Columnists

Why Mauritius matters to investment flows in Africa

MAURITIUS

The action on Mauritius will have a major impact on investment flows in Africa, hitting hard institutional investors domiciled there. FILE PHOTO | NMG

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Summary

  • Many Africa-focussed private equity funds are Mauritius-based and mostly receive funding from European-based development finance institutions (DFIs).
  • Many African investors view Mauritius alongside Jersey, Dubai and London as one of their financial centres of choice when it comes to structuring their cross-border investments on the continent or when investing overseas.
  • It's important to note that Mauritius is a signatory to the South African Development Community (SADC), the Common Market for Eastern and Southern Africa (Comesa) and the African Continental Free Trade Area (AfCFTA).

As the Financial Action Task Force (FATF), the Paris-headquartered inter-governmental body that sets anti-money laundering standards has put Mauritius on the “grey list” alongside the likes of Syria and Zimbabwe, it has dealt a body blow to foreign institutional investors (FIIs) domiciled or registered there.

How? It identified the island as a jurisdiction having strategic anti-money laundering/combating financing of terrorism (AML/CFT) deficiencies. And ever since, there have been jitters specifically within the Africa private equity space.

Why? Many Africa-focussed private equity funds are Mauritius-based and mostly receive funding from European-based development finance institutions (DFIs).

A blacklisting, therefore, means funding from these DFIs will be next to impossible. For this reason, a quick resolution is essential. In the interim, it's important to remind ourselves why Mauritius is important to the African Private equity space.

One; the country is well regarded as a competitive, efficient and well-regulated financial centre for investment into the emerging markets of mainland Africa. As of June 2018, the total value of investments structured through Mauritius into Africa stood at Sh3.64 trillion, with South Africa, Nigeria, Democratic Republic of Congo, Mozambique and Kenya among the continent’s top five recipients. These figures include flows invested through private equity and impact funds with participation of several DFIs as investors.

Two; Mauritius is not only used exclusively for inbound investments to Africa.

Many African investors view Mauritius alongside Jersey, Dubai and London as one of their financial centres of choice when it comes to structuring their cross-border investments on the continent or when investing overseas.

It's important to note that Mauritius is a signatory to the South African Development Community (SADC), the Common Market for Eastern and Southern Africa (Comesa) and the African Continental Free Trade Area (AfCFTA).

Three; the island leads Africa across a host of indices for political stability (1st in Africa for the Democracy Index 2017, The Economist Intelligence Unit) and good governance (1st in Africa for the Mo Ibrahim Index of African Governance 2017).

Others are 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). These are all great attributes for business which are unfortunately uncommon in most African countries.

Although the FATF’s grey list may have created a negative perception towards Mauritius globally - when the FATF places a jurisdiction under “increased monitoring”, the country has to resolve swiftly identified strategic deficiencies within agreed timeframes - some notable steps have been made.

It is comforting to highlight that Mauritius is currently either compliant or largely compliant with 35 out of the 40 FATF recommendations and it has already met the FATF expectations in respect of the “Big Six Recommendations.” Nonetheless, a lot is at stake and all expect a quick resolution.

As a reputable financial centre, hope is high that Africa will keep on attracting international investment in the many years to come and that Mauritius will continue its journey to permanently establish itself as the international financial centre of choice for the region.

Mr Mwanyasi is the managing director of Canaan Capital