Dr. Chiragra Chakrabarty : “Rapid development in skilled manpower and technology necessary in finance” 

More than 40% of the total investments from Mauritius into Africa are directed towards countries with which Mauritius does not have a tax treaty, says CEO of KATIC Consulting and former director of Bank of Mauritius (Development and Supervision of Financial Markets & Internal Debt Management Dr. Chiragra Chakrabarty. In this interview, the PhD holder in Economics points out that Mauritius has all the potential to become one of the best International Financial Centres.

The IMF has recently reviewed its forecast. For Mauritius, the forecast of a 3.9% GDP growth has been put forward. Do you think it is achievable? 
As per the recent press release of IMF on Mauritius economy, the real GDP growth is projected at 3.8 percent in 2018 and 3.9 percent in 2019. The vibrant service sector and relatively good domestic demand is helping Mauritian economy to grow at decent pace. There are a few more positive factors which are supporting this growth: Decline in inflationary pressures, lowest unemployment rate and the fiscal deficit in FY2017/18, which was about 0.3 percent of GDP lower than budgeted. The public sector debt decreased to 63.7 percent of GDP at the end of the fiscal year from 65.0 percent of GDP in FY 2016/17.  

An efficient and transparent regulatory framework clubbed with competitive tax regime lead to decent private sector growth. A prudent stance by financial services firms and supervisory agencies has helped to maintain financial stability. The global trade and investment outreach lead to an enhancement of exports of goods and services and tourism, but not as per the expected level. The economy needs to put in extra efforts on the external factors, as external balance continues to deteriorate due to enhancing trade deficit. As per IMF, in 2019 the current account deficit is expected to widen to about 7% of GDP due to higher capital imports associated with large-scale public infrastructure projects. Irrespective of some of the negative factors, I believe, due to good performance of financial services, construction and very vibrant tourism sectors, the forecasted 3.9% growth in 2019 looks achievable.  

An efficient and transparent regulatory framework clubbed with competitive tax regime lead to decent private sector growth. A prudent stance by financial services firms and supervisory agencies has helped to maintain financial stability."

Economists are predicting an economic crisis starting as from end of 2019. Do you share the same view?
The good news is economists largely agree a recession is not in the cards this year. However, major big fund houses and investment bankers do visualize a major slowdown in growth of the economies. Recessions happen, when an economy has built up a dangerous excess, such as the ones that occurred in housing markets, the dot-com tech stock bubble and the overblown commercial real estate market. 

Now turning towards global economy, fears are growing after China recorded a shock fall in exports, while European factory output declined by the biggest margin in almost three years. The Organisation for Economic Co-operation and Development (OECD) warned most of the world’s biggest economies are showing signs of easing growth momentum, with the biggest declines in France and Britain. The Composite leading indicators of OECD, which measure economic activity that anticipates turning points for between six and nine months ahead – also showed easing growth momentum in the US, Germany, Canada, Italy and the euro area as a whole. Several major European economies, including the UK, have struggled with faltering levels of car production in recent months, as factories adjust to handling new vehicle emissions tests introduced after the VWscandal.  

Otherwise, where do our financial sector stand today?
The financial sector of Mauritius is the major pillar for its successful economy. This sector contributes almost 12% to GDP. Mauritius has emerged as an International Financial Centre due to its strong regulatory framework. All the concerned regulators like BOM, MRA and FSC have jointly worked together to plug the loopholes. This paradise island has earned the trust of global investors through its recognition by international bodies such as IOSCO, IAIS, FATF and IFSB. Efficient tax regime, no capital gains tax, a highly-efficient banking system and last but not least, the free repatriation of foreign currencies has led Mauritius as an International Financial Centre (IFC).

The good news is economists largely agree a recession is not in the cards this year. However, major big fund houses and investment bankers do visualize a major slowdown in growth of the economies."

How can we further boost this sector?
Mauritius as an IFC has tremendous opportunities, the sky is the limit for it. But to reach to that level, a few major steps have to be taken. As I see it, there is a need for major change of brand for Mauritius as a financial jurisdiction. It has built up as a major back office jurisdiction, but now it needs to build it up as front office jurisdiction to attract major global brands of the Financial world (Bank or Non-Bank). As stated by Mr. Harvesh Seegolam, Chief Executive, FSC Mauritius, the country should attract high-caliber corporates and financial institutions to create real depth and breadth in the IFC. The global investors should not visualize Mauritius as pass-through entity but as a jurisdiction which can give an efficient access not only to global financial market but also to a vibrant domestic market. To do that, assets like equity and bond market should be developed not only in terms of products but also in terms of efficient regulation for those products.

For example, if we need to develop a well-defined corporate bond market in Mauritius, then it needs credit rating mandatory for all the issuers issuing corporate bonds. If that is not done, then the global investor will not be interested and even if they are, the issuer has to give very high rates to attract them. So, the credit rating can make issuing of bond cheaper. Government of Mauritius and Bank of Mauritius have taken very valuable regulatory initiative to develop Mauritius Government securities market. Mauritius can develop as an efficient hub for corporate bond (local currency or global currency) for African and Asian issuers. To create this hub, the regulators need to have good collaboration with most of the African and Asian regulators. Then Mauritius can provide an ideal platform for corporate bond for the corporates coming from Africa and Asia, as the Mauritius Rupee is a very stable currency.  

Another area is availability of skilled manpower for this sector. This needs to be developed very rapidly. It is key to the development. Another major factor which needs special attention is technology for getting the market to the investors in a very user-friendly way. Technology should be used to make life simple and safe for market participants. Mauritius has already taken various valuable and bold steps in this direction.

Is Mauritius giving justice to its role as a financial hub in the African region?
Yes. Mauritius has taken various steps to diversify in Africa. As per the Global Finance website report, “The country is now moving into a new phase, away from tax-centric services and towards adding real value-added services. Investors look beyond tax incentives when they invest through an IFC. In fact, more than 40% of the total investments from Mauritius into Africa are directed towards countries with which Mauritius does not have a tax treaty.” This is a big development. 

Mauritius has all the potential to become one of the best International Financial Centres. It has already achieved some success but needs to work further to reach the highest level."

Can Mauritius aim higher as a financial hub other than targeting African countries?
Mauritius has all the potential to become one of the best International Financial Centres. It has already achieved some success but needs to work further to reach the highest level.

What are the various challenges of the financial sector?
One of the key challenges faced by the financial sector in Mauritius is lack of big size domestic financial market. Hence, we need to attract the global issuer and investors, then the size will be big. The Mauritian Government securities market is an ideal market for various foreign central banks and sovereign funds to invest, because Mauritius has investment grade rating, good level of yield and stable exchange rate, just to name a few. Still they may not invest, because it is not cleared by Euroclear. If the Government Securities becomes Euroclear able then the brand of this securities goes up drastically. Finally, to become more attractive globally, the transaction cost has to be brought down further. 

The Mauritian Government securities market is an ideal market for various foreign central banks and sovereign funds to invest, because Mauritius has investment grade rating, good level of yield and stable exchange rate."

Do you think with the emergence of Blockchain, the finance sector will face major changes?
I don’t think so. The developed financial market depends on many factors like products, player, regulator, technology and so on. So, technology is one of the factors which adds up to the development of the financial market. Blockchain is a very efficient technology platform and it will definitely help to perform various functions of financial market efficiently and safely. 

Looking towards the future, what challenges and opportunities will 2019 bring for cryptocurrency enthusiasts?
The popularity of global cryptocurrency asset market is growing in popularity every day, there seems to be huge influx of investor/speculator into this market. The average daily trading volume and the market cap of the global market is usually in trillions of dollars and more than half trillion dollars respectively. However, this asset market has various problems, the most crucial problem being its volatility, whose number can be as high as 50% in a day, which makes this asset very speculative. This type of asset has to be stringently regulated.