Mauritius: Budget Highlights 2016/17 - Financial Services - Impact

1. GBC 2 will now have greater scope of operations and such initiative will give a boost to our capital markets
2. Provision of 8-year tax holidays to ‘Global Headquarters Administration’ will enhance the use of the Mauritius platform for regional and global investments and increase substance in the country. Such a measure will help to attract a number of big regional companies from various sectors of activities to use the Mauritius platform for their RHQ
3. The introduction of a 5-year tax holiday in specific financial activities will attract value added activities to the portfolio of financial services and enlarge employment opportunities.
4. Setting up of a ‘Mauritius International Derivatives & Commodities Exchange’ (MINDEX) will boost links between commodities and finance, and make the commodity sector more efficient and competitive.
5. Developing Mauritius as a Renminbi  hub for Africa would further strengthen positioning of Mauritius as an international financial centre, especially in capturing the trade, investment and financial flows between Africa and Asia.

Could Mauritius be the new African hub?

This is a nation that has all of the key ingredients for investor confidence: economic diversity, a highly competitive tax regime, investor-friendly regional trade and tax arrangements – all underpinned by a working democracy, independent judiciary and a global reputation for transparency. During such unpredictable times, Mauritius is an island of stability and reliability.

WEF: Could Mauritius be the new African hub?

Mauritius is only 65km long, 45km wide and 2,000 km away from Africa. Yet there are strong indicators that this small island in the Indian Ocean may be the ideal gateway to Africa. In a period of great economic uncertainty right across the world and the collapse of commodity and extractives prices, investors need to work harder to find strong returns. We need to analyze what it is about Mauritius that makes it stand apart.

Trinidad and Tobago IFC – Handling Negative Publicity

What should a financial centre in danger of being perceived as a ‘tax haven’ do to manage the outpouring of potentially damaging headlines? The Global Financial Centres Index (GFCI) indicates that the ratings of these centres tend to rely largely on the perceptions of people involved in financial services. These perceptions are affected by press coverage and the work of the Organization for Economic Co-operation and Development (OECD) and other international bodies.

In GFCI 19, published in March 2016, the Caribbean centres of the British Virgin Islands, the Cayman Islands, Bermuda and the Bahamas all suffered significant declines in their ratings with Panama showing a larger decline than any of them. The British Crown dependencies of the Isle of Man and the Bailiwicks of Jersey and Guernsey had a similar experience with Gibraltar, Malta, Monaco and Liechtenstein completing the picture with downgrades of their own. Looking back over the last three years, almost without exception, all of the Caribbean centres and the Crown dependencies have moved in the same direction in the GFCI – moving up together and down together clearly affected by the feelings and perceptions of the industry at the time of the survey.

If this were not unfortunate enough, the recent scandal has undoubtedly led to the deepening of these negative perceptions. In the light of the recent adverse publicity as a result of the ‘Panama paper’ leaks, what should a financial centre, which is likely to be drawn into the debacle do? There are three obvious options:

1. Lie Low and stay under the radar – it is likely that many centres will decide that in the face of such a media storm, it is best to lie low and stay out of the news as much as possible. This is perhaps understandable and may be a viable short term strategy.
2. Protest – several centres proclaim their innocence. In the current climate these protests of “it’s not us!” do not gain much sympathy. Several of the centres protesting the loudest do not deserve much sympathy!
3. Differentiate – a valid longer term strategy is to become a different type of financial centre. Encourage finance for good purposes and make it much harder for money launderers and tax evaders to operate in your territory so that when the next wave of bad publicity arrives (as it surely must), you can genuinely hold up your hand and claim that you are different.

It is pleasing to note that a newly formed financial centre is genuinely setting out to be different. Trinidad and Tobago offers global investors unparallelled access to markets within the Latin American and Caribbean region. Already recognised as the financial hub of the Caribbean, Trinidad and Tobago holds great potential for international growth with a highly qualified talent pool, well-established business infrastructure, global connectivity and a wealth of investment opportunities. The Trinidad and Tobago IFC is being developed using global standards and best practices and will have a modern, principle based regulatory framework which will be supported by enforcement action against firms that breach the legislation and regulations. This model has already been used to successfully establish the Dubai International Financial Centre. The legislation for the Trinidad and Tobago IFC has been drafted and is awaiting approval by legislators. 

"I am pleased to see that Trinidad and Tobago are doing what they can to make sure that they are not confused with other, less scrupulous Caribbean centres. Creating a truly modern financial centre with the repution that will attract international investors require is a great challenge in today's uncertain times."

Mark Yeandle, Associate Director, Z/Yen Partners Limited.

ADB: Commercial Reforms Needed to Boost Pacific State-Owned Enterprises

State-owned enterprises (SOEs) are a significant drain on Pacific island economies, with the returns from most countries’ SOE portfolios not even meeting their capital costs, according to a new report from the Asian Development Bank (ADB).

The Finding Balance 2016 report  finds SOE portfolios in the eight Pacific countries examined contributed only 1.8% to 12% to gross domestic product, despite their very large asset base, ongoing government cash transfers, and monopoly market positions. It also finds productivity levels of the SOEs tend to be well below developed country benchmarks.

“Low SOE returns are not unique to the Pacific but are common throughout the developing and developed world,” said Christopher Russell, SOE Expert with ADB’s Pacific Private Sector Development Initiative (PSDI), which produced the report. “They reveal a fundamental flaw in the SOE model: it is not an effective long-term ownership structure as politicians will avoid commercial decisions that may have short-term political costs.”

The report assesses the performance of SOEs in Fiji, Kiribati, Marshall Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu, as well as Jamaica and Mauritius. It finds many countries have made significant progress through commercially-oriented reforms. Solomon Islands’ SOE portfolio’s return on equity jumped from -11% in 2002-2009 to 10% in 2010-2014. In Tonga, portfolio returns have increased to 6% from a low of 0% in 2009. Overall, seven of the 10 countries examined had seen improved SOE profitability since 2010.

The report also highlights that, while improvements had been achieved, sustaining them has proven impossible in most countries, both developed and developing. Drawing on the experiences of New Zealand and Singapore, the report concludes that increased private sector ownership and operation of SOEs is the only way to lock in reform gains.  

Finding Balance 2016: Benchmarking the Performance of State Owned Enterprises in Island Countries is the fifth report in the Finding Balance series, which identifies strategies to guide reforms of SOEs, highlighting the importance of finding the right balance between public and private sector roles.

PSDI is a technical assistance facility cofinanced by the Government of Australia, the Government of New Zealand, and ADB. It supports ADB's 14 Pacific developing member countries to improve the enabling environment for business and to support inclusive, private sector-led economic growth. The support of the Australian and New Zealand governments and ADB has enabled PSDI to operate in the region for almost 10 years and assist with more than 280 reforms.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.