Financial Services: Why Multinationals Are Welcome

The contribution of the financial services has reached around 12% of GDP. Arguably it is one of the most promising areas for future development which corresponds to the needs and ambitions of the country

Why are multinational companies interested to acquire our major local Offshore Management Companies at a time when many predicted the demise of the offshore financial services industry following the abrogation of the Indo-Mauritian Double Taxation Avoidance Agreement (DTAA)? This is an often asked question to which it is difficult to answer.

The globalized nature of capital and especially of financial capital forms part of the inevitable global paradigm shift which reached our shores when we had to face the music after the announcement of the end of the Sugar Protocol and preferential access to markets. The abrogation of the special treaty between India and Mauritius is now testing our capacity to adapt to the new rules of the global financial industry. These rules are being defined by the rich countries (OECD) and inevitably reflect a high dose of cynicism if not outright hypocrisy. Our local players, the owners and shareholders of the companies which are being acquired have clearly made their choice: they are cashing out their stakes at what one would suspect are interesting premiums while the going is good, and it would indeed be naïve to blame them.

During the last year or so IFS, CIM and ABAX have been acquired by Sanne Group plc, SGG Group and Ocorian respectively. The sales of three of the largest Offshore Management Companies (OMC) to these foreign financial services multinationals may seem a little disheartening to the casual observer who might view this as the sale of the jewels in the crown of the financial services industry of Mauritius. While one may to some extent empathise with such sentiments, a deeper and more realistic examination would lead to a completely different conclusion.

Offshore Management Companies that have hitherto thrived on the Double Taxation Avoidance Agreement (DTAA) with India are verily one of those demonstrations of Mauritian ingenuity and innovations that have helped transform the economy of the country over the past decades. In the event thousands of jobs have been created for qualified professionals and other categories of workers in the financial services industry and the exposure to international practices has built strong knowledge capital foundation in the sector.

Interestingly enough while the abrogation of the Indo-Mauritian DTAA in the course of last year was predicated to be the start of the demise of the Mauritian financial centre, no such thing seems as yet to be happening. Instead the industry is showing surprising resilience. The acquisition of three of the largest companies by well-established multinationals vindicates the reputation of Mauritius as a business friendly destination, with reputable institutions. Perhaps even more importantly, it also constitutes recognition that the destination is endowed with adequate human resources, especially in the middle management echelons to ensure the continued development of this economic pillar.

Hopefully the arrival of these multinationals will rapidly throw into gear a virtuous circle of further enhancing the quality of the human resources, add substantially to the knowledge capital base and help widen the product offerings and expertise. For starters, the presence of such “names” in the Mauritian financial centre is a considerable plus for our global reputation.

The recent publication of what has been dubbed the Paradise Papers following on the heels of the Panama papers has provoked shock at how rich individuals and corporations use so-called “tax havens” to stack their cash and other investments (bonds, equities, etc) and thus avoid payment of taxes. The OECD estimates that the offshore wealth management companies operating from these tax havens today constitute a multibillion-dollar global industry which escapes scrutiny and are extensively used by ultra-wealthy individuals and corporations to conceal their riches. They are therefore pressing for greater transparency and regulations.

Mauritius has thus been hard pressed to join the ranks of the early adopters and agreed to be part of a network of financial centres which have promised to share bank data across borders. Such compliance has definitely helped in strengthening the reputation of our financial centre as a willing global player and contributed to the coming of the forenamed multinationals in the country. In turn one can hope that the presence of these multinationals in the local jurisdiction could contribute to strengthen the hands of the country in future negotiations critical for the survival of our financial centre.

The adoption of the Base Erosion and Profit Sharing (BETS) scheme aggressively promoted by the OECD and endorsed by the G20 nations (including India) has favoured the emergence of a totally new global taxation and regulatory framework. It has redefined the new parameters for a successful financial centre and arguably the key factor of success in this new environment is summed up by one word: SUBSTANCE or the ability and dispositions to contribute significantly to the value chain of the financial transactions occurring in the jurisdiction.

This is where the coming of the new multinationals is likely to add to the credibility of the Mauritius financial centre. Foreign direct investments are not only beneficial because they contribute to the consolidation of the balance of payments especially in a country like Mauritius where foreign exchange is not really a major constraint. In an increasingly complex environment dominated by the emergence of Fintech, the more critical contribution is likely to come in the form of transfer of technology, expertise and new financial offerings.

The contribution of the financial services has increased substantially over the years to reach around 12% of Gross Domestic Product, and the sector provides several thousand generally well paid jobs for professionals in company secretariat, legal and accounting services. Arguably it is one of the most promising areas for future development which corresponds to the needs and ambitions of the country.

 

* Published in print edition on 2 March 2018

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