From Sugarcane to Sweet Tax Deals
Harvesh Seegolam actually has a pretty good view of the industry he is charged with monitoring. From his office, he can see the high-rises belonging to the biggest banks, including HSBC, Barclays, Standard Bank of South Africa and the local MCB. Fifteen years ago, he says, there was nothing here at all. Just grass. The building belonging to the supervisory authority he leads, Seegolam says, was one of the first to be built here on the outskirts of the capital, Port Louis. It has only six floors, but at the time it was built, it was quite sizable relative to its surroundings. Today, though, it looks tiny compared to the financial industry towers that surround it. And the symbolism might suit Seegolam just fine. “We work very pragmatically here,” he says.
That’s one way of seeing things.
The nongovernmental organization Oxfam has another perspective entirely. It counts Mauritius among the 15 worst tax havens in the world. Some of the 1.3 million people who live on the island see the ranking as more of a compliment – a haven, after all, isn’t such a bad thing to be. Located 2,000 kilometers from mainland Africa, the chain of islands was once colonized by the Dutch, but they soon gave up on the place. It was too far away and had too little to offer, which helps understand what the island has become today. What, after all, must a tiny, distant fleck of land do to lure investors and visitors?
For many years now, the island has been attracting money from all parts of the world without paying undue attention to its origins. Private individuals must pay an income tax rate of 15 percent, while companies are charged just 3 percent. The result is a capital city full of mirrored-glass facades – and in Mauritius, those wanting to peer behind those façades are not particularly welcome. The Paradise Papers, though, have brought that hidden world into focus.
One denizen of that world, for example, is Jean-Claude Bastos de Morais, a citizen of both Angola and Switzerland who didn’t quite know what to do with his money. Bastos manages around a billion dollars from Angola’s sovereign wealth fund – money from a country that is among the most corrupt in the world.
Documents in the Paradise Papers trove indicate that Bastos initially tried to park his money in Jersey and on the Isle of Man. Neither island is particularly selective regarding their clients, but they apparently weren’t interested in Bastos. The branch of the law firm Appleby in Mauritius, however, welcomed Bastos, despite his criminal record in Switzerland. Internally, the law firm categorized him as a “high” risk client, but for the island’s financial authorities, he was apparently just one client among many. There were no objections.
Year after year, billions of dollars flow from mainland Africa to Mauritius, money that isn’t taxed in the often bitterly poor countries where it comes from but on this small island group in the Indian Ocean. The annual total is estimated at $30-$60 billion, according to estimates from the United Nations. One UN report came to the conclusion that the tax haven contributes to poverty on the mainland. More than 20,000 companies are based on Mauritius, structures that used to be known as letterbox companies. But there are no letterboxes here. There aren’t even company plaques in the lobbies of the high-rises. If you ask about the companies that allegedly occupy the buildings, young men and women emerge from the elevators to tell you that unfortunately nobody is there at the moment, and they claim to just be managing the back office. Then they smile. For them, the whole thing is one big success story.
When the islands gained independence from Britain 50 years ago, many in Europe thought they wouldn’t be able to survive on their own, given that there was nothing other than sugarcane. Now, though, Mauritius is one of the richest countries in Africa, a place where the infrastructure is good and poverty rates low.
The capital city of Port Louis boasts an attractive skyline and the construction of a subway system is set to begin soon. It is, on the one hand, the kind of success story the West has long wanted to see in Africa. On the other hand, both the European Union and the Organization for Economic Cooperation and Development (OECD) has been exerting pressure on the country to improve transparency in its financial sector and close loopholes. “We’re on the right track. We’re on the OECD’s white list,” Seegolam says in his office. Really?
Seegolam has only headed up the island nation’s financial watchdog since summer. He previously worked for the Investment Promotion Agency of Mauritius and for the Financial Services Promotion Agency. In both of those previous postings, his focus was on ensuring that business boomed and the economy continued to grow. Now, it’s his job to actually say ‘No’ every now and then to those wanting to invest their money in Mauritius.
“There are no employees here. We are just administering an offshore company.”
In the office tower directly across from Seegolam’s office, there is a company called Azura Power Holdings Limited, which claims to be building and managing a power plant in Nigeria, in part with funding from Germany. But if you go to Azura to ask how it is even possible to build and oversee a power plant from a small island located several thousand kilometers away, one of those young women comes down and smiles: “There are no Azura employees here and there never have been. We are just administering an offshore company.”
Even for Mauritius, with its extremely permissive laws and regulations, such an explanation seems thin. The country’s laws, after all, mandate that companies in Mauritius must have permanent employees there and that regular board meetings take place.
“Oh, how strange,” says top watchdog Seegolam, when he hears of the case. He could, of course, have asked what the company was called – or even walked across the street himself to see what was going on. “Oh, how strange,” he repeats.
Then he begins to talk about the island’s history, a story that everyone seems eager to relate to island visitors: the former prime minister, a sugarcane farmer and Seegolam himself. It is a story that seeks to explain why things are the way they are and why nobody wants to change them. The message is clear: We have no choice. We don’t have anything else. Seegolam gazes out at the office towers of Port Louis, the nucleus of a country that made liars of all the pessimists. A country that has managed to produce a mini-miracle in the last several decades.
“We have laid the groundwork,” says Salil Roy. He is sitting on the veranda of a small farmhouse on the island’s west coast. In front of him is a tractor; in the office behind him, the walls are covered with pictures of his ancestors. They came in the late 19th century, a time when the English had finally decided that slavery should be brought to an end. It simply wasn’t seemly anymore.
But because they still needed low-wage laborers for the sugarcane plantations, the Brits tried a different approach: bringing in workers from India who weren’t exactly slaves, but who nevertheless lived in slave-like dependency on the island’s property owners. “My grandfather toiled away in a sugarcane factory and saved what little money he earned to buy a bit of land,” says Roy. Over the generations, the family acquired more and more land such that today, Roy owns so many hectares that he was elected president of the Planters’ Reform Association. In a certain sense, Roy is now presiding over the downfall of farming in Mauritius. “Times have become difficult,” he says. Sugarcane used to be the only game in town on the island, but now, it only makes up 1 percent of its gross national product.
Back when his ancestors were farming, it was the golden age of sugarcane. Mauritius was one of the leaders in the global market and could dictate prices. Farmers cleared vast swaths of the island and planted but a single crop. On its coastline, Mauritius has stunningly beautiful beaches, but you can spend hours driving through the sugarcane in its interior without getting a glimpse of the horizon. It was one, vast monoculture: Mauritius was addicted to sugar.
Competition increased, to be sure, but Mauritius was largely immune because the EU had committed to paying a fixed price that was higher than global levels – a small gesture of friendship to the former British colony. When the guaranteed sugar price regime ended, says Roy, “everything changed and prices fell by a third.” The island faced economic collapse and the government began casting about for a new economic sector.
Banks and large law firms began arriving in the 1990s
At first, Mauritius tried to build up its tourism industry, and the dazzling beaches and reefs still provide the foundation for the island’s largest source of revenue. Then came textiles and the financial industry. Banks and large law firms began arriving in the 1990s, bringing money, but also clients of the kind the island wasn’t so sure it wanted to be associated with. But the jobs that the influx created are welcome. “Nobody wants to work on the farm anymore,” Roy says. “They all want white-collar jobs, everyone wants to be a banker or a tax adviser.” His daughter, who is just finishing school and intends to go to university, is likewise uninterested in getting her hands dirty in the fields. The question, though, is whether she can keep them any cleaner in the office high-rises of Port Louis.
For a long time, the island took its cues from “Mother India,” the country of origin for the majority of its population. But that love began to wither once India announced the termination of its double taxation agreement with Mauritius. Pacts like this ensure individuals and companies are not subject to redundant taxes, but in the case of India and Mauritius, this resulted in corporations such as Vodafone shifting billions in profits from the subcontinent to the island, where they were ultimately subjected to a much more favorable tax rate. Meanwhile, a new agreement has been put in place, one that is far less advantageous for Mauritius. That’s one reason Mauritius is now looking to become a financial and logistics hub for the entire African continent – for countries like Namibia, for example.
Namibia has a long coastline and no large fleet of fishing boats to speak of – two characteristics that made the country particularly interesting for the Chinese who, along with a number of high-ranking Namibian politicians, have entered the fishing business. They founded a joint venture on Mauritius called Brandberg Investment Holdings. The new company serves to obscure profits earned in Namibia, where taxes are high, so that as much money as possible can be transferred to Mauritius, which has a tax rate of only 3 percent. Such growth comes at a cost to others – and likely has an expiration date. A number of African countries have already announced their intention to either abolish double taxation agreements or renegotiate them.
“Once the money stops flowing, it’s going to be difficult to keep our heads above water,” said Paul Berenger. He sits in his office in a suburb of Port Louis. The floors and desk are wooden, the chairs heavy. He himself is dressed in cloth pants, leather slippers and a button-down shirt, his hair an elegant shade of grayish white. His appearance conjures the impression that the Colonial era only just recently came to an end. The room is full of mosquitoes that all seem to have lost their appetite for Berenger and have instead focused their attention on his guest. “They love white skin,” Berenger said.
His skin is fairly white as well – he was the only prime minister with European roots that the island ever had. Around 70 percent of the population descends from India, while around 25 percent is Creole and traces its lineage back to former African slaves who once mixed with Europeans. There are also a few thousand Chinese and Franco-Mauritanians. “The private sector is still very white,” Berenger said. There are five main families, large estate owners from the French Colonial era who still own the banks and many of the hotels today. But they don’t get involved in politics – that’s the Hindus’ turf, many of whom are merchants and farmers. The Hindus brought with them a caste system of their own, but the real hierarchy looks something like this: first white, then Indian and then the Creoles.
“If the financial sector disappears, we’re dead”
But something close to a melting pot developed in Mauritius nonetheless – closer, at least, than in South Africa a couple thousand kilometers further to the west. There aren’t any horrific slums and there isn’t as much violence. When Mauritius gained its independence, the country’s gross domestic product per capita was just $400, while today it has risen to $10,000. The country’s next lofty goal is that of making the jump into the list of “high-income economies.” The only reason why that goal has receded slightly of late is because corruption has increased and because the former prime minister installed his son as his successor. Like in a banana republic.
“All that can be fixed,” says Paul Berenger. “What I am most afraid of is that the money will stop coming in.” Berenger went to university in Paris in the 1960s, a time when, he says, “we had ideals and we fought for justice, for a better world.” Today, he lives in a place where clients don’t necessarily belong to the best in the world. On an island whose prosperity depends on poorer countries in Africa bringing in lower tax revenues and whose business model leads to greater injustice elsewhere. His response? Berenger’s annoyance at the question is fleeting. “Oh, morals. There is only as much social justice as the economy allows,” he says. “If the financial sector disappears, we’re dead.”