In the recently proposed deal between the Kenya Airports Authority (KAA) and the Adani Holdings Company to lease the Jomo Kenyatta International Airport (in Nairobi, Kenya) for 30 years, the contract states that any tribunal between the two will be held in Mauritius. Not in Kenya, where the asset in context is being traded, nor in India, which is the country of origin of the company that’s entering into the contract. No. The contract stipulates that the hearing shall be held in a third country. Mauritius. But why Mauritius? What’s up with Mauritius?
Let’s go back to the start of it all.
Dutch Mauritius
Mauritius had, in fact, started out as a sugar plantation. The island was first ‘discovered’ by the Arabs, but written historical documents point to the year 1507, when Portuguese sailors, who were on their way to India, visited the island. They, however, took no interest in the island, and left it as they found it. This was because they had already established their African base in Mozambique, hence there wasn’t a need for another one.
In 1598, a Dutch expedition left the Netherlands and headed to India. They had a terrible experience as they sailed through the Cape of Good Hope, facing so much foul weather that they really needed to dock at whatever piece of land they’d find. On the 17th of September that month, they came into view of a certain island ahead of them. They decided to sail towards it, and 3 days later, on the 20th of September, they arrived.
The first course of action, of course, for anyone who discovers something, is to name it. And so, they called the island ‘Mauritius’. It is argued whether this was after the main ship in their fleet, which went by the same name, or after their leader – Prince Maurits of the House of Nassau – who was the leader of all provinces in the Netherlands.
They left the island two weeks later, but they had laid claim to it, and from then on, the Dutch used it as a stopover on their voyages to India. They never permanently inhabited the island until 1638, when Cornelius Gooyer established the first settlement together with 35 other men.
They brought in slaves from Madagascar, and decided to plant sugarcane on the island as the main crop. Due to a series of droughts, cyclones and pest infestations, the Dutch gave up on the island, and thus, abandoned it in the year 1710.
French Mauritius
The French took over the island in the year 1715, and offered land to French settlers, but on strict conditions. To everyone who was offered land, if they wouldn’t cultivate it for three years, then the land would be taken away. To help them do so, they were, each, given 20 slaves to work on their farms, and in return, they’d pay a tenth of their produce to the French East India Company, annually.
This, of course, led to an upsurge in the level of agriculture in the country. This corresponded to the demand for slaves, so, they had to import slaves every year. When the program started, French Mauritius only had 638 slaves out of a total population of 838 inhabitants. Within five years, there were 2,612 slaves.
British Mauritius
Everything was going on well in the French Mauritius, until the year 1810, when the British invaded the island during the Napoleonic Wars and captured it. They abolished slavery, and instead, used indentured labourers in their farms. They also built more infrastructure in the island.
Independence
It was on the 12th of March 1968, that the Mauritians finally gained independence from the British. Sir Seewoosagur Ramgoolam became the first Prime Minister, while Queen Elizabeth II remained the head of state as Queen of Mauritius. At the time, they were very dependent on sugarcane farming.
Just a few years earlier, in 1961, one Professor James Meade dismissed the economic prospects of the island, stating that, being a small island, it was highly likely not to succeed due to its size. Therefore, the onus was on the new government to make it work. This meant that they had to look beyond sugarcane farming, or even agriculture in general.
In May 1975, a student revolt that started at the University of Mauritius swept across the country. The students were unsatisfied with an education system that did not meet their aspirations, and that gave limited prospects for future employment.
Offshore haven
In the year 1989, the government got the idea of positioning itself as a ‘gateway to Africa’ by becoming the country of choice for investors seeking to invest in Africa.
To do this, they worked on passing the Offshore Business Activity Act, 1992, which would enable foreign entities to incorporate companies with limited public disclosure, extremely low or no taxation and benefit from high levels of privacy/asset protection.
In addition to that, Mauritius also signed ‘Double Tax Avoidance Agreements’ (DTAA) with 46 states from around the world (18 being from Africa). This agreement encouraged investment since it ensured that investors from one country could operate in another country without being taxed twice on the same income.
The Mauritius Miracle
This particular measure, saw the growth of Mauritius in subsequent decades. Its GDP has grown at a rate of 5% p.a. for the past 30 years. At least 87% of the Mauritians own their homes, and their per capita income has grown to more than $6,700. Additionally, they have diversified their economy to include tourism, finance, textile and ICT.
The number of millionaires on the island, too, increased, as the number of investors opening companies streamed in.
The Problem
This, however, came with problems, as many multinational companies used this chance to shield their assets and profits from the tax authorities. Research from the UN World Investment Report demonstrated that losses to lower-income countries from allowing investment through conduit dominions with tax treaties such as Mauritius, run up to $100 billion a year.
Thanks to this, many African governments have been impoverished, and the wealth inequality in these countries has widened substantially.
In 2015, the EU placed Mauritius on its top 30 tax blacklist nations. In 2016, Oxfam went on to list it as one of the world’s worst tax havens. And in 2018, the Financial Secrecy Index gave it a 72.3% score for enabling questionable tax avoidance manoeuvres.
It is interesting that, despite how unethical this is, some accounting firms such as Deloitte and offshore legal services provider Appleby, do advise their clients to open companies there in order to maximise profits.
Many of the countries which signed the DTAA with Mauritius, such as India and Kenya, have previously gone to court to invalidate the agreement, but thus far, have been unsuccessful.
Whether or not Mauritius will succumb to the complaints and go back to being a sugarcane country, is quite doubtful. But for now, they are clearly in their halcyon days.
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