South Africa is viewed as the most attractive onshore private equity fund domicile in Sub-Saharan Africa, whereas Mauritius is leading as the most popular offshore jurisdiction, according to the EMPEA 2015 African Fund Domicile Survey.

In April 2015, FSD Africa and EMPEA Consulting Services surveyed 118 individuals active in Sub-Saharan African private equity from over 90 firms in order to better understand how industry participants view fund domiciles.

According to the results, of those fund managers who have chosen an onshore jurisdiction, most (13) are structured in South Africa.

Survey respondents listed South Africa as the most attractive market with 102 of the 118 survey respondents ranking it as one of their top three onshore African fund domiciles.

South Africa was followed by Kenya, Botswana and Nigeria, which garnered 65, 47, and 35 votes, respectively.

Other notable jurisdictions receiving interest include Morocco, Ghana, Rwanda, Tunisia and Egypt.

Nevertheless, the majority of the 59 GPs participating in the survey (nearly 75%) have chosen an offshore jurisdiction for their largest currently active private equity fund, with Mauritius leading as the most popular jurisdiction (30) followed by Jersey / Guernsey (5).

“Market participants are comfortable and familiar with offshore structures, and it is a model that has facilitated capital flows to Africa.”

The use of offshore jurisdictions is standard practice for Sub-Saharan Africa’s private equity industry.

“The prevalence of offshore structures—including the use of Mauritius—is largely explained by the weight industry participants place on a domicile’s tax efficiency for distributions.”

“Approximately 61% of GPs and 64% of SPs cite this consideration as important in a fund domicile. Of note, LPs place greater importance on transparency than tax efficiency, with 44% citing it as a leading factor in their preference for a fund domicile.”

The EMPEA 2015 African Fund Domicile Survey also revealed that vast majority of the industry views Mauritius favorably despite the fact that the market has come under political criticism in recent years, and is viewed suspiciously by some civil society groups.

“GPs with vehicles domiciled in Mauritius give it a high approval rating, with 97% of respondents reporting that they are satisfied or very satisfied with the jurisdiction. When asked if they had any concerns about Mauritius as a domicile, only 17% of all survey participants responded yes—a ratio that is relatively consistent across LP, GP and SP respondents.”

Concerns about Mauritius appear to be stronger among development finance institutions (DFIs), with 33% of DFIs expressing caution compared to 17% of all LPs.

Moreover, 75% of the total LP respondents who expressed concerns about Mauritius were representatives from DFIs.

In general, LPs’ biggest concerns pertain to transparency and exchange of tax information, and the degree of civil society / political criticism attendant with the domicile, whilst GPs—perhaps unsurprisingly—are primarily worried about LP concerns.

“That said, the attitude of DFIs toward Mauritius differs by institution. Some DFIs do not have an issue with Mauritius per se, but rather with the tax treatment of certain corporate investment vehicles permissible in the country, which they regard as a harmful tax practice.”

Despite the prevalence of offshore funds in the industry, the majority of the GP and LP survey participants have experience with—or have expressed an openness to—onshore fund domiciles.

With respect to the GPs, 26% report that they relied upon onshore domiciles for parallel / feeder funds as part of a broader fundraising effort, whilst 20% relied exclusively upon an onshore domicile.

“An additional 31% of GPs would consider domiciling in an onshore African country in the next three to five years. In the case of LPs, 46% of surveyed participants have committed to an onshore vehicle while an additional 44% would consider doing so.”

“Within Africa, local institutional investors, such as pension funds, are increasingly looking to private equity as a potential means of driving performance and diversifying their investment portfolios. As a result, some are encouraging GPs to create onshore fund structures so that they may make commitments and build experience with the asset class, whilst maintaining compliance with local regulations.”