Kee Chong Li Kwong Wing : Rethinking the Mauritius financial services sector

Under the spotlight

Our financial services sector has had its fair share of criticism in the international press recently. Even the official press release from the Ministry of Finance of India following the renegotiation of the India-Mauritius Double Taxation Treaty candidly asserted that ‘The Protocol will tackle the long pending issues of treaty abuse and round tripping of funds attributed to the India-Mauritius treaty’. This added to the list of accusations levelled against our jurisdiction by Swissleaks, Panama Papers, International Consortium of Investigative Journalists, and even by some ignorant local political pundits, branding Mauritius as an opaque fiscal paradise where a lucrative business was being supposedly made with black money. All this was not helped by the former Prime Minister seen on TV with heaps of newly issued hard currency notes in his coffers seized at his home.

“No one kicks a dead dog”

But no one kicks a dead dog or, to put it à la mauricienne, throws stones at green mangoes. In a way, the country is paying the price of its success. It has indeed never been put on the blacklist of the OECD and was always in the forefront to sign any new agreements for disclosure and exchange of information.

After all, what we have done is, in many ways, no different from what more established major jurisdictions had done to achieve a competitive edge, e.g. by exploiting preferential market access or by taking advantage of market inefficiencies/deficiencies. For us, in the financial services, our value proposition has been mainly in terms of tax arbitrage, although this is only part of a package of benefits offered by Mauritius.

I believe that what Mauritius has done was fair game, given that we are a low tax jurisdiction and have worked in a way that is mutually beneficial to all parties. While Mauritius has been able to deepen a sector that now contributes healthily to GDP, it has also facilitated FDI inflows in counterparty countries, thereby promoting investment, growth and employment therein. It would be unfortunate to consider the treaty benefits that Mauritius has harnessed to necessarily be at the expense of our counterparties, in a zero sum game fashion.

Level playing field or double standards?

Moreover, while Mauritius, a tiny country, is being bullied despite its real commitment to best practices, the big global brothers are furthering their own tax havens, with blatantly less stringent compliance and disclosure requirements. Delaware, where the former US Vice President comes from, Monaco and even Luxemburg, among others, are glaring examples of double standards practised by the developed world. Now Gujarat also wants to join the illustrious league of money spinning centres led by the City of London and Wall Street.

Nevertheless, recent developments foretell an era of changes in the global financial services sector. FATCA and the Common Reporting Standards under BEPS are probably two of the most relevant and far-reaching developments for global financial centres, namely in the areas of disclosure and taxation. Here again, Mauritius has been compliant by signing its commitments to the new rules. I just hope that the big boys also practise what they preach and do not again start to play games or move the goal post. This new global environment should hopefully create a level playing field, where every country competing in this sector would then have to look for its own niche.

For Mauritius, the strategy for the future appears to be centred on Africa. The long standing overreliance on the India-Mauritius DTAA has today resulted in a kind of emergency salvation strategy towards Africa. Many firms are still uncertain about the way forward and the path to follow. It is high time to rectify this situation. Mauritius has to gear up on its Africa Strategy, failing which it might soon lose this window of opportunity also.

Playing to our strengths

Some of the advantages that we can exploit in targeting the African market include: (i) proximity to the continent, (ii) a strong governance framework, underpinned by the rule of law, a well-functioning hybrid legal system and an emerging arbitration centre, (iii) a multilingual and multicultural society with a strong tradition of hospitality, (iv) a favourable time zone, and (v) a strong track record of political stability.

The challenge lies in using these advantages – by no means huge – into a value proposition to reposition the country as the place to be to conduct business with Africa. Looking at the experiences of other jurisdictions and based on my own experience in the sector since its early beginnings, I can see that there are many opportunities that can be tapped into, which of course cannot all be spelt out here. Let me nonetheless highlight a few opportunities that can trigger a revival of the sector.

The African dollar market – Analogous to Singapore’s initiative with respect to the Asian dollar market, whereby it acts as a major intermediation centre for USD-denominated deposits and loans, Mauritius could be the pivot for an African dollar market. Already, our banking sector is harnessing offshore deposits to the tune of more than 100% of GDP, and using the excess dollar liquidity to fund Africa. In the current context, where large international banks are getting out of the African market as operators or clearing banks, there is an opportunity for Mauritian and home grown African banks to fill in the gap and use Mauritius as the intermediation centre par excellence.

Renminbi clearing centre – In the same vein, the internationalization of the renminbi, amidst a push by China for greater use of its currency, represents a big opportunity for Mauritius. Similar to what London has become for Europe and Hong Kong for Asia, Mauritius could become the renminbi clearingcentre for Africa, given our strong banking system and our traditional trade links with China.

Blockchain Centre for Africa – As the country embarks on a journey to digitalize the economy, with its strong IT ecosystem, coupled with an innovative culture, it would go a long way towards attracting new businesses especially in the field of fintech and finnovation. Cryptocurrencies such as Bitcoin and other fintech initiatives relating to high frequency trading and blockchain technology can be fully exploited. Value added services such as big data analytics, 3D printing, virtual and augmented reality, artificial intelligence and robotics must also be propelled. Mauritius needs to rebrand and position itself on the map as being the blockchaincentre for Africa at the forefront of innovation rela-ting to finance, technology and customer service.

Wealth Management Centre – African high net worth individuals and families could use Mauritius as a hub for their investments, taking advantage of the stable political environment and good quality of life. Institutional Fund Managers, Pension Funds and Family Offices with interest in the African market should be encouraged to establish their Treasury and Wealth Management centres here, generating volume and value to our proposed African dollar market.

Capacity building

Of course, without the right competencies and mind-set, all these initiatives – and many more which I have not here mentioned – would not be very effective. First and foremost, the country should aim to become a talent hub – a hotspot attracting the brightest minds. This would help create new lines of businesses, and upgrade competencies across different skills spectrums. A more open immigration policy would need to be considered to this effect.

The way forward

These are only some ideas that can be undertaken to transform the financial services sector. To avoid pitfalls of the past, where initiatives were taken in a technocratic and haphazard manner, it is proposed that a comprehensive study be conducted to reposition the Mauritian financial services sector. We cannot afford to let this sector remain as a stultifying low value-adding appendage to the economy as it is one of the few promising sectors that has the real potential to lead the country to high income status.