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Payal Singh Mohanka in Port Louis

The picturesque island is more than a bit perturbed. Finance ministry officials in Mauritius feel that while international bodies have now given it top marks -- despite it being placed on the watch-list 18 months ago -- India unfortunately has begun viewing it as a dubious financial centre. An impression senior representatives of this island nation are determined to fight.

If Mauritius-registered overseas corporate bodies, or OCBs, indulged in share manipulation on the Indian bourses, they argue, why are they being perceived as villains?

Mauritius and India share a close relationship due to geo-political, cultural and historical reasons. Besides, Mauritius is the largest investor in India. In the last week of December 2001, India approved a slew of investment proposals worth Rs 697 million of Mauritius-based companies as part of its move to attract more foreign direct investment.

These OCBs are offshore companies in Mauritius, largely(over 60 per cent, by definition) owned or controlled by non-resident Indians, which operate under the Mauritius Offshore Business Activities Authority. Mauritius has beneficial tax treaties with 26 countries.

This has two advantages: it gives Mauritius a business opportunity, and helps countries receiving the investment -- India in this case -- in not having to get into beneficial tax arrangements with a large number of countries where the investing companies may actually be domiciled.

Accepting that they have limited regulatory resources and cannot individually monitor the 1,000-odd Mauritius-registered OCBs that account for less than 10 per cent of their economy, Sushil Khushiram, Minister of Economic Development, Financial Services and Corporate Affairs, says, "Whether it is tourism or financial services, we are very clear. We're just looking at the top end. Even regarding offshore banks we are selective. We have just a dozen. We want good credible business. Nothing less. OCBs are a small portion of our business and we do not want them to give Mauritius a bad name. Any evidence of wrongdoing will lead to their licence being revoked. We have to preserve our competitiveness but there will be disclosures within a structured framework."

Since September 2000, Mauritius is one of the countries working with the Organisation for Economic Co-operation and Development to develop an instrument that would provide a legal framework for effective exchange of information and at the same time protect the confidentiality of information and prevent its use for unauthorised purposes.

Mauritius is paving the way for developing countries. With a $2-million support from the World Bank, Mauritius is setting up a model integrated regulatory body. Management companies who handle the affairs of these OCBs have been asked to closely supervise their activities and to 'know their clients' better.

Says Andrew Sek Sum, managing director of Port Louis Management Services, one of the largest and oldest management and accounting outfits in Mauritius , "This will force us to do more due diligence work. A very important area of our work. Sometimes we may ask for too much information, it may seem we are being difficult. But we are actually only doing our work."

The island economy is now tightening its financial sector. Under the Financial Services Development Act 2001, two institutions have been newly set up -- the Financial Services Commission and the Financial Services Promotion Agency.

The month-old FSC has been set up for the regulation and supervision of the financial sector. Its chief executive Iqbal Rajahbalee is scathing in his response to the criticism his country has faced in India, "A biased view of Mauritius is being projected. While we want to continue being attractive for global business we want to make one thing clear: stop using Mauritius as a scapegoat for problems others can't contain. Don't accuse us of complicity with fraudsters. We will not tolerate those who bypass our laws or commit wrongdoing."

Mauritian authorities maintain that in all their fiscal international obligations they want "to show responsibility, accountability and a strict compliance with the basic principles of good community".

Mauritius has had a Double Taxation Agreement with India from the mid-seventies much before the opening of the Indian economy.

Reacting to the strong voices in the Indian Parliament asking for DTA to be scrapped, Rajahbalee says, "India has to compete with other emerging markets like China. The cost of capital coming to India is higher than China and for India to remain attractive for investors, the DTA with Mauritius helps immensely. Should the DTA be removed, Mauritius will still carry on and thrive as a financial centre to service other countries in the region…just too bad if India does not take advantage of that. Why is an economic (crime) problem being turned into a fiscal problem?"

The FSC is not the only piece of legislation that Mauritius has introduced. More legislation is on the anvil. This month the Mauritian government is convening a special session of the legislative assembly to strengthen the apparatus to combat money laundering, economic crimes and terrorism funding.

Mauritius feels a strong need to heighten the level of supervision as ultimately in the next 3 to 4 years the FSC would merge with the Bank of Mauritius -- in the Singapore or UK model -- to create the Monetary Authority of Mauritius.

Exploring further business opportunities, this island based on its geographical proximity , is trying to emerge as a regional headquarter for companies looking to develop their business in Africa and access international markets. A year ago the African Growth and Opportunities Act had been signed by former President Bill Clinton to help develop trade between Sub-Saharan Africa and the US.

Before the introduction of this Act, exports to the US comprised primarily minerals and some petroleum products. AGOA gives products from Sub Saharan African countries duty free and quota free access to American markets.

AGOA, however, has a major limitation. It states that raw materials have to be utilised from African countries or the US. "Potential entrants are adopting a wait-and-watch strategy, while existing units in Mauritius have expanded their exports hugely.

Chinese companies have reacted with enthusiasm, however, Indian companies are yet to respond to this opportunity. Indian businesses need to realise that entering a market is a 10 year plan," adds Khushiram.

Mauritius has a 30- year experience in garment manufacturing and exporting 80 per cent to Europe and 20 per cent to the US.

The Deputy Secretary-General of the Mauritius Chamber of Commerce and Industry Rajiv Servansingh, says, "The time is opportune for Indian companies to invest in state-of-the-art spinning mills in Mauritius and transfer African cotton to yarn and take advantage of AGOA to access US Markets. We are working with FICCI. We are looking at areas where business can be developed."

To further establish its position as a premium financial centre, Mauritius has embarked on a large project to develop the link between IT and finance.

India has extended a line of credit of $100 million for the development of information technology in Mauritius. In the Caudan Waterfront area of Port Louis where 32 IT trading companies have set up shop, close to 50 per cent of these are Indian.

"In the medium term we'll exploit e-commerce. Companies need to be located here if they wish to operate internationally and take advantage of 26 double taxation agreements. We are now gearing ourselves in terms of legislation. With the completion of the South African Far East submarine cable in a couple of months, Mauritius would have access to an international network. This would be the new Spice Route," explains Khushiram.

Work has also begun on the Ebene cyber city of Mauritius. On about 150 acres of land, this cyber city would be equipped with very sophisticated IT infrastructure to develop software. This project will be completed by the end of the year.

To develop Mauritius as a competitive regional trading centre where goods are imported from all over the world and re-exported to eastern and south African countries, the activities of the Mauritius Freeport which was established in 1992 have recently been reviewed. The new Freeport Act, Oct 2001 has been enacted.

Earlier the Freeport Authority played the role of regulator, operator and promoter. Now it has to concentrate on the role of regulator. To promote the free port the role of operator has been passed on to the private sector.

Says Rajakrishna Chellapermal, Deputy Director General, Mauritius Freeport Authority, "While we are going to optimise the use of land, provide basic infrastructure-roads, electricity, we are giving more responsibility to private operators who will construct warehouses and rent them to traders. We will also issue Freeport licences through the private developers."

Determined to grab opportunities offered by global markets, Mauritius is getting its act together. Equipping itself with stringent laws and good professional value-added services, this island economy is set to maintain its competitive edge as a regulated, well-supervised reputable base for business and not a centre for sleaze.

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