Mauritius-India-Africa : Leveraging on the CECPA in a post-Covid-19 economic recovery
The coming into operation of the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) on 1st April 2021 marks another milestone in the bilateral relations that exist between India and Mauritius. It opens new avenues for the business communities of both countries and provides an institutional framework that gives better predictability and certainty to the trade regime. However, in terms of trade, unfortunately, we could have expected more from this close relationship, but the reality is otherwise.
India and Mauritius share a special and unique relationship that is anchored on deep bilateral ties, cultural affinities, as well as common values and interest. This proven relationship has been further reinforced over the years by high-level political interactions, and signing of a wide array of bilateral agreements in various sectors, including education, health, maritime security, ICT, financial services, and many others.
As Mauritius seeks to further diversify its exports of goods and services and embark on a post-Covid-19 economic recovery, Mauritius can leverage the CECPA agreement with India. The agreement confers Mauritian operators a preferential access to a market that is expected to become a USD 5 trillion economy by 2027-28 and the world’s third largest economy by 2030.
For Kevin Bessoondyal, Chief Development and Commercial Officer CORPORATE of Rogers Capital, diplomatic relations between Mauritius and India go as far as the early 1800s. Since then, this relationship has witnessed considerable nurturing and strengthening in its political, commercial as well as cultural aspects. Mauritius also plays an important role in India’s expansive foreign policies which regroups the “Neighbourhood First” Policy, the “Sagar Ocean” Policy and the “Forward Africa” Policy. “Mauritius and India have reinforced their economic and commercial relationships with the coming into force of various bilateral trade and investment agreements signed between the two countries, positioning India as the 2nd largest trade partner for Mauritius. Prior to the Covid-19 pandemic, around 20% of our imports were from India amounting to around US$ 1 billion.”
Kevin Bessoondyal specifies that India has also been one of the main contributors of FDI into Mauritius, with over US$ 40 million over the last five years. More than 100 Indian companies, from large corporates, reputable banking and financial institutions, ICT and Manufacturing companies have invested in Mauritius, thereby contributing to the economic development of Mauritius. Equally, FII investment flows, including equity, debt and hybrid securities from Mauritius, amounted to US$ 68 billion, which represents 11% of India’s total FII inflows in 2021. Mauritius, after the USA, was the second biggest source of FII inflows into India, thereby relegating Singapore to the third position.
Mauritius has indeed a long-standing historical tie with India given that the majority of Mauritians are descendants of people from India, and also before and after the independence of Mauritius, India has always been a geopolitical ally for Mauritius. However, Kevin Teeroovengadum, economist, points out that in terms of trade, unfortunately, we could have expected more from this close relationship, but the reality is otherwise. “If we look at our exports of goods to India, we will see that the Indian market accounts for less than 3% of the total exports of Mauritius for an amount lower than Rs 2 billion in 2021. And in terms of imports, 16% of our total imports come from India for an amount of nearly Rs 35 billion in 2021. This means that our imports from India are nearly 17 times the amount we export towards India. In a way, India gains more than Mauritius in terms of trade of goods.”
Timid Mauritian’s private sector
We need to know that India is a 1.4 billion market, nearly 1,100 times the size of the Mauritius population. India is nearly a USD 3 trillion GDP economy, which is nearly 300 times the GDP of Mauritius. And India is forecast to become the 3rd biggest economy by the next decade. So, this means Mauritius should make the most of the current CECPA agreement. “But I believe our private sector is very timid and is not putting the necessary resources to leverage on this agreement and export the maximum possible to India. We need to have a bold vision and strategy. For example, we should be saying how can we grow our current exports of Rs 2 billion annually to Rs 20 billion in the next couple of years,” argues Kevin Teeroovengadum. Another point where we are not being smart is in the tourism sector. Since Covid, India is the number one market for Maldives where they got nearly 125,000 Indian tourists for the last 6 months. Whereas Mauritius got only 15,000 Indian tourists during the same period, more than 8 times less than Maldives. Once more, as stated by Kevin Teeroovengadum, we are missing great opportunities as we do not have a bold strategy and vision to capture the Indian market. Basically, we fail in having a cohesive and well thought strategy, and we expect Indians will come to Mauritius. Whereas Maldives has a very aggressive marketing strategy for the Indian market. And the Indian high-networth individuals, superstars, upper-middle class have a lot of money which they could come and spend in Mauritius. “Another point, how many real estate developers in Mauritius market their residential developments to the Indian market. Basically no one. Again, when we see the number of Indians who buy properties in Dubai, or Thailand, or London, and yet Mauritius doesn’t have a strategy in targeting Indian buyers. Again, our private sector seems too weak in having a strong vision of the Indian market!”
Understanding the CECPA
Kevin Teeroovengadum adds that in terms of investment, Mauritius was historically the number one foreign direct investor into India until such time the Double Taxation Treaty was reviewed back in 2016. Since then, Singapore and other countries such as Cayman Islands have taken market share from Mauritius. In 2021, an estimated amount of US$ 5.6 billion routed via Mauritius to India compared to US$ 16 billion in 2018. He says that we must be careful as it is not necessarily Mauritian investors investing in India, but rather global investors routing their investments via Mauritius to invest in India. Then, when we look at investment from India coming into Mauritius, we see that India’s investment is less than 3% of the total Foreign Direct Investment (FDI) that Mauritius receives annually. This means very little investments from India and on average US$ 12 million per year.
The three main components of CECPA are trade in goods, trade in services and the economic cooperation chapter. But the economic cooperation chapter, which has been finalized, will be incorporated within two years from the date of implementation of the agreement. The agreement also includes chapters on rules of origin, sanitary and phytosanitary measures, technical barriers to trade and dispute settlement. In addition, both parties have agreed to negotiate an automatic trigger safeguard mechanism for a limited number of highly sensitive products within two years of the signing of the agreement.
With respect to trade in goods, the agreement improves market access by eliminating or reducing tariffs on a number of products. It provides preferential access to some 300 products of interest to India, including tea, spices, beer, rum and spirits, special sugar, or ayurvedic products, plastic articles, iron and steel products, motor vehicle parts, furniture, amongst others.
Under the agreement, Mauritius has been given market access to India for around 600 products at preferential rates. Some of the benefits to Indian importers in sourcing from Mauritius at preferential rates are special sugar (40,000 tonnes at 10% duty, which is currently at 100% in India); canned tuna (7,000 tonnes and zero duty compared to 150% duty); high quality rum (1.5 million litres at 50% duty as compared to the existing duty of 150%); beer (2 million litres of Mauritian beer at 25% duty compared to 150% duty); fruit wine (5,000 litres at 50% duty compared to 150% duty); garments (7.5 million pieces at zero duty). Mauritius is well known for its high quality and niche products. For instance, Mauritian rum has been acclaimed globally, and was voted the best during the 2020 International Sugarcane Spirit Awards. In the same way, branded garments, which are sold in Europe and the US, can be sourced duty free from Mauritius.
Another significant advantage under CECPA is that it offers flexible rules of origin for a number of products. This is an important provision, as it allows use of non-originating materials to a certain percentage of the export price and product specific rules, which allow up to 35% value addition. This provision is particularly relevant in the context of the value chain, if it intends to take advantage of the vast African market.
With respect to non-tariff barriers, besides providing improved access to the markets of both countries, CECPA also contains a framework to address any non-tariff barriers, sanitary and phytosanitary measures, technical boundaries to trade and trade facilitation measures. The agreement provides for the establishment of a high-powered joint trade committee, as well as subcommittees and the rules of origins, Sanitary and Phytosanitary (SPS) and Technical Barrier to Trade (TBT) chapters to ensure that any non-tariff barriers are sorted out as quickly as possible, so that there is no impediment to trade. These committees will be represented at a technical level from both sides.
The agreement also contains provisions to support customs procedures to be applied in a predictable, transparent and reasonable manner to facilitate trade. Furthermore, the chapter on SPS provides a framework for parties to conclude bilateral recognition arrangements of equivalence on SPS measures. Some of the products on which Mauritian authorities would like to have equivalence include, among others, seafood products, alcoholic beverages and tropical fruits. The Mauritian authorities are also considering signing a Memorandum of Understanding (MoU) on equivalence under the TBT chapter. It does not cover only trade in goods, it also provides for an appropriate platform to expand bilateral trade in services between India and Mauritius. Our country has taken commitments to over 120 service sub-sectors, while India has committed to some 94 sub-sectors. Some of the key sectors include professional services, engineering, education, audio-visual and logistic services. So, this opens up good opportunities for Indian institutions, both in the educational and medical fields, to set up their business in Mauritius and explore the African market. The agreement also provides a framework to conclude bilateral agreements on the recognition of qualifications, licenses and registration of business in areas of mutual interest.
“The CECPA took many years of negotiation and finally got signed last year. In respect to trade of goods, Mauritius will benefit from reduced duties for nearly 615 products that could be exported to India, while India will benefit from reduced duties and taxes for nearly 320 of Indian products for the Mauritian market. I think it’s good that we signed this agreement. However, just signing is not enough. We need to make the most and get our Mauritian private sector to spend more time and resources to be able to export their products to the fast-growing Indian market. The Mauritian government has done its part in terms of getting the CECPA agreement signed. It’s up to the private sector to make the most of the agreement. Else other competitors of Mauritius will take advantage, as India has also signed a number of free trade agreements (FTAs) with other countries,” explains Kevin Teeroovengadum.
Kevin Bessoondyal adds that the India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement is the first trade agreement signed by India with a country in Africa. Therefore, it provides Mauritius a first mover advantage to tap the vast potential that India and Africa have to offer. He is of opinion that this agreement will pave the way for the two trading partners to cut or eliminate custom duties on a host of products as well as relaxing existing standards to promote service trade.
“Mauritius, with its strategic geographical position in the Indian Ocean, besides the wide network of bilateral and multilateral cooperation in the region, can now be leveraged to a much greater extent to tap into new markets and promote greater cross border investments in Africa. The agreement provides unmatched opportunities for Indian manufacturers to move part of their manufacturing processes to Mauritius and using the cumulation rule, produce for the African Market. The same principle also applies to the Services sector. A service supplier from India can leverage on trade opportunities on the African continent by operating from Mauritius. India’s continued focus on attracting foreign direct investment to sustain its growth strategy, will also further enhance Mauritius ‘position as a major platform to route significant flow of investment into India,” points out Kevin Bessoondyal.
Moreover, the CECPA contains a comprehensive segment on financial services aimed at improving bilateral trade in financial services. Key sectors in which the parties have taken commitments include both non-banking (e.g., insurance and insurance-related services) and banking financial services. By removing key barriers and providing service suppliers with more transparent and predictable operating conditions, the Agreement provides a platform for both countries to increase the value of services trade. Regarding the impact of the CECPA on the financial services in Mauritius, Kevin Bessoondyal explains that it is important to point out firstly that the bilateral commitments taken within the framework of the CECPA to relax barriers (for instance in terms of lower entry requirements) on financial services in Mauritius would allow Indian financial institutions to participate in the Mauritian market, improve competition as well as market efficiency. The efficiency gains in financial services would be in terms of economies of scale and scope.
“Commitments taken at the level of CECPA on financial services will provide legal certainty to Indian investors to invest in Mauritius. The CECPA provides for transparency in the procedures necessary to supply financial services. It also includes provisions on domestic regulation, recognition, and dispute settlement. The CECPA also promotes the movement of professionals. It provides a framework for professional bodies to engage in dialogue on recognition of qualifications, licenses and registration, and the development of mutual recognition agreements in professions of mutual interest including accounting and auditing,” states Kevin Bessoondyal.Indeed, the agreement also has a broader regional dimension, which could be of vital interest to Indian businesses wishing to tap the vast African market. Africa represents a market of 1.3 billion consumers, which is projected to reach 1.7 billion by 2030.
Basic commodities
There has been the signing of a Memorandum of Understanding between the State Trading Corporation (STC) and the National Agricultural Cooperative Marketing Federation of India Ltd (NACMF) for the procurement of rice, wheat, edible oil and other agricultural commodities. In a difficult economic context where commodity prices are rising, will this agreement help Mauritius? “Yes”, replies Kevin Teeroovengadum. “If we play our geopolitical cards well, we can leverage our relationship with India to benefit on the import of these important commodities. For example, since the Ukraine-Russia crisis, we can see how India is smartly importing oil and gas at nearly 30% discount price to world price. If only we could source our oil and gas at these discounted prices via India. India has the ability to negotiate bulk discount and offer Mauritius facilities to buy from India. A number of countries are looking after their own interest during this crisis, because inflation is hitting people very hard. That’s where I believe the Mauritius government should negotiate its imports with India to benefit reduction in imported prices. I hope however that the STC ensures the negotiation with the NACMF of India is done on a transparent basis, so that finally Mauritian consumers can benefit from these negotiations.
Access to the African continent
Africa’s consumer spending is currently US$ 1.4 trillion, and is projected to reach US$ 7 trillion by 2030, in view of the fast-rising middle class and growing purchasing power. Indian businesses can team up with Mauritian businesses, and move part of their manufacturing processes to Mauritius to benefit from preferential market access to the African market. This is possible, as Mauritius has duty free access to a market of 450 million consumers by virtue of its membership to the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) region in Africa.
In addition, the implementation of the African Continental Free Trade Area (AfCFTA) agreement from 1st January 2021, to which Mauritius is a party, opens market opportunities on a much wider scale. Mauritius could thus be an important gateway between India and Africa. The flexible rules of origin embedded in the agreement, together with a framework to address SPS and NTBs, would facilitate this process of big change. Currently, Africa imports only 5.6% of its products from India. There are several products that India could easily export to Africa, using Mauritius as a production base, thus benefiting from the preferential margin in the African market.
As per a study conducted by the World Bank, Mauritius enjoys significant preference margin over its competitors in selected products, which could be partly manufactured in India, with value addition in Mauritius, and which can thereafter be exported to Africa. These include, amongst others, medical devices, pharmaceutical products, paints, fabrics, electric cables, aluminium products, plastic tubes, glass articles, furniture, household appliances, electric conductors, vehicles, cars, buses, motorcycles and optical fibres. Some of the selected African countries that can be immediately explored are Kenya, Madagascar, Mozambique, Botswana, Tanzania, South Africa, and Seychelles.
And given that Mauritius has positioned itself as a hub bridging Asia and Africa, it is important to know if it can offer promising prospects of triangular cooperation between India, Mauritius and African countries. Kevin Teeroovengadum replies that in theory we can as the Government has been trying to position Mauritius as a hub for investments into Africa. “But yet again, when we look at the reality on the ground, we see many Indian companies are already well entrenched in numerous countries in Africa including South Africa, Kenya, Ghana, Nigeria, Ghana, etc. In a way, with or without Mauritius, India is already a big investor and trade partner with many African countries.
A number of Indian companies have chosen South Africa and Kenya for their regional African headquarters. And lately, Dubai is also positioned as a key jurisdiction for Indian companies to invest into Africa. So, what I mean here, if we do not offer anything attractive, why would Indian companies move from our competitors to Mauritius?”
He adds that we really need to re-look at our offerings and offer something really attractive to entice Indian investors to use Mauritius. A prime example of a missed opportunity was when Airtel, one of the biggest Indian mobile telephony operators in Africa, chose Dubai to host their regional headquarters. “If only we could offer something really attractive to make them choose Mauritius. This is where I believe EDB has failed in its mission and the government should critically look at why Indian investors are choosing other jurisdictions. We need the investors! The investors don’t need Mauritius. So, we are the ones who have to offer red carpet treatment to bring them to Mauritius,” points out Kevin Teeroovengadum.
Medical devices
An analysis of the potential for medical devices demonstrates the burgeoning opportunities for export of Mauritian products to India. In 2019, medical devices produced in Mauritius and exported to the Indian market stood at around USD 9 million while the total import for the same product to India scaled up to USD 310 million in the same period, on the back of a 20 % year-on-year growth. The opportunity to considerably increase our exports just on this item with preferential access is thus significant. Along the same line, there exists substantial potential for exports for other product categories. On the other hand, according to the Economic Development Board (EDB), Mauritius, through its myriad of bilateral and multilateral agreements provide preferential access to almost 70% of the world market that Indian operators can leverage. Additionally, India is fast emerging as a net exporter of professional services. Therefore, aligning the African Continental Free Trade Area and the Mauritius-India CECPA can be a game changer for Indian Companies to tap into the African market through Mauritius.
Kevin Bessoondyal adds that our proximity with the continent, cultural, geographical and economical, has so far been extremely beneficial for Indian investors and businesses to have a secure platform to set up and manage all their Africa operations. He is of opinion that with the CEPCA, the AfCFTA and existing ties that Mauritius has within the region, through the SADC and COMESA network, it can ideally become the missing link for the Indian community to gain beneficial access in Africa. “As the investment tendencies in Africa continue to grow over years, Indian companies can now choose to move partially or relocate their headquarters in Mauritius to make the most of its conducive business environment, robust infrastructure and sound & trusted financial & legal ecosystem. Our multilingual workforce adds up our closeness to all the countries within Africa, including the Francophone regions.”
10,500 Indian passport holders in Mauritius
Many prominent Indian Public Sector Enterprises are currently functioning in Mauritius. The Bank of Baroda (BoB), Life Insurance Corporation (LIC), and New India Assurance Corporation (NIAC) were the first to establish operations, followed by other PSUs including IndianOil (Mauritius) Limited (IOML), Mahanagar Telephone (Mauritius) Ltd., State Bank of India (Mauritius) Limited, etc. Besides their core activities, the PSUs have contributed to various activities in Mauritius under the Corporate Social Responsibility (CSR) schemes. As of date, there are 10,500 Indian passport holders in Mauritius, including approximately 9,000 Indian workers and several hundreds of Indian professionals. Some 64 Indian companies have invested in Mauritius in several sectors such as healthcare, education, ICT, Freeport and financial services. Some of the prominent Indian companies operating in Mauritius are Amity, Infosys, Dr Aggarwal’s Eye Hospital, Ajanta Pharma, etc.
This article first appeared in Business Magazine of Mauritius. Access it here.
