Letter: Danger to Paradise! |07 August 2019
Why foreign investment?
Foreign investment involves capital flows from one country to another, granting extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment.
A modern trend leans toward globalisation, where multinational firms have investments in a variety of countries.
Foreign investments can be made by individuals, but are most often endeavours pursued by companies and corporations with substantial assets looking to expand their reach. Foreign investment is a catalyst for economic growth and it brings along its many benefits:
1. Economic development stimulation
2. Easy international trade
3. Employment and economic boost
4. Development of human capital resources
5. Tax incentives
6. Resource transfer
7. Reduced disparity between revenues and costs
8. Increased productivity
9. Increment in income
Investing in Seychelles
Aside from being a holiday destination, the Seychelles islands have over the years owned a new reputation and that is that of foreign investment. Making itself investment worthy, Seychelles has shown commitment to environmental protection, political stability, attractive business conditions and a strategic location.
The location of the island is perfect for connectivity to the major hubs in the Middle East, Europe, Africa and Asia along with improved infrastructure development by the government to support investments.
The Seychelles Investment Board takes pride to state further the many reasons of investing in Seychelles:
• Favorable temperature all year round,
• 96% literacy rate with increasingly educated and skilled workforce,
• Politically and economically stable environment,
• Expanding opportunities in fisheries, agriculture, real estate, adventure tourism, ICT and energy,
• Second highest GDP per capita in Africa,
• No foreign exchange restrictions.
But the perfect picture stops here. Seychelles needs to go back to the drawing board to look at all aspects influencing foreign investment on the island.
The National Legal System
The judiciary system in Seychelles is very much like that of Britain, its former colonial master, with the Supreme Court and its Appeal Court being its highest level. However, the effectiveness of those high level courts are in doubt when it comes to foreign investors.
A case in mind is that of a well-known local contractor and a foreign investor. Almost 10 years ago, a construction of a 5-star hotel in the northern region of the island was to be undergone. It was to be one of the most impressive resorts in Seychelles. The contract was given to a well-known local construction company. Unfortunately, many defects of potential danger to workers and tourists were detected. The contract was then terminated as there was a breach in terms of quality and service delivery.
In April 2017, the Supreme Court finally issued a decision. This was in favour of the foreign investor. That legal process took five years. For a foreign investor, that process is much too long as it implies lack of belief in the system. The legal dispute did not end there. The Appeals Court came into play in December 2017 and gave the following verdict contrary to that of the Supreme Court. The Court of Appeal handed down an absolutely unjust decision. The court released the debtor from payment of its debt due to the fact that Seychelles is not a signatory to the International Convention on the recognition and enforcement of foreign arbitral awards. Such a decision by an Appeals Court is deflating for a foreign investor when so much money has been poured into a local venture. If the system is encouraging foreign investors to bring in capital for economic development to the island, how come the Judiciary fails to see the economic gain of foreign investors? It makes one wonder, what was taking place all this time? If the country really wants foreign investors, transparencies and fast tracking of those processes should be considered so that the belief of the legal system can be earned.
The International Courts of Justice
With the procedures of the National Legal System of Seychelles being extensive and somehow dubious, many foreign investors seek to international courts for speedy and fair response. The case between the well-known Indian contractor and the foreign investor over the construction of the five-star hotel in the north region of Mahé is an example where remedy from the international courts was sought.
These included legal institutions, namely the International Chamber of Commerce (ICC) Court of Arbitration in Paris, the Court of Appeal in France, the Court of Cassation of France and the British High Court of Justice. All these courts came to the decision that the construction contractor should pay for the damages, similar to the decision made by the Seychelles Supreme Court. The irony of the situation is that it was asked by the contractor that the Seychelles Supreme Court invalidates the ICC arbitration award stating it “null and void and incapable of enforcement or execution in any jurisdiction”. This was reported in the British Newspaper City A.M by Steve Eggleston in his article of 25th July 2019 with the heading ‘Trouble in Paradise’. The Seychelles legal system facilitated for the contractor to avoid payment of its debts and the foreign investor to be on the losing side.
The islands’ relaxed laws – Bad news for creditors
Another case comes to mind when an Indian-born investor benefited from the relaxed laws of the island nation Seychelles, to keep his assets out of the hands of creditors.
Reported in an article published in the Daily Beast by writer Michael Weiss in his article 4.13.2017 cited ‘One of the world’s richest men used bankruptcy for fun and profit’. An Indian investor owned an estimate of $3 billion business empire filed for bankruptcy in Seychelles following his loss in British High Court of a civil case brought against him. The court decided that the Indian businessman was to pay the company $212 million.
Yet, sadly to say, the businessman used his Seychellois citizenship to organise a swift legal split from the wife to whom many assets were then transferred to her name. This consisted of 39 plots of land, one island and numerous corporate holdings registered in Seychelles. These were equivalent to approximately $95 million in assets.
About a year after the businessman lost his case in Britain, Seychelles reformed its bankruptcy statute whereby the time span of official bankruptcy was shortened from three years to one. This change in the law makes it more challenging for creditors to collect from the new owners of transferred assets.
This story raises questionable concerns to that of the paradise islands’ laws and procedures: Is Seychelles allowing international elites to transcend borders and sovereign jurisdictions in order to safeguard their assets?
Is it not odd that the same person was nominated as Ambassador-at-Large only after being in Seychelles for about one year?
Just because the Seychelles is portrayed to be a relaxed island for honeymooners and to vacate away from home, the laws and regulations should somewhat be different.
Conclusion
Seychelles has every chance to prosper economically through foreign investors. However whenever an investment is made in the country and the rule of law is not prevailed, it is picked up by the global media and the confidence of the foreign investors is shaken.
It is obvious that implementation of the international courts’ decisions in Seychelles is monitored worldwide. Both of these above cases were reported, for example in the Daily Beast by Michael Weiss in his article 4.13.17, ‘the Game of 200 million dollars in Seychelles’ and the British Newspaper City A.M.by Steve Eggleston in its article of July 25, 2019 ‘Trouble in Paradise’. Investors do care how the national legal system is used to avoid debts and obligations. It begs to ask such question “with a perceived legal climate of this nature, why would foreign investment in Seychelles continue?”
Seychelles strives to be among the members of the world community and even to claim leadership in some areas, for example the Blue Economy. On the other hand, it is non signatory to the New York Convention 1958. Seychelles must realise that either it is part of a global team or it is on its own. Most of the world powers are already part of the team with the exception of a very few, including Seychelles.
In order for Seychelles to gain and sustain the confidence of foreign investors it needs to make its legal system foolproof. As Seychelles strives to be recognised as a world team member it needs to obey the rules of the team game, and hence accede to the New York Convention 1958 on recognition and enforcement of Foreign arbitral awards.
E. H.
Disclaimer
The views expressed in this letter are those of the writer and do not necessarily represent the views of the Seychelles NATION newspaper.