How to grow an island economy of just 1.3 million people, thousands of kilometres away from the world’s major markets, requires some creative thinking. But Mauritius is making a virtue of its relative isolation by reinventing itself as a connector between Africa and Asia. At the forefront of the strategy is more trade and investment from China. WiC spoke to Bonnie Qiu, chief executive officer of HSBC Mauritius, for more on the background to China’s commercial ties with the Indian Ocean island, as well as how a groundbreaking trade deal could herald a new era for its economy.
Can you give some background on how the Mauritian economy has developed in recent years?
Mauritius is one of Africa’s greatest development success stories. In the past it was largely a mono-crop producer and exporter of sugar. But it has completely overhauled its economy, with diversification into sectors like high–end tourism and higher-end manufacturing that taps into trade deals with other nations.
More recently there’s been more focus on the financial services sector and information technology, leveraging the island’s reputation as a politically stable location with a robust legal system.
There are other attractions for investors: Mauritius is geographically blessed to be in a time zone that works well for a lot of other markets and there are no foreign exchange controls, which investors see as very business-friendly.
That’s brought more Chinese trade and investment to the island?
Historically most of the interest has come from companies from other countries. As a general observation, HSBC’s corporate clients from Europe, North America and other parts of Asia, including India, have been the most active in leveraging the opportunities here to grow their businesses.
With the Chinese, we are at an earlier stage in the story. Ties are close at government level, helped by the fact that Mauritius was one of the first African nations to give diplomatic recognition to the People’s Republic of China back in the 1970s. We see more of that connectivity today – the Chinese embassy has put in a cultural centre and there’s a Confucius Institute, for example – but these ties need to be deepened across the private sector as well.
We feel it is often the case that Chinese companies do not know enough about the opportunity here. Multinationals from elsewhere have set up in Mauritius, but Chinese firms are here in smaller numbers so far.
When I speak to the Chinese companies that are in Mauritius, they often tell me that they arrived as a result of government-to-government interaction but then decided to stay after seeing the benefits of operating here. Others admit that they ended up on the island almost by chance rather than as part of a process that was deliberately planned.
Part of our focus at HSBC is to showcase Mauritius to more Chinese clients, especially in demonstrating its attractions for businesses wanting to grow in other African and Asian markets as well.
Which sectors have seen most interest from Chinese firms so far?
Initially, newer investment from China was likeliest to flow into local garment and textile businesses, some of which have benefited from reductions in trade tariffs. Like many other countries, Mauritius has also experienced rising Chinese imports, which are currently valued at about $800-900 million a year. Most are consumer goods, with contributions from other areas such as materials for construction and infrastructure projects.
From an investment perspective, the Chinese have been involved in delivering some of the key infrastructure projects. They built the new airport and there are plans to extend it further. Chinese firms were also part of the construction effort for the Bagatelle dam and water treatment plant, which is about 20km from the capital, Port Louis. The reservoir there is the main source of freshwater on the island.
In future, I anticipate more of a role for Chinese firms in other areas of the island’s economy. The government here has committed to 60% of local energy generation coming from renewable power and there is huge potential to achieve that through projects like offshore wind farms, for instance.
Of course, we get 300 days a year of wonderful sunshine, so Chinese expertise in solar energy will be useful as well.
Renewable energy is a definite growth area. The ‘blue economy’ has also been identified as one of the emerging pillars for Mauritius to grow its economy into a high-income one. The idea is to tap into marine and coastal ecosystems through a more sustainable economic model – from generating renewable energy and promoting ecotourism to sustainable fishing and transport.
Mauritius is also trying to position itself as a launch pad into other markets?
It already plays a wider role in regional terms. The population is relatively small at 1.3 million people but there is deep financial liquidity on the island, supporting the country’s ranking as the only investment-grade sovereign in sub-Saharan Africa.
That status says something important about the island and we’ve seen its financial solidity again during the pandemic, when companies have continued to park their capital here. The tourist sector has been pretty much closed down by Covid-19 but the economy has been robust and the central bank has been able to control liquidity in the market
Another area for focus is the island’s role as a trading hub. That’s been getting headlines as Mauritius signs trade deals with other markets, including one with the Chinese, which came into effect at the start of this year. It’s the first FTA that China has signed with an African country, with tariffs on two-way trade eliminated for most products.
And there are other trade deals in place with countries like India, Turkey and Pakistan – in fact, it’s been said that 70% of the world’s population is covered with trade agreements between Mauritius and other markets.
The strategy is that the island serves as a connector between these different countries. As trade flows grow, Mauritius will pick up more services business around them as well, especially in the financial services sector.
On the manufacturing side, some foreign firms have also started to explore the option of moving value-added parts of their production process to Mauritius and then re-exporting the goods to other markets, which brings the benefits of the range of trade deals into play. These firms will benefit from reduced tariffs on their exports, allowing duty free access for products with value addition, given that Mauritius is also part of various regional blocs such as SADC and COMESA.
What are the practicalities for firms that want to do business from Mauritius?
International firms apply for different licences from the government. Trading and holding companies are granted something called a global business company licence, for example. There is a different procedure for companies wanting to establish services hubs, like a regional treasury function, in which they apply for a Global Headquarters Administration licence, as well as a Global Treasury Activities licence subject to certain criteria being met.
Companies with manufacturing plants in other countries have already started to move their billing centres to Mauritius and last week I was talking to one of China’s leading logistics firms, which wants to do something similar. It is looking at Mauritius as its transactional banking centre as it explores new markets in Africa.
In fact, the island is a great resource as a middle-office layer for firms that are expanding in the region. Office rental rates are competitive and there is a skilled, productive workforce. Additionally, there’s the absence of exchange controls and the positives of the time-zone benefits, especially for Asian and African markets, which add to the appeal of Mauritius as a hub.
For similar reasons, a growing number of asset managers are establishing themselves here as well. Much of the institutional money is from North America and Europe, and particularly from countries with historical links to the island, like France.
As yet the island hasn’t picked up much China-outbound investment flow, which has clustered through places like Hong Kong. But the government is making the case that companies should be considering Mauritius as an asset management hub, especially as a conduit for investment in markets in Africa and Southeast Asia.
There are opportunities to service China-inbound investment as well, especially from Indian investors wanting a bigger piece of the China story. They generally don’t invest directly in China from India, preferring to use Mauritius as an intermediary jurisdiction instead.
Besides these trade deals, Mauritius has signed Investment Promotion and Protection Agreements with a number of countries. These are government-to-government agreements that help to protect the firms’ investments, depending on the destination country.
Looking ahead, how do you anticipate that Sino-Mauritian ties will deepen?
Mauritius brings so much to the table as a safe-haven economy, an entrepot for trade and services and as a launchpad into nearby markets. Chinese firms should be in a position to leverage these benefits just as much as those from other countries.
At HSBC we will be promoting the Mauritius-China trade and investment corridor by bringing new companies to the island and helping our existing clients to grow their businesses. Newer areas of the economy like renewable energy, pharmaceuticals and healthcare have really exciting prospects and we will be active in championing Mauritius’ existing strengths as a banking centre, where it has clear competitive advantages.
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