Is Kenya losing the IT battle to Mauritius?

Money matters
But while accepting the allure of Mauritius as a major tourist destination, Vimal Parmar, head of research for sub-Saharan Africa at corporate finance advisory firm Burbidge Capital, suggests that SleepOut’s decision was mainly motivated by financial factors.

“The major reason for this move would probably be the better tax regime,” he said.

Mauritius has embraced some bold economic reforms and has one of the most open, competitive and lowest tax economies in the world. Mauritius signed Double Taxation Treaty Agreements with many countries including Kenya, which allow offshore companies domiciled there to pay a 3% tax and exempts them from paying any tax in their home country.

The second aspect, Bheroo adds, touches on onshore companies and allows an investor to incorporate a domestic company in Mauritius and be subject to just 15% tax. Compared this to the Kenyan requirement to pay a 3% tax on turnover, a 30% tax for resident companies and 37.5% for non-resident companies (PKF Worldwide Tax Guide 2013).

Mauritius’ favourable ranking in the 2014 Doing Business study, where it listed at 20th position overall and 13th in the Paying Taxes category – while Kenya listed 129th overall and 166th in the Taxes category – reinforces this. Bheroo also alluded to the ease of doing business in Mauritius, and said any application for investment in Mauritius would be approved within three days. The Doing Business 2014 study says it takes six days in Mauritius but this is still more than four times faster than Kenya’s 32 days.

And while Mauritius has a relaxed foreign exchange policy that allows free transfers and does not require Central Bank approval, Kenya is a little more rigid as all transactions in excess of $10,000 must be reported.

Financial pluses such as these are undoubtedly something that Jenson and SleepOut’s COO, Mikul Shah, considered in planning the Mauritius offices, especially since their business depends on bringing international visitors to East Africa.

LeepOut’s CEO Johann Jenson

“Much of our complicated international banking and merchant requirements are already being met by third-party service providers in East Africa, Europe and the Middle East,” Jenson said. He added, “That being said, the online banking sector in Mauritius is certainly quite a bit more developed than in Kenya although that is quickly changing.”

And so, despite some of Kenya’s advantages, especially within the banking and telecom sectors, which have embraced mobile banking in a way that no other country has, myriad issues continue to prevent the Kenya’s e-commerce start-ups from achieving commercial maturity.

Yes, by keeping one foot in Kenya and another in Mauritius, SleepOut is cleverly straddling two of the world’s top holiday destinations. But their decision still suggests that while Kenya may be the breeding ground for innovative online business ideas, in the long term, neighbouring Mauritius is offering tech start-ups a better home.