MAURITIUS: Prime minister's re-election confirms political stability and policy continuity

MAURITIUS: PRIME MINISTER’S RE-ELECTION CONFIRMS POLITICAL STABILITY AND POLICY CONTINUITY

Despite the bad press, Jugnauth’s re-election underscores continued support for him and his Alliance Morisien. Investors have little to worry about when setting up operations in the country over the next five years under the current conditions.

Seemingly unfazed by the corruption scandals implicating his administration, Prime Minister Pravind Jugnauth was re-elected on 7 November.  His centre-right Alliance Morisien coalition saw its parliamentary majority expanded by three, to 42 seats in the 70-seat unicameral assembly. Sixty-two of those seats are appointed through popular votes, while the remaining eight are distributed by the electoral commission, CENI, from among the unsuccessful candidates with the largest number of votes. Despite minor upsets, Alliance Morisien remains comfortably in control of the legislature and is unlikely to be significantly challenged over the next five years.

The campaign trail saw promises from both Jugnauth and his opponents to address growing income-inequality and stubbornly high youth unemployment at 23.6 per cent; the national average is 6.9 per cent. They also promised to raise the minimum wage and pensions due to the fast-ageing Mauritian demographic. These challenges are critical to address if Jugnauth is to fulfil his ambition of transforming Mauritius into a high-income economy – where GDP per capita surpasses USD12,000 as defined by the World Bank – by 2023. A favourable macroeconomic outlook, including continued strong growth of more than 4 per cent in 2018 – which has been the norm during Jugnauth’s premiership – suggests this outcome is possible. 

However, there are underlying macroeconomic headwinds to his ambitions, which have been repeatedly delayed over the past five years. One is a marked downward investment shift from India – one of Mauritius’s key markets for equity sales over the past two decades. Another is a growing international reputation as a tax haven and as a facilitator of transnational money-laundering operations. His third major challenge relates to the closing window of opportunity to upskill many of Mauritius’ currently unemployed youths.

Since Mauritius and India overhauled their bilateral double tax avoidance agreement (DTAA) in 2016, Mauritius has lost out on critical revenue. Indian statistics indicate that between 2000 and 2006, USD96 billion worth of equity transfers originated from Mauritius. That is now likely to be significantly lower. Under the previous policy, adopted in 1983, companies registered in India were exempt from paying taxes on equity sale in Mauritius, but New Delhi deemed this facilitated round-tripping; a type of tax avoidance by which an investor sells an unused asset to another company, while agreeing to buy back the same assets at a very similar price, but without needing to pay taxes on the transaction. It is a common legal, but sometimes unethical, practice by many large corporations looking to reduce their tax burden when operating in multiple jurisdictions.

But India is not the only country with which Mauritius has signed DTAAs. Port Louis has 46 DTAAs in total, 16 of which are in East and Southern Africa. This was highlighted in July by the Mauritius Leaks – a trove of some 200,000 leaked emails and company documents, outlining how many companies in the West were exploiting Mauritius’s low tax rates and relaxed rules in a bid to avoid paying taxes at home. It was published by the International Consortium of Investigative Journalists and several international media partners. Besides minor anti-government protests and some opposition pledges during the campaign, the leaks did not hugely upset the Mauritian electorate. But it raised alarm among Western compliance professionals, who are likely to face tougher scrutiny from their home authorities about transactions via Mauritius over the coming two years. In tandem, scrutiny will also increase among African countries that have signed DTAAs with Mauritius. In April, a Kenyan high court ruled null and void that country’s DTAA with Mauritius, deeming it unconstitutional.

Finally, a series of corruption allegations rattling Jugnauth’s presidency did not impact on his popularity. This is likely due to the fact that most cases have involved high-level officials, as they have mainly implicated Jugnauth’s allies, including former president Ameenah Gurib-Fakim who was forced to resign in March 2018. But the latest Global Corruption Barometer by anti-corruption NGO alliance Transparency International, released in July, indicated that only 5 per cent of Mauritians had to pay bribes to access public services. This could explain the limited impact of those revelations. 

THIS ARTICLE FIRST APPEARED IN THE NOVEMBER EDITION OF THE SUB-REGIONAL INTELLIGENCE MONITOR FOR EAST & SOUTHERN AFRICA

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