industries, while continuing to develop existing ones. “Green growth” is at the forefront of plans to maximize the nation’s coastlines, with a goal of 8-9% economic growth per annum, which will ultimately lead to Mauritius being a high income status nation by 2025. The plans have worked thus far, so investors from far and near will be watching with interest.

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Kenya, Senegal join effort to fight tax evasion

28 February 2016 Comments (0) Africa, Business, Featured

Kenya signs the Convention on Mutual Administrative Assistance in Tax Matters

Twelve African countries sign multilateral agreement to counter tax abuse, which costs the continent an estimated $50 billion annually.

Kenya and Senegal have joined 10 other African countries in signing an international agreement designed to reduce tax evasion.

The multilateral convention enables cooperation among nations, including exchange of information about tax evaders and assistance in collecting taxes from them.

African nations lose an estimated $50 billion per year to illegal financial transfers, including tax avoidance, according to a 2015 report by the African Union and UN Economic Commission for Africa. In comparison, Africa received about $29 billion in foreign aid in 2013.

The tax evasion problem is particularly acute for poorer countries that do not have tools to fight sophisticated schemes by large multinational companies. The report and aid groups have noted that these billions of dollars might otherwise be used to develop services and infrastructure on the continent.

Multinational companies blamed

“Africa is hemorrhaging billions of dollars because multinational companies are cheating African governments out of vital revenues by not paying their fair share in taxes. If this tax revenue were invested in education and health care, societies and economies would further flourish,” said Winnie Byanyima, executive director of Oxfam International.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is one tool to fight large-scale tax evasions. It was developed by the Council of Europe and the Organization for Economic Cooperation and Development in 1988 and updated in 2010.

Parties to the agreement cooperate by providing financial information to other party countries on request, performing tax examinations and assisting with recovery of tax dollars.

Twelve African nations sign agreement

Kenya and Senegal signed the agreement in February. Other African parties to the convention are Morocco, Gabon, Cameroon, Mauritius, Uganda, Ghana, Nigeria, South Africa, Tunisia and Seychelles. Globally, a total of 94 countries have signed the convention.

Kenya also recently passed a law that prevents companies from using a common tax-avoidance practice called “transfer pricing” or “trade mispricing.”

Using this practice, companies allocate their costs to subsidiaries in high-tax jurisdictions in order to pay most of their taxes at the lower rate while moving their profits to jurisdictions where they pay little or no tax.

For example, the African Union study described a South African case in which a multinational corporation claimed that a large part of its business was located in the United Kingdom and Switzerland, with relatively low tax rates.

On investigation, South African officials found the European branches had only a few staff while the company conducted most of its business in South Africa. The scheme had enabled the company to avoid $2 billion in taxes, which the South African government reclaimed.

Invoices misstate value

Other practices are “under-invoicing” or declaring a low value on exports to minimize profits on paper and “over-invoicing” by declaring a high cost on imports.

For example, Mozambique records showed an export of 260,385 cubic meters of timber was exported to China in 2012 while records in China show 450,000 cubic meters were imported from Mozambique that year, according to the report.

Another study, by Global Financial Integrity (GFI), found high rates of over and under-invoicing in Kenya, Ghana, Mozambique, Tanzania and Uganda in the decade leading up to 2011.

Kenya, Tanzania see high losses

GFI said Kenya had an estimated $10 billion and Uganda $813 million in under-invoicing. At the same time, Tanzania had $10 billion to over-invoicing. Ghana had more than $14 million for the decade in misstated invoices and Mozambique more than $5 million.

The African Union report said illicit financial outflows from Africa have more than doubled since 2001, from $20 billion to the current $50 billion. The report said African nations lost about $850 billion to illegal transfers between 1970 and 2008, including $218 billion from Nigeria, $105 billion from Egypt and $82 billion from South Africa.

The report said mispricing occurs in a number of sectors, including mineral production in the Democratic Republic of the Congo and South Africa, crude oil exports from Nigeria, and timber sales from Mozambique and Liberia.

Corporations, organized crime cited

Thabo Mbeki, the former president of South Africa who chaired that panel that produced the report said large corporations were the main tax abusers aided by corrupt officials and weak governance.

“The information available to us has convinced our panel that large commercial corporations are the biggest culprits of illicit outflows, followed by organized crime,” Mbeki said.

African and non-African governments as well as oil, mining, banking, legal and accounting firms were involved in tax avoidance schemes, according to the study.

It found that 38 percent of the outflows from the continent originated in West African and 28 percent in North Africa. Southern, Central and East Africa each accounted for about 10 percent.

While significant to the continent, Africa’s losses are a small share of the illicit outflows globally, about six percent of an estimated $1 trillion between 2007 and 2009.

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