Image Credit: David Rodrigo, Unsplash
One statement in the Al Jazeera documentary on corruption and looting in Zimbabwe stuck with me. One guy said ‘Dubai is Africa’s financial capital’ or something to that order. It wasn’t the first time I had heard that, but it was the first time I cared.
My little geography knowledge says Dubai, the UAE city, is not in Africa. How can it be the financial capital of Africa then? Let us look into that.
First, we must understand that Dubai ranks 17th on the Global Financial Centres index. There is no African city in the top 50. The ever-popular Mauritius comes in at number 92 on that list.
So, let’s look at why Mauritius was/is popular and then look at why many are now choosing Dubai instead.
We know that many African corporations are registered in Mauritius, including the Econet Group. Why? Mauritius has multiple tax benefits and non-resident companies can enjoy exemption from corporate tax, capital gain tax, and withholding tax.
Not only that, they allow for unlimited transfer of dividends, capital or profits from Mauritius to any other country.
Zimbabwe lacks this and that’s one of the major reasons we are finding it hard to attract investors. Forex shortages and a local currency that’s useless outside the country make it hard to expatriate dividends etc.
Anyway, Harare falls short in the ease of setting up a company too. The application process is efficient and can be completed online in Mauritius. As you can imagine, this ease of registering a company may attract those looking to do some illegal stuff as we saw in the Al Jazeera documentary.
Dubai pretty much matches and beats Mauritius on all of the above.
The Free Zones in Dubai offer tax concessions and customs duty benefits to non-resident investors. It is hard to beat the deal they offer:
- 100% foreign ownership
- 100% corporate tax exemption
- 0% personal income or inheritance tax
- 100% repatriation of capital and profits
- No currency restrictions
- No restrictions on hiring foreign employees
- No restrictions on the number of visas
- Easy registration process (even as some in the Al Jazeera documentary attested.)
So, the fact that Dubai is also the better tourist destination may then also factor into entrepreneurs’ decisions. Dubai has a higher quality of life too.
That’s not to mention that Dubai is in a better location. Mauritius is a small island in the wilderness that is the Indian ocean.
Dubai on the other hand is just as close, distance-wise, to Africa and is closer to Europe and Asia too. Indeed it’s easier to connect to other continents from Dubai than from Mauritius. That could be swaying some to choose Dubai over Mauritius and other tax havens.
Indeed we find that the number of African companies registered with Dubai Chamber reached 24,800 in 2021. From 2019 to 2021, African company registrations had grown by 15.5% and the President and CEO of Dubai Chamber said,
Steady growth in Dubai Chamber membership reflects growing confidence in Dubai as a preferred hub for African companies.
Dubai is not technically a tax haven but its tax regime is still pretty attractive.
In the Gold Mafia documentary, we saw how some criminals are taking advantage of Dubai’s ease of doing business. Setting up companies to be used in elaborate money laundering schemes on the fly. That’s of course unfortunate.
However, even at the best of times, when companies being registered there are not used for any criminal activities, tax havens still have their detractors.
The argument is that they deprive a country of much-needed revenue and discourage investment in the nation to which those funds would otherwise flow.
That is true but when we remind ourselves of just how hard it can be to register and run a business in Zimbabwe and most other African countries, we can’t help but understand why some entrepreneurs are choosing to register their companies in places like Dubai.
Zimbabwe is open for business but that means very little to many unless they are into gold. So, if the chance comes, very few would pass on the chance to register their companies in places like Dubai.
What do you think about all this? Should we be comfortable with statements like ‘Dubai is the financial centre for Africa?’ I don’t like it but I get it.