GRAND BAY - GOOD OL'TIMES

Years back, I remember, going to Grand Bay was a feat on its own.  A couple of friends would take our bicycles at 5 o'clock in the morning and ride up to that seaside village.  Cool breeze, more salty as we approach the coastline, and not a single vehicule on the road.  Peace and traquility...Mauritius!

From a pretty ordinary village Grand Bay transformed itself into one the world's most renowned tourist resort.  It's a place I would avoid at any cost today.  No, tourists are not to be blamed – they have all my blessings.  I’m referring to those human sharks that wait every single opportunity to rip the tourists.  And I’m not simply referring to local traders, here I’m referring to those unscrupulous businesses run by foreigners.

When the government launched its strategy to attract foreign capital and expertise, it opened the doors wider than expected.  It was like getting a huge aspirator and sucking up all came near.   Anyone would get a residence permit as long as he could present a financial forecast showing Rs3 million as annual turnover.  We all know what financial forecasts mean and we can all imagine that all financial forecast did effectively show astronomical figures.  So everyone got in, from the top golden boy to the more-shark-than-human crook.  They invaded the space, brought a new mind-set to business: All-in, rip’em off and get rich!  With their Dollars and Euros, they easily got themselves a place under the sun… and started hitting hard on local businesses, mostly small enterprises. 

Naturally, when you have Dollars and Euros you will aim at earning more of them.  Rupees are not that attractive.  So what you aim at?  Tourists!  Where do you go?  Grand Bay!  So what happened there was to be expected.  All the discothèques, bars and decent restaurants are owned by foreigners.   Good, because these guys know exactly what foreigners want and how they want it.  The problem is not there, it’s lying somewhere else.  Read on.

When the local businesses started enhancing their quality, adjusting their guns on the same heights, they positioned themselves as serious competitors to the foreign-owned commerce.  Somewhere someone thought that Mauritians would never fight back, and that someone (in fact more than someone) has a clear deficiency of grey-matter in the brain.  The whole thing turned out to be an aggressive-pseudo-commercial riot.  On one side, locals trying to get back to their good old days and on the other, foreigners all claws out trying to protect their share.  In a logical commercial context, fierce competition would mean better bargains for consumers.   In every sense, this was not going to be a ‘logical commercial context’ – consumers are the last thing that both sides worry about.  They’re more into an egocentric fight for honor.

So Grand Bay is now infested with a new genetically modified personal protection police.  Oh, let me put it in simple English: bouncers grouped into different gangs, officially auto-proclaimed ‘Private bodyguards’.  They are hired by every discothèques, bars, restaurants and individuals.  The problem is that this disease is now spread to every business: tour operators, pleasure craft operators (boats, catamarans), garments & accessories, retails… everyone in Grand Bay knows a bouncer.   If you don’t have a private bodyguard agreement, then you simply don’t exist as businessman in Grand Bay.  I’ll admit that bouncers are essential in bars and discothèque, but here it goes beyond their classic role.  Your bouncers are pitbulls that live on money.  You pay, they do.  The equation is simple, who pays more?  US$1 = Rs30,  EUR 1 = Rs40. Guess who wins, the Rupee or foreign currencies, the Mauritian or the Foreigner?

Anyway, you might take me for an alarmist or drama-regalia lover.  But I can’t help thinking back to Grand Bay 5 o’clock in the morning, cool and salty breeze running through my hair.   Good ol’times.

WHY INVEST IN MAURITIUS? Some ideas

Speaking about the business Mauritius, one surely sets his first sights on the offshore sector.  Often considered as a tax-heaven, the country can offer much more than confidential offshore business vehicles.  You can benefit from many interesting features by setting up a company here  - and we are not talking about complex tax planning or investment gearing strategies yet.  I won’t go into details or jargon-packed exposition of the Mauritian business environment, but here are some points that might interest readers.

Domestic companies

Enjoy limited liability.  You need not be present in Mauritius to incorporate your company.   All you need to have, if you do not hold a residency permit, is a Mauritian-resident director and a company secretary.  Usually your business consultant is able to provide adequate services in these lines.   The resident director is not necessarily a shareholder and may not hold any exceptional powers (bank account signature, contracting on behalf of the company without your instructions, etc).    The Registered Office is another requirement but this is addressed by all professionals providing company formation procedures.

Licence fee

You pay as low as Rs2,000 a year! 

Tax

15% tax on profits & no direct taxes on your revenue.  VAT is at 15% and works in the same universal system.  There’s no VAT on export, which means an export-oriented business can get itself reimbursed all VAT paid.  Yes, the tax office sends you your cheque!

If you have a company in Mauritius, it can handle various functions: administrative, marketing, sales & invoicing and back-office, for instance.  It is then possible for you to minimize tax in your own country.  With all sales being made in Mauritius, you pay tax on profits made over here.  You get it?

Simplified accounting and fiscal obligations

The overall business obligations are simple to manage.  Government offices are all online, and most of them now offering e-platforms.  Your tax declaration, accounts filing at the Registrar are no longer complex exercises that require chartered accountants to follow.  For information, you need a chartered accountant if your business exceeds Rs30 million of annual turnover (that makes around US$1 million a year).  What you need to get is a good accounting software…!

Employee costs

You contribute around 6% to the National Pension’s fund, while 2.5% is deducted from salary of your employee as his contribution.  Employment tax is paid by the employee and deducted from source under the Pay As You Earn system (15%).  All training costs are refunded by the government if you contribute to the National Pension’s Fund for more than one year.  Yes, that’s true! 

Literacy

Enjoy the capabilities of a young population of dynamic and educated population.  Mauritians are education fanatics.  Once out of high-school, our kids immediately set their eyes on tertiary education.  Most of them travel abroad (UK, Australia, France, Canada, etc) for higher education.  Those not having same possibilities have recourse to courses offered by numerous training institutions of the country, supported by Universities of high repute (Sorbonne, Leicester, John Moore Liverpool, etc).  And then also, we’ve got the University of Mauritius and the University of Technology.

Duty-free and concessions

In the Freeport zone, you are able to benefit from duty-free imports of machinery and equipment.  You are exempt from VAT (you don’t even pay VAT). There are other duty-free possibilities depending on your business activities.  As Mauritius plans to be a duty-free island (read previous article), there is an interesting possibility that ALL businesses will benefit from the scheme.

Residence permit

Would you not like to have a residence in paradise-island?  Under certain conditions, maybe the easiest in the world, you can settle down under the sun and wake up with your feet on the most beautiful beaches on earth.  

Strategic location & infrastructure

We are in the middle of the Indian Ocean, accessible to Africa, India and China.  There are daily flights to Europe and major cities of the world.  In simple words, we make the bridge between the biggest supplies of the planet (China & India) and huge markets.  The modern airport will be upgraded soon, while the harbor already caters for advanced technological solutions.

Mauritius is constantly improving its business framework and it ambitions to be the leading regional business platform.  I personally think that the country is getting closer and closer to its objectives.  Local people and regulatory bodies have understood the fact that we don’t have natural resources and we need to find new ways to attract investment and competencies to Mauritius.  That’s precisely what we have been successfully doing since year 2006.

If you think that you are operating a business that cannot be migrated (in full or in part) to Mauritius, think again.  Or you might just want to speak to us!

MAURITIUS, DUTY-FREE IN A COUPLE OF YEARS!

The idea is not new, it was first evoked in the years 2000-2005.  It was a sexy proposal and somewhat seduced everybody.  At that time, a novice Minister of Finance was holding the reins of the country’s economy for the first time of his life:  Mr Pravind Jugnauth.  The novice is back again, more mature, feet on ground and head on shoulders – and again he tables the same idea.  Good to see some determination out there!

Turning the island into a huge duty-free shopping area is a good concept.  It all comes to revamping the economy and promoting something else besides the (now tiring) repetitive ‘sea, sun & fun’.  You can’t be boasting about your natural beauty and stay there expecting two million tourists.  Look at Bali, Ibiza and Dubai for instance.  To survive in this evolving world, everyone has to keep pace with changing environment.  Mauritius is no exception.

Why would people come over here and spend their money?   There’s got to be a good reason for that.  Good hotels are something we can decently find anywhere else in the world.  You can’t bet on the warmth and smile of local people when the world is getting more focused towards personal comfort and materialistic.  The Finance Minister does well to keep on his idea of duty-free island.   But what can really demark the country from the other shopping giants of the world?  I’m talking about Dubai, Singapore, and so on.

Well, successive governments had enough intelligence to knit a web of preferential trade agreements.  It means clearly that we are able to get the goods in much cheaper fashion, avoiding tax and customs barriers. We’re closer to the impressive manufacturing industries of China and India – and more, we share a historical link with them.  You’ll be glad to learn that we’ll soon be seeing a mini-China in Mauritius.  Jin Fey, as they call it, is a large Chinatown (basically a new city in Mauritius) and will regroup a hotel, factories, houses and commerce.  Chinese businessmen and government (I put government after businessmen) are financing all this.

Ok, let’s get back to the duty-free island.  The intention is to propose a global.  The implications are wide as it entails improving side infrastructures.  Wise decision-makers are already one step forward.  Our airport is soon to be a jewel in the region, capable of welcoming 4 million visitors a year.  We’re getting our cruise quay ready to greet (rich) sea-lovers and … the first shopping malls are taking birth within months.  The first two malls are within 1 kilometer distance from each other and very close to the new hub: the cybercity (that’s where my office is!).   On a straight-line and within 2 kilometers we will be having 3 shopping complexes and two shopping malls, isn’t that wonderful?

The whole process will, and there’s no doubt on that, create more businesses and employment.  If we dig deeper, we note that no many Mauritians can finance the creation and operation of world-class businesses.  So there comes the space for foreign investors!  Obviously, we can’t compete with the international exposure and competence of those present in the bigger cities of the world.  Right now, several big names have already shown an interest in getting setting up their shops and manufacturing units.  It will again generate more employment and more money for the local economy. Isn’t that brilliant?

Above all, it means that we, Mauritians, will be able to have duty-free shopping without the need to pay for an air-ticket.  

That’s the best part of it!

WHAT ARE YOU NOT ALLOWED TO DO ?

In Mauritius, the idea of attracting foreign investors has long been associated to ‘selling the country’ to those capable of buying it.   When the Business Facilitation Act was enacted in 2006, general perception assumed that the humble Rupee finally succumbed to the Dollar and Euro power.  Once the government announced it possible for foreigners to acquire land in the country, an air of worry started blowing in our face.  But we were wrong. 

The laws that allow foreign people to settle in our small island should not be interpreted as ‘Invasion allowed’.  There are many restrictions on non-Mauritians.  It is important that one understands the fundamentals of such restrictions before taking any decisions.  I’ve, many times, seen people selling their properties, landing with huge sum of money and then sweat their guts out because the project is legally not acceptable.

Property acquisition, for instance, is a very sensible issue. Land space is limited, you may rightly guess, in the country where 1.2 million inhabitants share 2040 m² of land.  The Non-Citizens (Property Restrictions) Act prevents acquisition of residential property by foreigners, except in certain circumstances.  The luxury villa schemes (Integrated Resort Scheme and Real Estate Scheme) are accessible to non-Mauritians.  They are pre-approved complexes regrouping several high-end villas into one compound.  Getting your hands on one villa for a minimum purchase price of US$500,000 gives you a Permanent Resident status.   Once you sell it, you lose the residency.  It can also work the other way round:  get a Permanent Resident status through your business or profession (3 years minimum stay in the country & rigorous conditions imposed) and then freely purchase a residential property with no strings attached.

If you do not fall in any of the cases mentioned above, you can only resort to rental solutions. 

Business restrictions can take various forms.  General commercial activities (import/export, wholesale, distribution, etc) are accessible to everybody – but they do not give you access to residence permit.  Again, preserving part of the cake for locals seems to be the main reason behind such policy.   Allowing any foreigner to open a grocery store, for example, would definitely kill the business of teeny-meenie-little-Mauritian-shopkeeper.  Viewed from that angle, I would tend to agree.  Still, I am of the opinion that each and every case should be assessed distinctively – we cannot just say ‘general commerce = no residency permit’. 

Tourism is delicate business.  Isn’t it fair to leave most of the benefits to Mauritians?  The right policy would be, and is, to apply the right dosage between foreign and local-owned operators.   Many of the locals do not possess the appropriate resources to sustain development and keep the pace with fast-developing destinations around the world.  Without the intervention of foreign brain, our hotel industry would be a total fiasco.  We learned from the great minds in the business – but since learning is an on-going process, we still need to keep those great minds at eye sight.   Small businesses in the tourism industry are somewhat reserved for Mauritians.  To start a tour operator business, a foreigner would be required to invest at least Rs5 million while no such restrictions apply to Mauritian.  For Pleasure Craft (boats, catamarans, etc), the minimum investment is Rs10 million.  The signal is clear: either you do it big, or you don’t do it at all.

Same policy applies to hotel operation.  Foreigners are no longer able to operate guest houses or tourists residence – but are free to invest in hotels.  A guest house can be a mere regrouping of apartments or bungalows for holiday rental.  A hotel is a formal structure designed exclusively for holiday rental and able to provide ‘services’ to its residents.  Basically, a hotel needs to have a minimum of 25 rooms, entertainment (swimming pool, disco, bar..), food (restaurant, breakfast..), housekeeping and similar services.

Above are examples where foreigners need to be cautious before venturing out.  Conceiving a project is bringing a dream to near reality.  It can all be shattered with a blunt ‘No’.  I let you guess the impact on your environment: financial, emotional and social.  

The nuances can be subtle and misunderstood, but when you fire a bullet - it's a bullet used.  Now the question is : how much ammunition left?  It’s always good to seek advice before venturing, and we are here for that!

I created this blog some couple of years ago, but couldn’t keep it alive.  A busy professional life, two kids on board and so little time!  From 2006, when the doors were first open, up to date many have found a new life under the sun.  Some complaints, some success stories, and life went on.  On average, the strategy to attract capital and competencies has been working fairly well.  Foreign Direct Investment (FDI) reached new records, and some fresh air blew over the economy.

We were all living a happy business life, until the financial crisis took the world by storm.  Less harm in Mauritius, but the general investment phobia played its role on our side also.   Over-prudence led to hesitation, and then to mental anesthesia!  No risks, no decisions and no moves.  Stalemate!   The number of Occupation (professional residence) permits never matched the number of business created.  Clearly it meant that many foreigners settled in but never launched their business activities. 

Four years from there – it is quite understandable that the government comes out with some adjustments.   First, it had to pay the price of its success.   It was too easy to get a residence permit:  you simply need to fill-in the required forms, show your birth certificate and declare that you are able to meet the conditions imposed.  You’re set for the next three years!  

From April 2010, however, things are not that easy.  If you are planning for a residence permit as ‘investor’ you would be required to show USD100,000 and if you are going for a self-employed permit, you’ll need to show USD35,000 along with your professional qualifications.  The USD100,000 and USD35,000 are meant to be minimum investments in the respective cases.  One thing though:  as these are investments the government is unable to ‘block’ the funds …  So if we think well, I can borrow USD100,000 – show it to the government and once I get my permit I can return it to its legitimate owner.  Where’s the control?  I can’t see any.  It’s more a complicated procedure than an intelligent one!   The complication lies in finding a true friend to lend you USD100,000 – that much.

Oh, and they also require that you present a business plan.  A big leap for the business-mankind!  We all know what business plans are:  optimistic where you want it to be, pessimistic to show how good it can be in the worst situation.  After all they are only plans.  No one knows the future, so nothing compels me to ‘obey’ a business plan.  Again, more a complicated procedure than an intelligent one (I love this sentence!).  The complication here is finding a good consultant and spending some bucks on him. It’s simply a waste of time, honestly.

The increasing influx of foreign people in a country where land and resources is limited somewhat poses a delicate problem.  It gives the impression of an unfair competition between those having Euros and Dollars and those living on the small Rupee.

 The common Mauritian, after being hesitant, accepted the fact that we do require foreign expertise and capital if we wanted to bring sustainable solutions to our economy.  There has been increasing pressure from opposition parties (those who always find reasons to blame others) claiming that we were selling our country to foreigners, precisely pin-pointing to the famous exclusive IRS villas.  Nothing doing:  the population worked along the government to welcome those willing to leave their homes and try doing something on our land.  It did work well in some cases, and it didn’t in others.  Some foreigners simply came here thinking that we were some desperate nation willing to be conquered by others.  Nope, we aren’t …and we’re happy that the incentives given to foreigners are working fine.