Mauritius beats Kenya to foreign capital

Source: Business Daily

Foreign companies with an eye on Africa’s emerging markets are flocking to Mauritius to incorporate local subsidiaries in a move that could deny more than a dozen African governments billions of shillings in corporate taxes and position the island nation as the region’s economic hub. Kenya, which has been eyeing the regional economic hub status, is one of the likely casualties of the migration to the Indian Ocean state, whose favourable tax regime and efficient judicial system have become popular with multi-nationals looking for a safe haven to anchor their expansion into Africa’s highly profitable but risky frontier markets.

In the past five years alone, more than four foreign firms have entered the Kenyan market using Mauritius-based subsidiaries threatening Nairobi’s ambition to become the business hub for the 15 nation Common Market for Eastern and Southern Africa (Comesa). Waguthu Holdings (K) Limited, the company that is associated with the multi-billion shilling real estate project, Tatu City, is also owned by a parent company incorporated in Mauritius as MCIH.

Investment analysts said that though there has been a growing interest in Kenya as a business hub for the newly-created East African Community’s common market, pressure is mounting from Mauritius’ continued attractiveness as an operation base for foreign investors eyeing the region. “Mauritius offers a lot of incentives in terms of favourable tax regime and asset protection mechanisms,” said Simeon Cheruiyot, a partner at consultancy firm, PriceWaterhouseCoppers (PwC).

The range of incentives available to foreign firms in Mauritius includes a 15 per cent charge on a company’s taxable income such as business or trading profits. At 15 per cent, Mauritius’ corporate tax rate is half the 30 per cent rate that Kenya applies to similar income. Kenya has also been rendered less attractive by the levying of a 10 per cent withholding tax on dividends for non-residents as Mauritius applies a zero rate for similar income.

Foreigners living in Mauritius are also spared royalties taxes compared to their Kenya-based counterparts who are taxed at the rate of 20 per cent. James Kamau, a managing partner at Iseme, Kamau and Maema Advocates said Mauritius has spiced up its tax offers with a long list of double taxation treaties it has signed with more than 20 countries.Double taxation treaties are inter-government agreements that protect transnational companies from being taxed twice for the same asset or income easing the flow of trade and investments.

Kenya has double tax treaties (DTTs) with a handful of nations including the United Kingdom, Canada, Denmark, Norway, India, Sweden, Zambia and Germany. Mauritius has more than 30 double taxation treaties in Africa alone.

More recently, Mauritius has also entered into Investment Promotion and Protection Agreements (IPPAs) with its double taxation partners. The list includes 15 African countries of Benin, Botswana, Burundi, Cameroon, Chad, Comoros, Ghana, Guinea, Madagascar and Mauritania, Mozambique, Rwanda, Senegal, South Africa, Swaziland, Zimbabwe and Tanzania.

The agreements allow foreign investors to freely repatriate investment capital and returns, shields them from expropriation of their property and offers the signatories a most favoured trading partner status (MFN) with respect to treatment of investors. Under the IPPAs foreign investors from signatory states are also guaranteed compensation for losses in case of war, armed conflict or riot and are offered clear arrangements for settlement of disputes with the contracting states. Analysts said efficient judicial and dispute resolution mechanisms have also given Mauritius an edge over the competition in Africa.

The World Bank’s private sector-lending arm, the International Finance Corporation (IFC), has in its Doing Business 2011 report ranked Mauritius’ judicial system as the best in Africa in terms of reforms aimed at facilitating business and investment transactions. Influential Kenyan investment group, Transcentury Limited, is among firms that have opted to pursue justice in Mauritius’ judicial system. The Kenyan firm moved to a Mauritius court early last year at the peak of its battle with Egyptian rival — Citadel Capital over the control of the Kenya-Uganda Railway concession.

It had sought ex-parte orders to stop the other shareholders in the concession deal from raising $10 million of fresh capital in a rights issue. RVR is registered in Mauritius. The Commercial Court in Nairobi, which handles trade disputes, is currently overwhelmed by the large number of cases before it, causing cases to drag on for many years. This forces most investors to unwillingly opt for costly out-of -court settlements to avoid losing their investment all together. Industry operators said the favourable tax regime in Mauritius is likely to keep more investors trooping to the island nation as they expand their businesses in line with ongoing regional integration.

AGOA At 10 - Washington D.C. Kansas City Forum Information

AGOA Forum 2010

“AGOA at 10: New Strategies for a Changing World”

August 2-3

Woodrow Wilson International Center

One Woodrow Wilson Plaza

1300 Pennsylvania Avenue N.W.

Washington, DC 20004

August 5-6

Marriott Convention Center

Two Hundred West 12th Street

Kansas City, Missouri 64105

The United States will hold a portion of the Ninth United States-Sub-Saharan Africa AGOA Forum. The forum begins  August 2-3, 2010 with senior government trade officials from 28 African nations, continuing August 5-6 with participates from the African Private Sector. This year's two-city format provides U.S. businesses a opportunity to discuss issues with decision makers across Africa. Potential issues include broader trade, capacity-building issues, and trade regulations. 

LOCATION:   Woodrow Wilson Center for International Scholars

                        6th Floor Flom Auditorium Room

                        1300 Pennsylvania Ave., NW

                        Washington, DC 20004

                        Tel: 202.691.4000

DATE:             August 2, 2010

Conference 9:00 am – 5:30pm (Woodrow Wilson Center)

Reception   7:00pm – 9:00pm (Woodrow Wilson Center)

                      August 3, 2010

Conference 9:00am - 5:00pm (Woodrow Wilson Center)

Closing Ceremony - 5:30pm - 6:30pm (Woodrow Wilson Center)

LOCATION:   Marriott Convention Center

                        200 West 12th Street

                        Kansas City, Missouri 64105

                        Tel: 816.421.6800

DATE:             August 5, 2010

Conference 8:30 am – 5:30pm (Marriott Convention Center)

Reception   6:00pm – 8:30pm (Marriott Convention Center)

                      August 6, 2010

Conference 8:30am - 12:30pm (Marriott Convention Center)

Closing Ceremony - 1:30pm - 2:30pm (Marriott Convention Center)

RSVP is required to attend these events. To RSVP click here. RSVP

requested by July 23, 2010****

Plans to establish Free Trade Area between COMESA, EAC, and SADC gain momentum

The establishment of the East Africa Community(EAC) Common Market Protocol, is a significant achievement for the scholars, organizations, and government officials backing regional integration as a gateway to sustainable economic development in Sub Saharan Africa. Concrete plans to establish a Free Trade Area(FTA) have materialized and have gained strong support, according to a recent interview with EAC officials.

The Free Trade Area will serve as a platform for increased trade activity and multilateral cooperation between the Common Market for East and Southern Africa(COMESA), East African Community(EAC), and South Africa Development Community(SADC). The tripartite economic bloc would boost regional trade, and allow countries from Egypt to South Africa to benefit from a larger market, and reduced trade barriers. Once in action, the FTA would encourage collaboration on infrastructure building projects, and create enormous opportunities for investments in relevant sectors.

While plans for the FTA took shape in 2008, much remains to be done to solidify the agreement and attain conformity between the partners on the rules and regulations that will govern the project. When launched, the FTA will be the largest of the continent, and include up to 26 countries.

Picture from REUTERS

Africa: New Business Opportunities and Potential for Growth

Earlier this week, McKinsey & Company released a report tracking the many developments and improvements taking place in Africa’s growing economies. Different economic indices expressed in the report highlight the various changes taking place on the continent, placing special emphasis on the undeniable signs of progress displayed by the growing national economies, and expanding consumer class. The report sends a refreshing message to foreign investors and the international community, many of whom shape their views of “Africa” through the popular images of war, ethnic clashes, and political disarray that dominate the media.
To illustrate the extent to which many sectors are rapidly changing, the report compares Africa with many of the world’s emerging market nations, such as China and India, Brazil and Russia:

• Africa’s population of 1 billion has spent $860 billion in 2008, spending more than India’s population of 1.2 billion

• Combined GDP in Africa for 2008 is $1.6 trillion, roughly equal to Brazil or Russia

Other figures illustrate progress in recent years:

• Africa’s collective inflation rate fell from 22 percent in the 1990’s to 8 percent after 2000

• FDI has skyrocketed from $9 billion in 2000, to $62 billion in 2008

• From 2000 to 2008, African economies grew twice as fast as they did in the 1980 and 1990’s

Finally, the report also makes predictions for Africa’s future economic growth:

• By 2040, Africa will have 1.1 billion people of working age, more in China or India

• By 2030, the 18 cities are expected to have a combined spending power of $1.3 trillion

The demand for raw materials that has dominated Africa’s trade relations in the past, remain a key factor to long term growth. “The continent boasts an abundance of riches, 10 percent of the word’s oil, 40 percent of its gold, and 80 to 90 percent of the chromium and platinum metals groups.” Lack of diversity in African exports has often been an obstacle to economies. However, a study of 15 countries shows that natural resources only account for 24 percent of Africa’s GDP growth from 2000-2008, signs that other growing sectors have become increasingly present.

When reviewing the impressive figures, one must keep in mind the specific situations and markets present in Africa’s 50 diverse countries. Treating the continent’s mixed economies as one entity may increase the odds of producing skewed results, as South Africa’s G20 booming economy clearly has more of a pull than, Cameroon for example. Nonetheless, the overall improvements are undeniable, and the report accounts for both the good, and the bad in Africa’s diverse economic landscape. The developments remain both an economic and ideological triumph for the continent.

AGOA 2010 – Background and Information

The African Growth and Opportunity Act (AGOA) forums will be held in both Washington D.C. and Kansas City this year. AGOA, a yearly forum, alternates between the United States and Africa since its implementation on May 18th, 2000. This Act offers incentives for African countries to build their economies and free markets. For a country to receive the benefits from AGOA it must clear the AGOA eligibility; there are 41 AGOA-eligible countries out of 47 that make up Africa.

AGOA Summer 2010 will be broken down into three parts, each designed for a specific audience: AGOA Civil Society Forum, AGOA Ministerial Meetings, and AGOA Agribusiness.

AGOA Civil Society Forum will be held at the Woodrow Wilson International Center from July 29-30.

AGOA Ministerial Meetings will be held in Washington D.C. from August 2-3.

AGOA Agribusiness Forum will be in Kansas City from August 5-6.


Picture: thank you to agoa.gov

Cinderella Story in EAC

The recent 2010 Doing Business in East African Communities report was not very optimistic when looking at the East African Community; many countries rankings, which range from 1 to 183 based on the ease of doing business in the respective economies, dropped from 2009 to 2010. Kenya, the primary economic power in the region moved down nine rankings, from 84 in 2009 to 95 in 2010. Other notable downfalls include Uganda and Tanzania, each respectively falling in rankings from 2009 to 2010.

Although the majority of the EAC declined in rankings, Rwanda emerges as the Cinderella story. Rwanda, often thought as a state full of corruption and danger, has proven the critics wrong. Not only did Rwanda’s ranking improve from 143 in 2009 to 67 in 2010, but it has also showed significant improvement in the Transparency International’s Corruption Perception Index 2009. Other countries in the Region have not seen these same gains in both corruption and rankings.

Rwanda’s gains are most likely from its economic reforms since 2004, leading the EAC with 19. The main goal of these reforms is to make business easier in its country. Doing Business has recorded a total of 46 reforms since 2004, and Kenya is second to Rwanda in reforms with 12.

Rwanda’s reforms include measures to facilitate trade across boarders and property registration. Throughout the EAC there is the notion that regional integration will lower the cost of doing business, and according the The East African, in 2009 EAC Secretary General Juma Mwapachu stated that it was “unnecessarily high,” and it reduced the international competitiveness of the EAC. Another issue facing the EAC was noted by President Jakaya M. Kikwete of Tanzania, stating, “we produce what we don’t consume and we consume what we don’t produce.”

The EAC has many problems that it will have to overcome to increase the ease of doing business within the region. Rwanda has emerged as a Cinderella story, possibly paving the path for other states in the EAC and for its future. Reforms must continue in the years to come, in addition to improving infrastructure, the workforce, and public institutions.

Haiti after the Earthquake: A Vision for Haitian Growth and Recovery

Manchester Trade has written a Strategy Memo outlining a vision for the economic recovery of Haiti after the devastating earthquake in January, with the following key recommendations:

1. The international community should agree on trade preferences that provide duty-free access to all imports from Haiti, with the only stipulation that Haiti contribute at least 15% of the value-added of each product.

2. The United States should take the lead in establishing an Infrastructure Fund for Haitian Economic Development to finance required infrastructure for Haiti to become a world-class manufacturing center.

3. Haiti should eliminate all import duties, following the examples of Hong Kong, Singapore and Mauritius, and turn the entire country into an Export Processing Zone.

4. The international community should provide tax incentives for investment in Haiti.

Manchester Trade is concerned that, instead of this vision, only technical measures are being considered that would only provide quick fixes in a single sector. Great attention is being focused on changes to U.S. trade law to improve access for apparel under the Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE) and Caribbean Basin Trade Partnership Act (CBPTA). Although improvement of HOPE would serve as an immediate and technical stopgap measure, more comprehensive attention that goes well beyond access to textiles is necessary to propel Haiti into becoming a world-class competitive country.

A concerted effort in capacity-building is an absolute necessity for Haiti to take advantage of any proposed initiatives and to diversify its manufacturing base outside the apparel industry. Congress should enact a meaningful program with international support by the end of the year. The Strategy Memo does not state that the infrastructure fund is all that is needed for Haiti. A concerted approach is required involving education, health and governance as well as infrastructure. However, if infrastructure is not prioritized with separate funding, it is likely to be underfunded since there is much more public support for humanitarian concerns.

See full text here.

Ten Recommendations for US-Africa Policy

The following are Manchester Trade’s suggestions to the US Administration and Congress for a proactive economic growth policy towards sub-Saharan Africa (SSA). A new approach is required for the United States to better relate to SSA aspirations. Important too is a need to recover lost ground from China’s increasing dominance of African resources and markets, India’s leadership of African countries in the World Trade Organization (WTO), and European Union (EU) success, through a subtle combination of trade pressure and aid incentives, in negotiating agreements with an increasing number of African countries. Particularly frustrating to US commerce is the discrimination US products face against the EU’s exports in SSA markets. Manchester Trade (MT) argues that the Obama Administration must develop a creative, proactive approach and move away from its reliance on once effective but now largely outdated policies as a way to boost its commercial presence in these emerging markets; and, more importantly, contribute to African growth through the promotion of regional integration.

Manchester Trade urges the US government to complement its current initiatives in agriculture, food security and climate change with an economic growth initiative aimed at unlocking the competitive potential of the fast-emerging SSA markets. MT recommends that the US put its support behind African-led initiatives to regionally integrate. Integration among economies will help overcome the challenges they face and help them to attain the economies of scale required to achieve world-class competitive production. Greater participation in increasingly sophisticated value chains is possible. Through more diverse economies, and greater intra-regional cooperation, Africa can reach a level of global competitiveness attained by Asian and Latin American countries that were in the same situation a few years ago. The US Administration must introduce new trade initiatives, trade capacity-building measures and incentives to American businesses interested in the region to make this potential a reality.

The colonial division of sub-Saharan Africa (SSA) led to the creation of 47 countries, almost all of which are too small to compete in the global economy and subsist at some of the lowest global income levels. A critical ingredient required in overcoming inefficiency and poverty is regional integration. As evidenced by the creation of more effective government institutions, economies of scale in production and infrastructure, and fostering development through the linking of small, land-locked economies, regional integration offers broad advantages.

A consensus is emerging that there needs to be a multi-Committee approach in Congress and an integrated approach from the White House and the development and financing agencies to develop a concerted approach among the key players.

Manchester Trade calls on the US government and Congress to provide a more comprehensive package of development and financing assistance to US-Africa programming initiatives than those that exist today.

RECOMMENDATIONS

Enhance US business opportunities in and with Africa

• Establish a One-Stop Shop. Require the Executive to establish a One-Stop Shop for US investors and traders wanting to do business in sub-Saharan Africa encompassing the Departments of Commerce and State, the US Agengy for International Development (USAID), Overseas Private Investment Corporation (OPIC), US Trade and Development Agency (TDA), the Export-Import Bank (ExIm) and the Millennium Challenge Corporation (MCC).
• Propose China-US cooperation in Africa. Recommend that Secretary of State Clinton promote US coordination with China in developing a joint approach to African development under the Strategic Economic Dialogue mechanism, as part of an increased effort with all donors to develop a concerted, comprehensive and cooperative approach in sub-Saharan Africa.
• Institute investment or export tax credits for Africa. Direct the Administration working with the tax committees to develop tax credits and other incentives for businesses wishing to invest in or export to the African market. It would contribute to current US efforts to double exports as part of the American economic growth and recovery process.
• Institute a Brand Africa Program. Brand Africa as an emerging region complete with opportunities for investment and new market growth through an Executive Directive to all agencies to focus on Africa as part of the global supply chain and as an emerging market for US investments and exports.

Strengthen bilateral trade relations

• Suggest policy alternatives to the EU's Economic Partnership Agreements (EPAs). EPAs should be replaced with a non-coercive multilateral approach which would respect the policy space due poor and vulnerable SSA countries, allow them to develop internal production capacities, reinforce economic integration and not discriminate against US exports.
• Re-examine the African Growth and Opportunity Act (AGOA). Modify AGOA legislation to:
• expand coverage to allow duty-free, quota-free (DFQF) importation of all products, including less sensitive products subject to tariff rate quotas (TRQs); 
• develop more effective and less disruptive sanctions than removal from AGOA to pressure countries to adhere to its eligibility requirements and use AGOA removal only as the last resort;
• ensure AGOA benefits are permanent, including those permitting the use of third country fabrics;
• mandate trade capacity-building efforts and renew the African Global Competitiveness Initiative; and
• suggest the establishment of a joint US-NEPAD African Peer Review Mechanism to develop benchmarks and monitor the success of US trade programs.

Take the lead in multilateral negotiations

• Support SSA Aspirations at the WTO. Work with the AU and the African group to instill enthusiasm for a pro-African growth and integration agenda there. For example, support elimination of obstacles to integration by treating the region as a special economic zone rather than dividing it between least-developed countries (LDCs) and non-LDCs for purposes of DFQF programs and in demands for reciprocity.

Support the development of Regional Economic Communities (RECs)

• Support REC enhancement. Appropriate funds to support RECs and the African Union in their goal of an African Economic Community (AEC) replete with an economic monetary union -- a high priority of the African Global Competitiveness Initiative at USAID -- by renewing and enhancing resources for REC support.
• Introduce a regional component to MCC. Ensure the new mandate for the Millennium Challenge Corporation (MCC) requires a certain percentage of funding for projects on a regional basis or alternative provisions with the same intent.
• Deepen cooperation with the African Union (AU). Develop a proactive policy with the AU to support, inter alia, implementation of the Abuja Treaty for the attainment of the African Economic Group, and in Geneva to assure a mutually beneficial outcome at the Doha Round.

Import Impediments in India

During the upcoming visit of Indian Commerce Minister Anand Sharma to the USTR in March, a main topic of discussion will be bilateral trade facilitation between the U.S. and India. One area of improvement is India’s comparatively restrictive trade and regulatory environment. This year, the World Bank ranked India 133 (out of 183 economies) in terms of the ‘ease of doing business.’ Significant tariff and nontariff barriers impede imports of U.S. products and are a cause of great frustration to exporters.

On the tariff side, large disparities exist between bound and applied rates in India. According to the USTR’s 2009 National Trade Estimate Report on Foreign Trade Barriers, India’s bound tariffs on agricultural goods are among the highest worldwide, ranging from 100% to 300%. Indian applied tariffs are generally lower, but due to the high disparities between bound and applied rates, U.S. exporters face great uncertainty. India has the ability to raise its applied rate to bound rate levels in order to manage prices and supply.

On the nontariff side, significant barriers include quantitative restrictions, import licensing, mandatory testing and certification for a large number of products, as well as complicated and lengthy customs procedures. For example, foreign companies can receive immediate certification for imported products, as long as the Bureau of Indian Standards has first inspected and licensed the production plant. Many U.S. industries complain that these inspection and licensing costs are significantly high and restrict trade. Lengthy customs procedures are a result of extensive mandatory documentation, which leads to frequent processing delays.

Customs valuation is another issue that the U.S. would like to address. According to U.S. exporters, India’s valuation methodologies are not reflective of actual transaction values and lead to increased tariff rates. Lack of transparency and ineffective data management provide further irritation to exporters and trade organizations. India has historically failed to comply with standard transparency requirements, such as notification of new procedures to WTO Committees. Concerning data, India lacks a single data set for exports and imports, which leads to inaccessibility of records.

The number of U.S exports to India has increased within the last year, but further improvement will depend on Indian trade liberalization, which could move forward with the minister’s visit in March.