MAURITIUS: COUNTRY AND FOREIGN INVESTMENT REGIME

Mauritius Geography

Mauritius lies in the southern Indian Ocean to the east of Madagascar; it became a republic in 1992 and comprises four islands: Mauritius, Rodrigues, Saint Brandon, and Agalega. With the exception of its coral reefs and beaches, the land area of 710 square miles (1,865 sq km.) is of volcanic origin. The other islands comprise another 67 square miles (175 sq km.) of land area. About 90% of the cultivated land area is devoted to sugar cane.

The climate is defined as sub-tropical; winter temperatures average between 17 C and 24 C and summer temperatures between 24 C and 30 C. Rainfall in summer (November to May) averages 51" (140mm) per month. Therefore, humidity levels rarely dip below 60%, peaking at 70% plus from February to April when the rainfall is highest. Winter rainfall averages 2" (50mm) per month with humidity levels around 60%.

The time zone is 4 hours ahead of GMT, 9 hours ahead of EST. Mauritius is served by SSR International Airport at Plaisance, which is 45 kilometres south east from the capital Port Louis; ten international airlines operate from here. Port Louis, the capital, is the only port and is served by 25 international shipping lines.

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Mauritius Population Language and Culture

The population of Mauritius is 1,275,000 (July 2008 est.), of which around 150,000 live in Port Louis. The official language is English, although Creole, French, Hindi, Urdu, Hakka and Bojpoori are also spoken. Arab traders were the first to land on Mauritius during the 14th and 15th centuries, however, the island was too far off their trade routes for them to form a settlement, as thought also the Portugese explorers who came after them.

The island was colonised for the first time by the Dutch in the 17th century; in the latter half of that century there was a wave of French immigrants who brought their African slaves with them. Britain took over Mauritius in 1810, abolishing slavery in 1835. To replace slave labour, indentured labourers were introduced, until this practice too was stopped by the British in 1922. After this, immigrants continued to arrive from Asia but not in the same numbers as during the indentured years. Ethnically, about two-thirds of the population is Indo-Mauritian, and most of the remainder are Creole. About half of the population is Hindu, with 28% Christian and 17% Muslim.

Mauritius gained independence from Britain in 1968 and with it lost the Diego Garcia Archipelago; this is still a source of dispute. Tourist numbers have steadily increased from 150,000 in 1985 to around 825,000 in 2006, heralding a boom in hotel building. Mauritius is a member of the Association of Francophone Countries, The British Commonwealth, and the UN.

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Mauritius Government

Mauritius is a sovereign state within the British Commonwealth. The head of state is the President of the Republic who is elected by the National Assembly. The Prime Minister is the leader of the winning party after elections for the National Assembly, which are held every 5 years, and is appointed by the President. The Council of Ministers is appointed by the President on the Prime Minister's recommendation. The leader of the opposition is also appointed by the President and is normally the leader of the main opposition party. There are 62 members of the National Assembly who represent the 21 constituencies; a further 8 members are nominated as best losers in an attempt to give fair representation to ethnic groups and minority parties.

The Prime Minister is Navinchandra Ramgoolam (since 5 July 2005).

Mauritius's legal system is a mixture of English Common Law and French Civil Law. Company and procedural law is based on English law. Substantive law is in the main modeled on the Napoleonic code. The Supreme Court of Mauritius is the highest court in the republic; final appeal is to the Privy Council in England.

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Mauritius Economy and Currency

Ever since gaining independence from Britain in 1968 the economy of Mauritius has grown steadily at around 5% annually. Growth slackened off in 2002 at about 2.2%, but rose again in 2003 to 4.1%, dipping to 3.1% in 2005. In 2006, it was estimated at 4.3% and in 2007, 5.7%. Growth is forcast at 6.2% in 2008. Sugar was and is a dominant crop, and still accounts for more than a third of export earnings. There are growing industrial, services, and tourist sectors. An export processing zone set up in 1970 has been successful, particularly in garment manufacture. The financial services industry has been a more recent Government-inspired initiative, but is now developing strongly.

GDP per head of $13,500 (2006 est.) is in a middle range, and unemployment at 8.8% (2007 est.) is on the high side.

The Mauritian currency is the rupee (MR). Exchange controls were dismantled in stages between 1984 and 1994. Currently (2008) USD1 = about MR28. Investors are still required to demonstrate the source of funds to be repatriated, and must be up to date with local taxation.

The 2005 budget swept away most import duties with the aim of boosting the domestic economy.

Concluding an Article IV consultation with Mauritius in January, 2006, the IMF noted some economic problems due to adverse external trade circumstances, and recommended privatization of state enterprises plus broadening of the tax base.

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Mauritius Stock Exchange

In 1989 Mauritius set up its own stock exchange under the Stock Exchange Act 1988. The exchange is regulated by the Financial Services Commission. There is an Official List with 41 listings and a 'Development & Enterprise Market' (DEM) with 51 companies listed. As of 31st July 2008, the market capitalisation of the companies listed on the Official Market stood at almost USD5.9bn.

According to the Stock Exchange's Annual Repoty for 2005-2006, it was a year of "solid performance" by the stock market which saw all three-market indices break new all-time highs more than once during the year.

Market capitalization grew by 22.89% during the year and reached Rs 83.9 billion at end June 2006, representing 41% of GDP.

Total Value traded increased by 42.4 % on its previous year’s level and attained Rs 4.57 billion.

A new Securities Act was passed in 2005.

Electronic clearing and settlement was introduced in 1997, and a Centralised Depository System was implemented in 1998 which allows delivery versus payment (DVP) on a T+5 day rotating basis. The establishment of a clearinghouse, through the Bank of Mauritius, provided for a guarantee fund, which incorporates measures for securities and fund settlement failure. The Stock Exchange in collaboration with international advisers also drafted new listing and reporting rules to ensure greater transparency for investors.

An Automated Trading System (SEMATS) was launched on 29th June 2001. SEMATS put an end to traditional trading patterns which had typified the Stock Exchange of Mauritius since its inception. Trading in securities is conducted through dedicated trading workstations located at stockbroking firms and linked by communication lines to the SEM trading engine.

The Exchange was recently promoted from the status of 'corresponding exchange' to that of Affiliated Securities Market within the Fédération Internationale des Bourses de Valeurs (FIBV). Mauritius is also a member of the African Stock Exchanges Association (ASEA).

The market was opened to foreign investors after the lifting of exchange controls in 1994; foreigners are limited to individual holdings of not more than 15% in sugar companies, but are not otherwise limited unless they attempt to gain legal or management control of a Mauritian company (see Business Environment below). Settlement can be made in foreign currency; there is no capital gains tax and no withholding tax on dividends from companies on the Official List.

In September 2006, the SEM said it planned to launch an Alternative Development Market in early 2006.

CEO of the Mauritius Stock Exchange (SEM), Sunil Benimadhu said that the new market would allow the SEM to contribute to the process of empowerment of entrepreneurs and the government's goals for the 'democratisation' of the Mauritian economy.

The Development & Enterprise Market (DEM) was designed for companies previously quoted on the Over-The-Counter (OTC) Market, Small and Medium-sized Enterprises (SME’s) and newly set-up companies which possess a sound business plan and demonstrate a good growth potential.

It is meant for companies seeking an organised and regulated market to raise capital to fund their future growth, improve liquidity in their shares, obtain an objective market valuation of their shares and enhance their overall corporate image. The rules governing the DEM are less stringent than those of the Official Market, and the market is open to foreign investors.

With the implementation of the DEM, the OTC Market was phased out in January 2007.

The SEM joined the World Federation of Exchanges (WFE) in November, 2005. According to Mr Benimadhu, membership of the WFE will very much assist the Exchange in attracting foreign investors, and indeed the SEMTRI index gained 32 points in January, 2006, to close at a record high of 1,984 at the end of January. Capitalization of the exchange reached 81 bn rupees, representing 43.3% of GNP, with 22 million rupees arriving in the first two weeks of January alone.

In February 2008, the Financial Services Commission (FSC) announced that a licence to operate a Commodity Exchange had been issued to Global Board Trade Ltd (GBOT). GBOT’s main promoter is Financial Technologies (India) Ltd (FTIL), a company listed on both the Bombay Stock Exchange and the National Stock Exchange of India and one of the main promoters of the Multi Commodity Exchange of India (MCX). MCX, India’s largest Commodity Exchange, is partly owned by NYSE Euronext.

GBOT informed the FSC that it proposes to set up the Commodity Exchange as the first phase of a broader Multi Asset Class Exchange. Initially, trading on the Commodity Exchange will be in precious metals, base metals, energy, green contracts and Agri Commodities. The Commodity Exchange should allow different categories of participants - from within Mauritius and abroad - to trade through an electronic platform linking geographically dispersed buyers and sellers in real time.

The promoters of GBOT expect that the Commodity Exchange based in Mauritius will help accelerate the integration of the African sub-continent with the world economy by leveraging the strategic location of Mauritius between the time zones of New York, London, and Tokyo and will boost the image of Mauritius as a globally-integrated, leading financial centre in the region. The Exchange will facilitate links between commodity markets in Africa and global trading hubs, in accordance with principles of price transparency, trade efficiency, risk hedging and structured finance to the interiors of the region.

The Exchange was expected to be operational in the second half of financial year 2008 and to be located in Ebène.

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Work permits are necessary for non-Mauritians to be employed; there is no maximum stay as such, but work permits are issued for a minimum period of 6 months and a maximum of 3 years. Permits are issued by the Prime Minister's Office in association with the Ministry of Human Resource Development and Reform Institutions.

In order to buy property, non-Mauritians require authority from the Prime Minister's Office.

It was announced in the government's 2008 budget that investors whose businesses in Mauritius have an annual turnover of R15 million for three consecutive years will be able to apply for Permanent Residence.

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Mauritius Business Environment

Mauritius is well served by business and communications infrastructure and is a dynamic economy; the government actively encourages foreign investment and offshore activity through the Board of Investment.

There is a very clear distinction between the 'onshore' and 'offshore' sectors. Foreigners need specific permission from the Prime Minister's office before they can own shares in an onshore company, while Mauritians are barred from taking part in offshore activities.

2001 saw a comprehensive modernisation of the country's legal structure, partly just to catch up with competitors, partly to give expression to the decision to eschew 'offshore' status as such, and partly as a follow-up to the decision to sign a Commitment Letter to the OECD in order to avoid 'blacklisting'.

In this context the Mauritius Offshore Business Activities Authority (MOBAA), which had been a 'one-stop-shop' for the offshore sector, and had been the licensing and supervisory authority for offshore companies (except banks) since 1992 had clearly outlived its usefulness, as had the various pieces of legislation which explicitly recognised offshore companies and structures. All this was swept away, and new legislation came into effect in October of that year.

To some extent, the changes were cosmetic rather than substantive, although there is no doubt that the new supervisory regime is a lot tougher than the old one. The Financial Services Development Act 2001 is a particularly complex piece of legislation, giving very extensive powers to the new Financial Services Commission which effectively replaced MOBAA as well as taking on some of the functions of the Central Bank. As the FSC gradually introduced its new supervisory regime in 2002 and 2003 there were complaints from the offshore sector that it was being heavy-handed. However, the total number of 'Global Business Companies', as the old Offshore and International companies are now known, had reached over 25,560 by May 2005, up more than 2,000 in the previous year.

There is a wide range of investment incentives for inward investment. Free Trade Zones and a Freeport were established in 1992 enabling up to 100% foreign owned enterprises. Money laundering is discouraged by the government, as is any trade in guns or drugs.

The island republic has a good labour relations record and productivity has shown a 5% annual increase since 1994. Training and service quality are regarded as important; many Mauritian firms have adopted ISO 9000. Financial and professional services are well represented and a successful stock exchange was opened in 1989.

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In order to set up in the EPZ, an Export Enterprise Certificate must be obtained from the Ministry of Industry and Technology, involving a certain amount of bureaucracy. Once established in the EPZ, the following incentives apply:

Companies in the EPZ have access to the African Preferential Trade Area and quota-free access to the European Union.

There is also an Export Services Zone, providing benefits comparable to those of the EPZ to companies offering support services to exporters in the EPZ.

Freeport facilities were established at the port and airport under the Freeport Act 1992 (now repealed and re-enacted as the Freeport Act 2001). Although numerous licenses were issued under the Act, lack of storage facilities limited take-up of the benefits for some years. The incentives offered are broadly similar to those available in the EPZ, see above, and in addition there are reductions in port handling charges for re-exports.

The Mauritian government announced plans in 2001 to create an IT free-trade zone on the island. Prime Minister at the time, Anerood Jugnauth, stated that: 'The year 2001 will be marked by the relaunch of the Mauritian economy. We want to make Mauritius an information technology free trade zone with digital parks.'The digital parks will offer all the latest available technological facilities to meet the needs of IT business, and the government aims to provide a series of fiscal incentives to both domestic and foreign businesses operating in Mauritius, including a 5-year tax holiday.

Jugnauth also announced the launch of an official body to promote the IT sector in Mauritius as a major centre for foreign businesses. The government hoped to emulate the success of its Export Processing Zone (EPZ). In 2002 the government allocated US$100m to the development of its 'cyber-city'.

As of early 2006, the Ebene Cyber City was in operation, and had attracted 25 operators.

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