Free Trade Agreement: Mauritius, the bridge between Africa and China
The coming into effect of both the African Continental Free Trade Area (AfCFTA) and the Mauritius-China Free Trade Agreement on 1st January 2021 are a major milestone for Mauritius as the island nation aims to further consolidate its position as the trade and investment platform between Africa and China.
Now effective, both Free Trade Agreements mark a new era in the economic and social development journey of Africa, and a great opportunity for Africa and China to leverage on their respective strengths with Mauritius being the pivot of this happening. On one side, Africa being the breadbasket for raw materials (food and mining amongst others) and, on the other side, China being the largest manufacturing economy and exporter of goods. In the middle of the two, we have Mauritius, channelling inflows and outflows of trade and investment.
Through a comprehensive and mutually beneficial trade agreement between the member states, the African Continental Free Trade Area aims to boost intra-African trade. It covers trade in goods and services, investment, intellectual property rights and competition policy.
On the other hand, with the Mauritius-China Free Trade Agreement – signed on 17th October 2019, Mauritius and China strengthen their bilateral relations, both countries willing to ease barriers to trade in goods and services, investment and economic cooperation.
Mauritius: the ideal platform for trade and business between Africa and China
Positioned at the junction between Asia and Africa, the two Free Trade Agreement are a milestone for Mauritius. Indeed, the country positions itself as the platform for Chinese exports into the mainland Africa, and vice-versa. For instance, through the setting up of a Trading Company or a Freeport Company, entrepreneurs and existing businesses can take full advantage of Mauritius’ Free Trade Agreements.
The African opportunity
It is expected that the advantages of the African Continental Free Trade Area will be more readily accessible in jurisdictions like Mauritius when we consider the country’s higher degree of ease of doing business. It will therefore open up a market of over 1.3 billion people, with a merged gross domestic product (GDP) of US$3.4 trillion, and attract Foreign Direct Investments from China and the rest of the world.
The African continent represents 2% of global trade while 17% of African exports are intra-continental, in contrast with 59% for Asia and 68% for Europe. According to Florie Liser, Assistant U.S. Trade Representative for African Affairs, if Africa was to increase its share of world trade from 2% to 3%, that slight boost would have the potential to generate approximately US$70 billion of additional annual revenue for the continent.
|LDCs 1||Non-LDCs 2||G6 countries 3|
|Full liberalisation||90% of tariff lines||90% of tariff lines||90% of tariff lines|
|10-year phase down||5-year phase down||15-year phase down|
|Sensitive products||7% of tariff lines||7% of tariff lines||Not yet determined|
|13-year phase down (current tariffs can be maintained during first 5 years – phase down starting in year 6)||10-year phase down (current tariffs can be maintained during first 5 years – phase down starting in year 6)|
|Excluded products||3% of tariff lines||3% of tariff lines||Not yet determined|
1 Least Developed Countries
2 Non-Least Developed Countries
3 A group of 6 member states consisting of five LDCs (Ethiopia, Madagascar, Malawi, Sudan, Zambia) and Zimbabwe
The countries with which Mauritius can trade on preferential terms under the African Continental Free Trade Area are:
- Sao Tome and Principe
- Central African Economic and Monetary Community (CEMAC)
Cameroon, Chad, Congo Republic, Equatorial Guinea and Gabon
- East African Community (EAC)
Kenya, Rwanda and Uganda
- Economic Community of West African States (ECOWAS)
Nigeria, Niger, Ghana, Ivory Coast, Mauritania, Sierra Leone, Gambia, Togo, Cabo Verde and Mali
- Southern African Customs Union (SACU)
Eswatini, Namibia and South Africa
Last year’s 2020-2021 National budget announced the plan to set up Mauritius Export Warehouses in Tanzania and Mozambique that intends to support a number of Domestic Oriented Industry. This measure can significantly boost Mauritian exports from the already existing supply capacity to the region.
Mauritius is also a signatory to two of Africa’s most extensive trade blocs: the Southern African Development Community (SADC – 16 African states) and the Common Market for Eastern and Southern Africa (COMESA – 21 member states). The COMESA and the SADC Free Trade Agreements are the pillars of the African Economic Community. Member States trade on a duty free, quota free basis (subject to satisfying the respective Rules of Origin). Therefore, exports from, as well as imports to, Mauritius are completely exempt from customs duties.
At the confluence between the Asian and the African continents, Mauritius is an enticing and cost-effective trade and business hub, where operators are able to leverage Free Trade Agreements and make goods accessible to a market of 36 member states and more than 900 million people (COMESA: 560 million – SADC: 345 million), and a combined GDP of over USD 850 billion. Businesses and entrepreneurs involved in intra-Africa trade, or willing to reach African markets, and that use the Mauritian jurisdiction can benefit from trade gains, economies of scale, increased returns, market enlargement and optimised costs.
The Chinese opportunity
Similarly, the African Continental Free Trade Area and the Mauritius-China Free Trade Agreement also represent a significant opportunity. By setting up their structures in Mauritius, entrepreneurs and businesses from member states of the African Continental Free Trade Area (listed above) can gain preferential access to the Chinese market of over 1.4 billion customers, allowing them to export goods and services.
By extrapolation and with the recently signed Regional Comprehensive Economic Partnership (RCEP), the Mauritius-China Free Trade Agreement is, for African business people, a stepping-stone into the Asian continent. Moreover, the Free Trade Agreement intends to create new investment, as well as the protection of investors and their investments.
The Mauritius-China Free Trade Agreement also covers more than 40 service sectors, including financial services, professional services, ICT and telecommunication, and health services. Mauritius based companies will also be able to establish businesses in China as wholly owned entities and through partnerships with Chinese people.
Mauritius benefits from duty free access on the Chinese market on over 7,000 products. We will also see the phasing-out of tariffs on 723 additional tariff lines over the next 5 to 8 years (as from 1st January 2021). For instance, China has liberalised tariffs on main Mauritian export product to Beijing over 5 years. This means that business operating from Mauritius have preferential access on 96% of the Chinese tariff lines, and the duties applicable on 88% of these tariff lines are eliminated. On the other hand, 94% of Chinese goods will enter Mauritius duty-free.
The Free Trade Agreement covers key export products including rum, frozen fish, noodles and pasta, biscuits, fresh fruits, juices, mineral water, clothes, watches and leather products.
Furthermore, the Free Trade Agreement will create new opportunities for companies (in sectors such as electronics, Information and Communions Technology, hardware assembly, pharmaceuticals and chemicals) to broaden the manufacturing base of Mauritius.
The Free Trade Agreement between the Government of the Republic of Mauritius and the Government of The People’s Republic of China can be accessed here.
According to the African Continental Free Trade Area, 90% of goods exported between African countries and Mauritius will enter the destination country duty-free. Concerning the Mauritius-China Free Trade Agreement, 96% of goods categories made in Mauritius will enter China duty-free, while 94% of goods categories produced in China will enter Mauritius duty-free. The rules of origin must be catered for and analysed.
How can businesses take advantage of these Free Trade Agreements
The AfCFTA will undoubtedly boost the attractiveness of Africa. Leveraging its solid Financial Services sector, its position as the best place to do business in Africa (World Bank), and its ecosystem that facilitates and safeguards foreign investments towards the continent, the Mauritius International Financial Centre can significantly contribute to this new impetus.
Through the setting up of a Trading Company in Mauritius, businesses can take advantage of the set of Free Trade Agreement Mauritius has with African countries and China subject to rules of origin. Indeed, a Trading Company can trade goods and/or services from one country to another, and benefit from:
- Competitive Tax rates and exemptions;
- Being present in a recognised International Financial Centre; and
- The banking systems and banking facilities (trade financing, LCs, etc.).
A Freeport Company allows businesses to take advantage of the Freeport facilities (e.g. warehousing, processing, and distribution) in Mauritius for trading and shipment. The Mauritian Freeport legislation provides investors with the access to a cost-effective logistics platform that boasts a number of advantages:
- Exemption from custom duties on all goods and equipment imported and used exclusively in the zone;
- 0% corporate tax;
- 100% foreign ownership;
- Reduced port handling charges for goods destined for re-export;
- Possibility to sell up to 50% of re-export value to the local market (under certain conditions);
- Strategic location at the junction between Africa, Asia, the Middle-East, and Australia;
- Modern facilities (infrastructure, transhipment, warehousing, processing and distribution);
- Presence of major airlines and shipping lines;
- Free repatriation of profits;
- Skilled labour;
Preferential access to the COMESA and the SADC markets, to US markets through Africa Growth & Opportunity Act (AGOA) and European Union Market.
By promoting investments, the Free Trade Agreement can also open doors for the setting up of Private Equity Funds. A form of alternative investment, it us a pooling of funds, from selective investors, that invests into private companies and that promotes impact investing.
China among Africa’s largest economic partner
Since the FOCAC (Forum on China-Africa Cooperation) started in 2000 to date, China has becoming an influential player in Africa. Trade volume between the continent and China were multiplied by 18 times from 2002 to 2018, together with increased infrastructure and telecommunications projects, financing, and other fields of influence.
A McKinsey study in 2017 reported that over 10,000 Chinese-owned firms currently operate in Africa. They were involved in manufacturing (30%), in services (25%), in trade (20%), in construction and real estate (20%) and in other sectors (5%).
The Mauritius-China Free Trade Agreement is part of Mauritius’ three-year development strategy to 2021, which aims to reduce the island’s dependence on European countries and fast track its market diversification through economic penetration into ASEAN markets. Mauritius also focuses on reaching out to African, Gulf and Nordic countries.
Mauritius: the ideal jurisdiction for doing business
Furthermore, the Mauritius International Financial Centre is a well-regulated and compliant jurisdiction, recognised among the global business community.
How can we help you do business in and from Mauritius, and benefit from these Free Trade Agreements?
Sunibel accompanies you in setting up and managing your corporate entity in Mauritius. Our services include:
- Advisory, structuring and setting up of your Trading and/or Freeport Company;
- Administration of your corporate structure;
- Corporate administration and other services;
- Accounting and bookkeeping (including tax filings);
- Provision of company secretarial services;
- Provision of registered office address and sourcing of staff;
- Assistance in listing on the Stock Exchange; and
- Assistance with Occupation Permits and relocation, amongst others.
Disclaimer and important notices
This document has been prepared using sources believed to be reliable. However, their accuracy and completeness cannot be fully guaranteed. The statements and opinions it incorporates were formed after careful consideration and maybe subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to sell any services. The use of any information contained in this document shall be at the sole discretion and risk of the user. Sunibel Corporate Services Ltd does not provide legal or tax advice and this document should not be construed as such. Sunibel Corporate Services Ltd expressly disclaims any and all liability for inaccuracies contained in the document and shall not be held liable for any damage that may result from any use of the information presented herein.
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