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As a means of diversifying an island country’s economy, financial services is a good bet. Seychelles is ideally situated between major trade and manufacturing channels of Asia, Middle East and Africa, while its time zone puts it between global financial centres London and Hong Kong.
“We can be a gateway to Africa, particularly in structured finance, because a lot of African countries are now even investing outward and there’s a lot of inward investment. So Seychelles can position itself to let you reduce the cost of financing going into Africa and provide structures that will maximise shareholder value,” said Steve Fanny, CEO of the Seychelles International Business Authority (SIBA).
In Africa, interest is growing from fellow members in regional initiatives such as the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA). Markets in Asia include China, India and Indonesia, while in the Middle East, interest is expected from the UAE, Qatar, Bahrain and Oman.
The only real competition in the area is Mauritius. The conventional wisdom is that for standard offshore structures, Seychelles is quicker and cheaper while Mauritius is better developed for more complicated requirements, in part because it has been a market-based economy for longer. At the same time, the two island nations have partnerships. Mauritius Commercial Bank, for example, has a branch in Seychelles and promotes the best of both worlds. Other foreign banks with branches include Barclays, which was the first to open in the 1950s and the first to be granted an offshore banking licence in 2004.
Aside from natural markets and established players already in the region, government-backed research shows that British investors might be most interested in financial services, real estate and offshore sectors with some officials noting that the financial sector may surpass fisheries to become the second pillar of the economy.
The focus on this sector is about insulating the economy from potential shocks such as the European sovereign debt crisis. That means diversification is high on the government’s agenda, as is fostering competition in order to push digital innovation in the financial sector.
Throwing down the gauntlet, Pierre Laporte, governor of the Central Bank of Seychelles, said, “What we would like to see is three or four more banks to bring digital innovation. Technological change is driving financial services and in my view the banks here are not doing enough – the quality of services and level of modernisation is not enough.”
Structural shift
Despite those challenges, there is a diverse array of flexible structures available within the offshore sector. In a jurisdictional review, the OECD notes that aside from the benefits of a tax free or low tax environment, some products allow for the possibility of transferring a legal entity set up abroad into Seychelles.
The most popular offshore structure by far is an International Business Company (IBC) but there are a number of others such as trusts, protected cell, limited partnership, mutual and hedge funds, yacht and ship registration and airline registration. Steve Fanny of SIBA notes that more education is required for service providers to feel comfortable with the full range. To move this forward, SIBA is investing in training and there are also initiatives which link the business community with the University of Seychelles, such as financial scholarships from the private sector.
There are also Seychellois repatriating after living and working in financial services abroad.
Alexander Pierre, fund manager at Delta Asset Management, set up the first hedge fund in 2007 after living in London for some 20 years. He faced significant hurdles as a new entrant. Licencing, for example, took five months when other jurisdictions take about two weeks.
“Because [Seychelles] never had a hedge fund, we had to educate local investors…the offshore sector is something quite foreign to the local population…The financial sector is something we need to emphasise…and we’re trying to push the authorities to really develop it,” Pierre said.
At the same time, Kenny Roberts, who joined the firm shortly after Pierre, adds that the ease of doing business has considerably improved because the country is starting to “implement what is needed in terms of legislation and process.”
Where there’s smoke…
Still, there are a number of outstanding legislations which have been delayed as the country held two national elections last year and, consequently, faced interruptions to the National Assembly. Then, when the G20 published a list of suspected tax havens amongst which Seychelles was named, the small island nation found itself in a heated exchange with the largest economies of the world.
The Organisation for Economic Co-operation and Development (OECD) too had some observations. It highlighted “substantial weaknesses” in the legal and regulatory framework in the field of exchange of information. For example, there is no requirement to make ownership information available and in some cases there are strong secrecy provisions that prevent the disclosure of such information.
However, the government points to recently negotiated Taxation Information Exchange Agreements (TIEAs), with Guernsey being one of the most recent jurisdictions to sign on. It says those agreements are a clear sign of its commitment to enforcing the OECD recommendations.
Though clearly there is some progress and political will to tackle this issue, another recommendation does not seem to be on the radar. There is no requirement for offshore entities to keep account records and underlying documentation in accordance with international standards. “This absence of accounting requirements is an important deficiency in the Seychelles’ legal and regulatory framework,” said the OECD.
But the lack of a requirement to prepare or file annual audited accounts is found on promotional materials as a key feature of the IBC business company structure and whether there are any plans to change this is in question. Considering the importance that foreign investors place on issues of transparency, criticisms of its banking sector can have a profound negative impact.
Michael Benstrong, CEO of Seychelles Savings Bank, known as “the people’s bank,” admits there is a need to ensure that the correct legislation is in place to raise investors’ comfort levels.
“What is being said about Seychelles in some newspapers is not 100% true, but there is some truth there – there’s no smoke without fire…We need to continue to improve our image to avoid smoke going up,” Benstrong said.
COMING SOON
If there is one common complaint about African markets, it is the lack of liquidity and technology. Seychelles is trying to move forward on both. Meanwhile, as an offshore jurisdiction, it is quickly discovering that companies require highly specialised expertise to navigate the legal landscape associated with foreign-owned holdings.
Capital markets - In April 2011, the financial regulator invited proposals to set up a stock exchange, scheduled for this year. Expectations are high that the Exchange will quickly attract international listings while also linking with the rest of Africa and the world. Seychellois companies may take more time to cultivate a culture of investing, say regulators, but seasoned investors will have the platform they need to send investment flows into the country.
Fibre optics - The submarine fibre-optic cable is considered a defining development which will move the country’s highly literate workforce towards a knowledge economy. Information and Communications Technology (ICT) will open up e-commerce and business process outsourcing as well as enable provision of bundled services such as e-healthcare and e-learning solutions.
Legal eagles - To help overcome insufficient capacity in Seychelles for foreign law advice needed by offshore corporate and financial services, this year, the government will enact the Legal Practitioners Act, making it possible for foreign lawyers to practice. Meanwhile, Seychelles does have local lawyers, some of whom graduated in the UK, so a foreign law firm will be able to set up quickly. |
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