Raju Jaddoo, Ocorian's AMEA Non-Executive Director, shares his insights on Prosper Africa, a new US-led initiative unveiled in June at the Business Summit organised by the Corporate Council on Africa in Mozambique. As Prosper Africa unfolds, Raju observes that US corporates and investors will benefit from using the Mauritius International Financial Centre to structure their Africa-focused investments.
Prosper Africa, a US Government initiative, was rolled out at the US-Africa Business Summit held in June in the Mozambican capital, Maputo. This new initiative aims to double US-Africa trade and investment through the articulation of a new whole-of-government approach by the US to make it easier for African and US businesses alike to access, through a one-stop shop, the full range of the US government support services.
With the existing African Growth and Opportunity Act (AGOA) due to expire in 2025, the new initiative will allow the US government and businesses to craft longer term strategies that will invigorate US-Africa trade and investment. In particular, Prosper Africa is a response of the US Government to a growing call from its entrepreneurs and investors to make it easier for them to do business with Africa.
Africa's sturdy growth opens alleys for enhanced US-Africa trade and investment
Such an initiative could not make more sense. Due to sustained growth, Africa is poised to play a pivotal role in the global economy. At present, the continent is home to six of the ten fastest growing economies in the world and has over one billion resident consumers. By 2025, it is estimated that two thirds of some 300 million African households will have discretionary income. Meanwhile, producers in Africa see in the US a consumer market of more than 300 million people with a combined purchasing power of $13 trillion. These figures underscore the benefit Prosper Africa has in store for both parties.
Recognising the need to provide financing support to open up the pipeline of opportunities in Africa, Prosper Africa also aims to foster fair and accessible business eco-systems and robust financial sectors. Efforts to support the development and deepening of financial sectors in Africa will be key to increasing trade and investment flows. In this connection, Mr Worku Gachou, Managing Director for Africa at OPIC, announced at the summit the future increase of their lending cap to $60 billion, also stressing the need for blended finance solutions to mobilise private capital flows.
US remains most committed investor into Africa
Defying a global downward trend, foreign direct investment (FDI) flows to Africa rose by 11% to $46 billion in 2018, fuelled by a demand for commodities as well as non-resource seeking investments. Flows to Sub-Saharan Africa increased slightly faster, by 13% to reach $32 billion. Prospects for 2019 are good, with additional FDI flows forecasted in response to higher prices for minerals and the African Continental Free Trade Area gathering momentum. In this context, traditional investor nations to Africa will be vying to keep their lead. Prosper Africa is poised to see the US strengthen its position as one of the biggest investors in Africa. Though by FDI stock the US may seem to have lost ground in recent years compared to countries like France and the Netherlands, it remains by number of FDI projects – 130 in 2017 – the most committed investor on the continent.
Mauritius, a jurisdiction of choice for investments into the continent
A member of the African Union, Mauritius also stands to gain from the new Prosper Africa initiative. First, as a trading partner, in a similar way that the AGOA boosted its local textile sector. Second, and more importantly, as a safe, modern and OECD-compliant jurisdiction enabling corporates, private equity funds and institutional investors to conduct business globally, including with Africa. As of June 2018, investments totalling $33.2 billion had been routed into Africa from Mauritius, making the island one of the most used and trusted International Financial Centres (IFCs) to structure and hold investments to the continent.
Long regarded as an IFC of substance and repute, the Mauritius IFC is built on a robust eco-system and a diversified offering that provides a range of investment-enabling solutions to investors in Africa. These include:
- IP registration
- Global headquarters administration
- Global treasury activities
- Global procurement and employment
- Investment banking
- Asset and fund management schemes
- Investment holding structures
- Trusts and foundations
A well-developed banking system, an efficient and forward-looking Stock Exchange, an international arbitration centre, an educated and bilingual workforce and a convenient time zone add to the attractiveness for investors. Mauritius currently ranks 20th worldwide and 1st in Africa on the World Bank ease-of-doing business index. It also has an extensive network of tax treaties and investment protection agreements with African countries. Its modern Freeport gives preferential access to Africa's markets whilst the nation also enjoys excellent and long-standing diplomatic relations with the US, which should give additional comfort to the US investor.
As at June 2018, the Mauritius IFC had been used for US investments around the world to the tune of $62.5 billion. Going forward, the continued interest of US investors in the Mauritius IFC will depend largely on their Africa-focused investment strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.