Zimbabwe sells its assets via Mauritius

The Zimbabwean government has sold 54 percent of its stake in ailing steel-maker the Zimbabwe Iron and Steel Company (ZISCO) to the Indian-owned Essar Group. The bad news is that the sale has been conducted via an offshore subsidiary called Essar Africa Holdings Limited, based in tax haven Mauritius.

As Khadija Sharife notes in this article in Pambazuka, this sale via a Mauritian entity bodes ill for Zimbabwe. In particular, there are legitimate grounds for fearing that any profits generated in that country will be shifted offshore to a tax-free environment, depriving the government of the revenues it needs to reverse decades of underinvestment in infrastructure and education. Of particular concern, according to Sharife, is the way in which African enterprises are loaded with high interest bearing debt loaned by an offshore affiliate:

Companies not only prefer Mauritius for zero taxation and corporate opacity, but also thin capitalisation. This is a process whereby holding companies internally supply high-interest loans to subsidiaries in developing countries, draining pre-tax profits, resulting in severely diminished taxable income, or even creating losses, despite the health of the business. 'Management' fees, allowing for holding companies to artificially mis-price goods and services procured from the company, is yet another tactic commonly used.

We have previously noted the rising importance of Mauritius as a southern hemisphere secrecy jurisdiction. Regrettably the significance of this has yet to dawn on the bright sparks at the World Bank Group, who rank Mauritius as Africa's leading place to do business. The sheer stupidity of the WBG's position beggars belief. They clearly do not understand how offshore secrecy stimulates corrupt activities, especially tax evasion but also fraud, embezzlement, illicit political funding, and all the other shenanigans that wreck African prospects. As Sharife notes:

Consistently ranked one of the world's easiest places to do business, and Africa's leading, by the International Finance Corporation (IFC) and World Bank, also topping the charts on the Mo Ibrahim Governance Index, Mauritius has charmed those seeking a superficial African success story. But what is the impact of such success on the democracies of other African nations? With donor aid of just under $630 million, and life expectancy of 42, Zimbabwe is urgently in need of self-generating sustainable revenue. The way is not through Mauritius.

We have little optimism that either Zimbabwe's Mugabe or the WBG will take note: both are stuck in their outworn ideological ruts. And there's scant evidence that either have the interests of poor African people at heart.