Conduits of Capital

indirect investment in Africa is structured through investment funds and / or investment vehicles domiciled in
Mauritius. Mauritius and other offshore financial centres, which are commonly used for fund and investment
structuring purposes, have been (and continue to be) subject to political / civil society criticism for: (i) a
perceived lack of transparency; (ii) perceived “harmful tax practices”; and (iii), the facilitation of capital flight
from developing countries. CDC, other DFIs / IFIs and their fund managers have been criticised for their use
of investment vehicles domiciled in Mauritius, Guernsey, the Cayman Islands, etc., notwithstanding those
countries’ successful participation in the OECD’s Global Forum on Transparency and Exchange of Information
for Tax Purposes, which deems each country to be largely compliant with its standards.
CDC has expressed an interest in broadening the available options when it considers: (i) how and where to
structure its investments; and (ii), the domicile of prospective investment funds in Africa. The question has
arisen, therefore, as to whether other African countries, or cities, could, over time, become viable onshore
alternatives to offshore financial centres and, if so, how they could be encouraged to develop into credible,
transparent financial services centres that are sufficiently attractive to African and international investors
seeking to invest long-term, patient capital in African businesses.
There is a symmetry between CDC’s specific question and DFID and FSDA’s desire to identify interventions that
would support broad financial sector reform in Sub-Saharan Africa. The reforms that are needed to encourage
private equity fund managers to domicile funds in an onshore African centre—improvements to the rule of law,
tax reforms and treaties, better quality information, and better professional and technical skills—are very similar
to those needed to build financial markets (and especially capital markets) generally. It has therefore been
possible to run a research project that addresses all three partners’ goals.
The research has quantitative and qualitative components.
The quantitative component has been led by the Emerging Markets Private Equity Association (“EMPEA”)
which conducted an online survey of private equity industry practitioners active in Africa. The survey asks
specific questions around fund domiciles, including what factors drove the practitioners to choose the domiciles
they chose and how satisfied they were with the choices they made. The practitioners were also asked if
they would consider onshore domiciles and what conditions would need to be met in order for them to opt
for an onshore domicile. This line of questioning was intended to obtain an objective measure of how likely it
would be that an onshore centre could emerge as a serious rival to Mauritius, which has become the default
domicile option for funds and other investment vehicles targeting Sub-Saharan Africa (and India). The survey
was complemented by in-depth interviews with fund managers, institutional investors and professional
service providers.
The qualitative component was to commission a group of five “issues papers” from experts in the field. The aim
was to gather contrasting expert opinions on how likely it was that: (i) fund managers would start to consider
using onshore financial centres in Sub-Saharan Africa for the purposes of fund and / or investment vehicle
domiciliation; and (ii), investors would support onshore investment as an alternative to investment via offshore
financial centres. If the answers to the above were “yes,” which countries would these be and what sort of
reforms would be needed to encourage these fund managers and investors to do so?
The experts were asked to make recommendations on how FSDA (and / or DFID) could best support the
transformation of particular countries into viable onshore centres—for example, by providing technical
assistance and supporting in-country advocacy initiatives to build political will.
The results of the survey and the five issues papers are reproduced in this publication.
From the survey, it is very clear there is a strong preference among fund managers for offshore structures
(mainly for tax efficiency reasons) as well as a high degree of satisfaction among fund managers and institutional
investors in Mauritius. As one interviewee said, “The industry has found a very safe model in Mauritius that
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