The Republic of Mauritius occupies a key strategic position between Asia, Africa and Australia, making it an attractive treasury location for some companies. From the country’s banking landscape and cash management considerations to the impact of the COVID-19 pandemic, here’s what treasurers need to know.

Situated 1,200 miles off the east coast of Africa, and 500 miles east of Madagascar, the Republic of Mauritius is part of the Indian Ocean’s Mascarene Islands. The island nation includes Mauritius as well as nearby islands Rodrigues, Agaléga and St. Brandon. Geographically, Mauritius occupies a strategic position between Asia, Africa and Australia. While its stunning beaches and coral reefs make it a popular luxury tourism destination, it also has much to recommend it from a business perspective.

“Mauritius acts as a gateway to Africa and provides an appropriate regulatory framework for global companies,” comments Anish Jain, Chief Treasury Officer at Export Trading Group (ETG), an agricultural supply chain group headquartered in Dubai which has operating entities across 40 countries. “International trading companies are finding Mauritius as a favourable destination to house regional treasuries to cater to African requirements. Moreover, international banks based in Europe or Africa are also quite acquainted with Mauritius laws to provide lending solutions to their clients.”

Mauritius has undergone a considerable transition in recent years. Sugarcane was originally introduced to Mauritius in the 17^th century and became central to the country’s economy, with sugar representing a quarter of GDP in the 1970s. In recent years, however, the nation has achieved greater diversification, with sugar now only accounting for 3-4% of GDP. Three quarters of the economy is service-based, with industry accounting for 21% and agriculture 3%, according to the African Development Bank.

This transition is still under way. As the World Bank’s website notes, “Mauritius faces the challenge of managing its transition to a knowledge based high-income economy driven by innovation and productivity growth. This will require a concerted effort to remove bottlenecks to new sources of growth and private investment, such as a lack of connectivity, skills shortages, and misaligned incentives.”

In 2019, Mauritius’ top exports included clothing, seafood, sugar, fish, gems and precious metals, while imports include petroleum, frozen fish and cars. The island’s main trading partners include France, India, China, US, UK and South Africa.

Impact of COVID-19

Before the arrival of the COVID-19 pandemic, real GDP growth in Mauritius had been forecast to be 3.9% in 2020 and 4% in 2021, with tourism playing a role in contributing to this growth. However, with the pandemic continuing to affect countries around the world, a GDP contraction is now likely. The World Economic Outlook published by the International Monetary Fund (IMF) in April 2020 forecast a 3% contraction in real GDP for middle-income countries in Sub-Saharan Africa, in which it included Botswana, Cabo Verde, Eswatini, Lesotho, Mauritius, Namibia, and Seychelles.

In particular, lower demand for tourism from European countries, alongside ongoing travel restrictions, is expected to have a major impact on Mauritius’ economy during the crisis. “I think it is pretty obvious that the industries that will face the brunt of this slowdown or recession, which is due to the outbreak of this virus, are definitely the tourism industry and our textiles manufacturing industry,” commented Parikshat Tulsidas, Senior Executive – Treasury & Markets at AfrAsia Bank in a video published by the bank in April. He also cites the construction sector as an area that is likely to see an impact, in light of the “high-end properties that we sell to foreigners.”

The government has introduced various measures to support workers and businesses, including the Government Wage Assistance Scheme (GWAS) and the Self-Employed Assistance Scheme (SEAS). The Key Repo Rate has been reduced by 100 basis points to 1.85%, and the Bank of Mauritius has likewise reduced the interest rate applicable on its Special Relief Amount under the COVID-19 Support Programme by 100 basis points. Other actions have included suspending capital repayments on loans for households affected by the crisis. Meanwhile, capital market activity has been suspended, as has trading on the Stock Exchange of Mauritius.

National confinement was introduced on March 20^th and a curfew imposed on March 24^th which has since been extended to June 1^st. A report by Fitch Solutions Country Risk & Industry Research on April 21^st noted that Mauritius is well-placed to avoid a large domestic outbreak of COVID-19 in light of these measures, adding that even in the event of a larger outbreak “a robust social security system and free health care means that the country is one of the best placed in sub-Saharan Africa to deal with any potential pressure on healthcare and incomes.”

Banking landscape

Mauritius’ finance sector is governed by two main regulatory bodies. Established in 1967, the Bank of Mauritius is Mauritius’ central bank. It oversees banking institutions, with the Banking Act 2004 providing a framework for the licensing, regulation and supervision of banks and other financial institutions. The central bank’s main objectives include maintaining price stability, promoting orderly and balanced economic development and formulating and executing monetary policy consistent with stable price conditions.

In addition, the Financial Services Commission, Mauritius (FSC) acts as the regulatory for non-bank financial sector and global business, and is mandated under the Financial Services Act 2007. The FSC’s goals are to:

• Promote development, fairness, efficiency and transparency across Mauritius’ financial institutions and capital markets.
• Suppress crime and malpractice in order to protect members of the public investing in non-banking financial products.
• Ensure the soundness and stability of Mauritius’ financial system.

“The banking landscape in Mauritius is very inward-looking,” comments ETG’s Jain. “Most of the banks present locally are risk-averse and do not understand the international trading environment.” Jain notes that the credit risk assessment of clients is based on local operations, adding that only a handful of banks in Mauritius have really graduated to the extent where they compete with international banks. “I believe the smaller size of the balance sheet for Mauritian banks is also a limiting factor to compete with large powerhouse banks,” he comments.

Company considerations

For companies operating in Mauritius, an important piece of legislation is the Companies Act 2001, which requires all companies to remain solvent and sets out company law both for domestic companies and for those conducting global business.

A key concept for the latter is the Global Business Licence (GBL), which is applicable to companies which are resident in Mauritius for tax purposes, but which conduct their core business activities outside of Mauritius. The conditions for a licence include employing suitably qualified people – either directly or indirectly – to carry out the business’ core activities, as well as a minimum expenditure level in line with the company’s level of activities. Companies with a GBL can take advantage of the country’s network of double tax treaties, corporation tax and withholding tax rates.

Until recently, the regime included the two concepts of Category 1 Global Business Companies (GBC1) and Category 2 Global Business Companies (GBC2). However, following recent reforms introduced in line with the Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) initiatives, these categories were discontinued on January 1^st 2019.

As a result of the reform, GBC1 licences have been replaced with the GBL, while GBC2 licences have been replaced with the Authorised Companies (ACs) regime. This applies to companies which conduct business and have their place of effective management outside of Mauritius. ACs are not resident in Mauritius for tax purposes, but have a registered agent in Mauritius. ACs are required to file annual tax returns with the Mauritius Revenue Authority and are prohibited from business activities including banking and financial services.

Grandfathering provisions are in place for GBC1 and GBC2 licenses that were issued on or before October 16^th 2017. After June 30th 2021, a GBC1 license will be deemed to be a GBL, while a GBC2 licence will lapse, with the company required to apply for AC or GBL status. For licences issued after October 16^th 2017, the grandfathering period elapsed on December 31^st 2018.

Treasury challenges

For corporate treasury professionals, there are a number of factors to consider when it comes to managing cash in Mauritius. Claudinette Permal, a Mauritius-based Treasury Manager at pan-African real estate company Grit Real Estate Income Group, cites a number of challenges that treasury professionals may face in this market:

• Cash flow management. Keeping an eye on daily cash flows, which for most businesses is a manual activity involving spreadsheets.
• Improving on the collections/debtor’s days ratio. “It is a real struggle to get funds out of corporate customers,” Permal notes. “It is like every company is pulling liquidity out of each other.”
• Real-time payments. “Treasurers must ensure sufficient liquidity, especially when it comes to debt repayments,” says Permal. “Any delay will impact as a breach in covenants, particularly under the COVID-19 crisis.”
• Currency fluctuations. In particular, Permal cites fluctuations in the US dollar and the euro, adding that most debt facilities are in those two hard currencies.
• Relationship management. Permal also notes the importance of maintaining good relationships with financiers during difficult times.

Where cash management is concerned, there are a few considerations to bear in mind. “Each company adopts a different method for cash management,” comments Jain. “Given the foreign exchange regulations in many African countries, cash pooling is not available across Africa. Companies can, at best, apply regional cash pooling.” He adds that besides bank solutions, many multinational companies deploy treasury management solutions (TMS) of their own choice that meets their specific requirements.

Grit Real Estate Income Group’s Permal says the company’s approach to cash management in Mauritius includes a clear working capital optimisation strategy, alongside daily cash flow monitoring and a well-defined policy with clear KPIs, metrics and approval limits.

We are currently moving towards the use of integrated systems which will speak to all the bank accounts, as well as to the accounting software.

Claudinette Permal, Treasury Manager, Grit Real Estate Income Group

“Most medium companies use Excel workbooks extensively, which is very time-consuming,” she adds. “We are currently moving towards the use of integrated systems which will speak to all the bank accounts, as well as to the accounting software. This will help improve the operational efficiency and better manage the cost of capital.” Permal explains the expected benefits will include the real-time availability of the cash position, with projections performed “in no time”, alongside eliminating the need for manual input and thereby freeing up time.

Where risk management is concerned, Jain says that ETG “has a comprehensive risk management policy that covers commodity trading and FX risk management.” For Grit Real Estate Income Group, meanwhile, Permal says that treasury forms part of the risk committee alongside representatives of other departments. From a treasury perspective, she says the main risks identified include liquidity risk, covenant risk, credit risk, FX risk and interest rate risk.

She adds that for each of these areas, the probability of occurrence and level of impact is assessed, monitored and discussed at monthly meetings. “Policies and procedures are clearly defined, and processes and systems are drafted and circulated,” she says.

Harnessing technology

As in other locations, technology has much to offer treasurers operating in Mauritius when it comes to streamlining processes and harnessing insights more effectively in order to improve decision making.

“Technology certainly plays a pivotal role in managing complex global operations,” comments Jain. “ETG continues to strengthen the existing technology base and adopt new platforms as the business needs.”

Looking forward, Permal expects technology will bring a number of opportunities for improvement. “In the first place, the automated cash flow reporting/forecasting will bring so many benefits,” she says, citing the freeing up of time, reduction in manual intervention and increased confidence in the data presented. She also expects technology will improve better cash management, enabling cash to be swept between accounts in order to increase interest revenue.

Other benefits will include greater oversight over FX exposures at any given point in time, the adoption of better internal controls and the building of scenario analysis, as well as the use of technology to improve monthly treasury reporting, including monitoring covenants, metrics and the expiry dates of facilities.

“I do think that technology will bring the treasury role to the next level, with more focus on strategic decision-making and building relationships with financiers, which is critical in our position,” she concludes.