In this article we share our thoughts on what lies ahead for Mauritius, Africa and India in 2022.
Africa took a massive toll from the Covid pandemic in 2020, causing the combined African GDP to contract by 2.1% caused mainly by strict lockdown measures. 2021 has seen a timid recovery in its growth by 3.7% through a bounce back in commodity prices, easing down of measures and opening of the tourism sectors. However, 2022 estimates are not expected to be much higher with an estimated increase of only 3.8% which are explained by a very low vaccination rate (less than 8% of the African population has been fully vaccinated), as well as an accelerated rate of climate change.
The figures, however, hide some stark divergences amongst the countries on the continent. The IMF has highlighted that even before the pandemic, non resource-intensive countries that have a diversified economic structure had been growing faster than resource-rich countries, but this gap has been exacerbated by the pandemic, which has highlighted key disparities in resilience.
The IMF has predicted that the top five economies to grow in Africa will be Seychelles, Rwanda, Mauritius, Niger and Benin which all looks set to hit above 6% growth. Such countries have flourished through diversified economies by attracting FDI, building key infrastructure and boosting manufacturing and services. African nations that rely mainly on resources for growth amid challenging political and security environments. Nigeria, Angola and South Africa – all considered as relatively large economies – will average growth of only 2.5% and this will weigh down on the continent’s average. Ethiopia considered as the fastest growing economy in Africa in only 2018, has now been classified as the slowest growing country in Africa due to the raging civil war in the past year or so.
It is estimated that Africa shall require at least US$700 billion per year over the next decade to meet its Sustainable Development Goals by 2030 with at least half of the funding expected to come in from the private investors and the remaining coming in from resource mobilisation from governments, foreign aid and investment from local businesses.
While the longer-term economic consequences of Covid-19 in Africa remain uncertain, this will further impede the capability of the governments and local businesses to mobilise resources to fund the investment needs of Africa. Furthermore, the pandemic has reshuffled the priorities of the traditional donor countries resulting in lesser foreign aid dedicated to the development of the continent.
As Rubina Toorawa mentioned in her interview to AVCA, we expect to see a much larger contribution of private investors to fund the ambitious growth plan of the continent with a focus on sectors such as financial services, IT, Healthcare, Infrastructure and consumer goods. However, the success in fund raising would depend substantially on the willingness of the respective governments to create a conducive, safe and regulated ecosystem to attract capital.
India’s economy is showing signs of increased customer and investor confidence amidst the pandemic. The Indian growth estimate will mainly be driven by robust corporate earnings and the Indian market will continue to be globally attractive. Some of these projections are based on the assumption that by March-April 2022, 85-90 percent of the adult population in India will be double vaccinated. The announcement of upcoming booster doses and COVID vaccines for the 15-18 age group has also been welcomed.
GDP growth is projected to have a sturdy growth of 8.8% (YoY comparative) as at Q2 2022, according to the Reserve Bank of India (RBI). The OECD also highlighted that recovery is gaining momentum and GDP is projected to grow at 9.4% in fiscal year (FY) 2021-22 before reverting to 8.1% in FY 2022-23 and 5½ per cent in FY 2023-24. The growth outlook will be supported by ongoing structural reforms, a better than-expected financial sector recovery, and measures to resolve financial sector challenges despite ongoing risks. Investment demand as measured by Gross Fixed Capital Formation (GFCF) is also projected to grow by 11% in Q2 2022 compared to the same period in 2021.
The growth will be accelerated by the formal implementation of various Production Linked Incentive (PLI) schemes and China plus one strategy. The objectives are to give a boost to economy from a Covid linked slowdown. A survey by UBS suggests that 20-30% of manufacturing will be leaving from China, making India the next best candidate to benefit from this altered situation.
On the other side if we throw the spotlight on Private Equity, we have experienced an extremely active phase in India on Fund raisings, investment, buyouts and exits. The Reserve Bank of India predicted 2021 to be India’s year of IPOs based on new domestic unicorn companies taking the securities market in India by storm and attracting global attention. The Indian regulators are also bolstering their legislative frameworks to increase transparency. For instance, in the wake of the recent fiasco at a large mutual fund, market regulator Securities and Exchange Board of India (SEBI) has now ordered all MFs to ‘ring-fence’ the assets and liabilities of each scheme. Ring-fencing will mean that MFs cannot use unit-holder’s money or assets to pay their liabilities and adjust it as losses in the respective schemes.
There are also some innovations in the market, such as Special Purpose Acquisition Companies (SPAC) and IPO focused funds. With most IPOs oversubscribed many times over, investors are landing up with zero allotment. Now to invest in IPOs, investors can also take the mutual fund route.
India is trying to improve its position in the ease of doing business, by ensuring investor-friendly guidelines and preparing an investment-conducive environment for foreign investors. It will be interesting to note the policy changes and the modifications in the legal framework such as alignment of regulatory framework and retrospective application of taxations, as India continues to climb the ease-of-doing-business ladder.
Substance and economic value addition are key features of the Mauritius International Financial Centre (MIFC), and this is majorly entrenched in legislation and regulations. In addition to being controlled and managed from Mauritius, entities must maintain offices in the country, employ an adequate number of qualified personnel and incur an acceptable amount of annual expenditure to undertake their activities.
The IFC has both width and depth.
It offers a broad range of financial and professional services to global investors in banking, fund management and administration, corporate and trust services, insurance, legal, accounting and shared services. alongside a dynamic capital market and a stock exchange to raise funds.
The IFC contributes significantly to the economic fundamentals of the country. The financial services sector represents around 12% of GDP with the IFC accounting for around half of this value addition. Its direct, indirect and induced employment is around 20,000 with some of the best paid jobs in the country. Its share of corporate tax is high, while its support to the balance of payment is considerable with substantial capital inflows, and it also brings in high revenue to the regulators in terms of set up and annual maintenance fees. It has created significant backward and forward linkages in the economy in sectors like real estate and tourism and in services purchased from local companies, and is also a major driver of innovation and technological transformation as it has to adopt the best-in-class processes and procedures to be globally competitive.
As the country leaves the FATF’s grey list and the EU blacklist, it should leverage its political and economic stability, its well-honed ecosystem and its well-earned experience over more than 25 years in global business to increase its share of cross border investments and activities. To achieve this goal, it must focus its efforts on broadening the range of products and services and its geographical footprint, on investing in capacity building and technologies, on sharpening its competitiveness and enhancing its attractiveness, on having more physical presence in the jurisdiction while deepening the industry with more commercial substance and economic value addition.
Therein lies the sustainable future of the MIFC.
Following the removal of Mauritius from the FATF list of jurisdictions under increased monitoring and EU list of high-risk third countries on AML/CTF regimes, the local authorities have undertaken to continue their endeavor to reinforce earlier improvement areas like supervision of FIs and as such we expect that the level of both onsite and offsite monitoring by the FSC will continue in full steam.
The FSC issued a consultation paper on the introduction of a regulatory framework for Compliance Services. The FSC Mauritius, with a view to enhance the current compliance culture in place, wishes to ensure that domestic players involved in both financial and non-financial services can rely on a regulated corporate entity to carry out their compliance functions on their behalf. The scope of the compliance services will mainly cover the provision of MLRO, DMLRO and CO services, together with other compliance services related to AML/CFT for FIs, DNFBPs and foreign clients. The increasing complexity of the business activities, the risks involved in performing such activities, and the lack of knowledge and expertise in complying with laws, rules, regulations and directives issued, may necessitate the delegation of some functions to entities providing compliance services.
Through dialogue with industry representatives, working Groups are being established by the FSC to issue guidance on issues affecting day-to-day operation and implementation of AML/CFT regulations, including areas that require much needed clarification like omnibus accounts since the newly issued FSC AML Handbook does not cover same. We expect that such initiatives will bring much needed explanation on the operation of AML/CFT requirements and expectations during supervision by FSC.
With recent changes in the regulatory landscape, it has now become even more critical to ensure that officers and staff of FIs are appropriately trained to take cognizance of AML/CFT obligations, control processes, reporting and recording requirements. The local authority and service providers will be working on appropriate training programmes and opportunities to assist local service providers, FIs and foreign clients also. It is expected that local AML/CFT certification and/or structured training will be high on the agenda for many such FIs.