It has been been described as the Switzerland of Africa,the preferred island getaway of tax evaders and avoiders – including in 2008 more than 30% of the largest US corporations. The Mauritian loophole began through a double taxation avoidance agreement with India in 1982, which created an opportunity for India’s elites to “round trip” capital through Mauritius via shell companies before reinvesting in India – a route used to obtain various tax holidays.
Between 1991 and 2002, capital from Mauritius accounted for nearly 40% of India’s foreign direct investment. Yet while Indian, and increasingly Chinese, multinationals have used Mauritius for round-tripping purposes, it is also a gateway for those wishing to springboard into Africa.
One example is India’s rising energy and steel multinational Essar. Its Mauritian-based subsidiary, Essar Africa Holdings, has acquired 53% of the ailing Zimbabwe Iron and Steel Company. “Thin capitalisation” allows resource companies to intentionally loan subsidiaries high-interest capital as a means of artificially diminishing profits in developing countries – or even creating losses in a technically legal manner – to avoid tax.
The provision of nominee shareholders and directors creates another problem for developing countries, especially in the context of Zimbabwe’s “conflict” diamonds, extracted from the heavily militarised Marange fields. Grandwell Holdings, the private arm of Mbada Investments – Zimbabwe’s joint venture with South African company New Reclamation – was registered in Mauritius. According to Dominic Mubayiwa, the now suspended head of the Zimbabwe Mining Development Corporation, “it would have been difficult to do due diligence on Grandwell because it is a paper company registered in Mauritius.”
Five Chinese people – Deng Hongyan, Jiang Zhaoyao, Zhang Hui, Zhang Shibin, and Cheng Qins – acted as silent beneficial owners, alongside President Robert Mugabe’s helicopter pilot, Robert Mhlanga, who currently resides in South Africa.
This article was first published in the February 2011 edition of The Africa Report