JOHANNESBURG – When Mauritius first replaced South Africa at the top of the World Economic Forum’s (WEF’s) Global Competitiveness Index for countries in Sub-Sahara Africa two years ago, it caught some people by surprise.
Many still regard the island off the South East coast of Africa primarily as a tourist destination. While tourism does make a fairly substantial contribution to the country’s economy, nowadays Mauritius has a fairly diversified economy, spanning financial services, textiles and to a lesser extent sugar cane and fishing (among others).
Over the past few years several commentators have warned that South Africa is at risk of losing its status as the gateway to Africa as countries like Nigeria, Mauritius and others reposition their economies.
But despite a tepid growth outlook, electricity constraints, labour unrest and unemployment, South Africa still has a lot going for it. The WEF report previously commended the country for the regulation of its securities exchanges, the strength of its auditing and reporting standards, access to deep pools of capital and the high accountability of its private institutions.
Yet, the rise of Mauritius in these rankings didn’t happen by accident and there are some lessons South Africa can learn from the island, even if it is just that there may be room for improvement in certain areas.
1. Continuity in policy and plans
Kamal Taposeea, chairperson of Minerva Fiduciary Services, says the country’s service culture, focus on education and willingness by successive governments to keep the same norms (or to enhance them) have made it attractive to foreign investors.
Mauritius implemented a free education strategy a long time ago, which has helped the country tremendously. School is obligatory for nationals, he says.
2. A simple tax system
Graham Sheward, managing director of Cim Global Business, says a harmonised tax rate of 15% for resident individuals and companies “makes life pretty simple”.
Value-added tax (VAT) in Mauritius is also levied at 15%.
He argues that this simple tax structure has been an enabler for doing business and helped enhance the country’s competitiveness.
As a corporate service provider that offers fiduciary services, trust administration, corporate service administration and fund administration for international companies, it regularly finds that businesses want to set up in Mauritius for risk mitigation, Sheward says.
The country also has no exchange control, which is quite attractive to a number of companies that operate from countries like South Africa, Mozambique and Rwanda where there are exchange controls, he says.
There is no tax on dividends, no inheritance tax and no capital gains tax (with the exception of Mauritian real estate).
Philippe Hardy, founding member of DMH Associates, says the more tax bands and tax incentives there are, the more likely it is that there will be loopholes and that people will try to “optimise their tax”.
“It [the tax system] is so simple that it is not the best place for a tax expert to be,” he says.
While the country has roughly 42 double taxation agreements with various countries (including South Africa), it is its investment protection promotion agreements (IPPAs) that have encouraged businesses to set up in Mauritius, because of the high degree of protection it offers, Taposeea says.
But the notion that businesses set up shop in Mauritius because it is a “no” or “low” tax jurisdiction or that it is the only attraction is incorrect, he says.
3. A clear strategic pathway
The island has a clearly defined economic development strategy over the next five years.
Richard Robinson, president of the South African Chamber of Commerce in Mauritius, says this strategy covers every single sector of the Mauritian economy and is a very well thought-out document.
It sets out where the government wants to take the economy in a few hundred points.
“If they achieve 50% of their wishlist, I would be the first one to open a bottle of champagne to them because it’s a huge ask. But if you don’t dream big, if you don’t set the bar high, it’s very easy to achieve it and they’ve set an incredibly high bar. So I say hats off to them, because if this sets the tone for future governments of this country to aspire to, I think it would be superb,” Robinson says.
Robinson says the fact that the government refers to the political regime, as “innovative socialism” would probably scare a lot of capitalists, but it doesn’t scare business. In fact, the only socialism is the strong component of social upliftment, which business supports.
4. Open for business
Robinson says Mauritius is “absolutely” open for more trade.
Unfortunately South Africa often sees Mauritius as a major competitor although he doesn’t believe this is the case.
“It’s a tiny economy compared to South Africa… I think the two countries could work hand in hand. There should be far more agreements between the two countries – far more bilateral trade. There’s a freedom of information. There’s a tax sharing agreement. So it’s not like Mauritius is trying to do anything clandestinely at all,” he says.
Robinson says a number of South African trade delegations have visited Mauritius and they noted that while the latter country has got some very good policies, they could never implement it in South Africa because they are mired in bureaucracy.
In Mauritius, government departments generally have a flat structure and government is accessible.
“I’ve had meetings on two days of notice with the minister. They are looking for inward investment. They are keen to try and explore ways to increase it and to uplift their own community.”
Of course, like all countries Mauritius also has its challenges.
As the country tries to position itself as the Singapore of the Indian Ocean, questions remain about whether it would be able to support the development and population growth required while still maintaining its island character.
The country is relatively small by landmass and a significant percentage of land is controlled privately, which could pose a challenge for the state in its development efforts. Further infrastructure development – especially with regard to roads and connectivity – will also be necessary.
* The journalist visited Mauritius as a guest of Air Mauritius, Indigo Hotels and the Mauritius Tourism Promotion Authority.