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Living the FATCA life in Africa: New U.S. tax regulations add to burden of compliance on financial institutions across Africa

Posted on 21 May 2013 by Eugene Skrynnyk

Eugene Skrynnyk

Eugene Skrynnyk (CIPM, MILE, BComm) is a senior manager and specialist for the asset management industry in the Africa Sub-Area at Ernst & Young in Cape Town, South Africa.

Eugene Skrynnyk is the Ernst & Young Senior Manager and specialist for the asset management industry in the Africa Sub-Area.

Eugene holds a Certificate in Investment Performance Measurement (CIPM), Master of International Law and Economics (MILE) and Bachelor of Commerce and Finance (B.Comm.).

 

When the U.S. Department of the Treasury (“Treasury”) and Internal Revenue Service (“IRS”) issued final Foreign Account Tax Compliance Act (“FATCA”) regulations in January of this year, there was a sigh of relief that the financial services industry in Africa could begin to digest FATCA’s obligations. However, achieving FATCA compliance remains a challenge for banks operating across Africa.

FATCA is already law in the U.S. but negotiations are under way to enshrine it in national law of countries around the world via intergovernmental agreements (“IGAs”) with the U.S. While a variety of African jurisdictions will each face unique obstacles with FATCA compliance, many in the industry share a general unease with FATCA’s scope, as well as scepticism that FATCA’s rewards (an estimated US$1 billion in additional tax revenue annually) justify its expenses. Generally, FATCA attempts to combat U.S. tax evasion by requiring that non-U.S. financial institutions report the identities of U.S. shareholders or customers, or otherwise face a 30% withholding tax on their U.S. source income. Overwhelmingly, FATCA compliance obligations apply even where there is very little risk of U.S. tax evasion and it impacts all payers, including foreign payers of “withholdable payments” made to any foreign entities affecting deposit accounts, custody and investments.

General issues in Africa

Concerns about privacy abound. FATCA requires financial institutions to report to the IRS certain information about U.S. persons. For this reason, IGAs are being put in place so that institutions could instead report information to their local tax authority rather than the IRS. In some jurisdictions, investment funds and insurance companies are permitted to disclose information with client consent. In other jurisdictions, such disclosure is prohibited without further changes to domestic law. The process to make necessary changes locally involves time and effort.

Cultural differences in Africa need to be considered. In certain situations FATCA requires that financial institutions ask a customer who was born in the United States to submit documents explaining why the customer abandoned U.S. citizenship or did not obtain it at birth. African financial institutions never pose such a delicate and private question to their customers. Even apparently straight-forward requirements may pose challenges; for example, FATCA requires that customers make representations about their identities “under penalty of perjury” in certain situations. Few countries have a custom of making legal oaths, so it would not be surprising if African customers will be reluctant to give them.

FATCA contains partial exemptions (i.e., “deemed compliance”) and also exceptions for certain financial institutions and products that are less likely to be used by U.S. tax evaders. It still has to be seen to what extent these exemptions have utility for financial institutions in Africa. For example, the regulations include an exemption for retirement funds and also partially exempt “restricted funds” — funds that prohibit investment by U.S. persons. Although many non-U.S. funds have long restricted investment by U.S. persons because of the U.S. federal securities laws, this exemption could be less useful than it first appears. It should be pointed out that the exemption also requires that funds be sold exclusively to limited categories of FATCA-compliant or exempt institutions and distributors. These categories are themselves difficult for African institutions to qualify for. For example, a restricted fund may sell to certain distributors who agree not to sell to U.S. persons (“restricted distributors”). But restricted distributors must operate solely in the country of their incorporation, a true obstacle in smaller markets where many distributors must operate regionally to attain scale.

Other permitted distribution channels for restricted funds are “local banks,” which are not allowed to have any operations outside of their jurisdiction of incorporation and may not advertise the availability of U.S. dollar denominated investments.

Challenges and lessons learned – the African perspective

Financial institutions will have to consider what steps to take to prepare for FATCA compliance and take into account other FATCA obligations, such as account due diligence and withholding against non-compliant U.S. accountholders and/or financial institutions.

The core of FATCA is the process of reviewing customer records to search for “U.S. indicia” — that is, evidence that a customer might be a U.S. taxpayer. Under certain circumstances, FATCA requires financial institutions to look through their customers and counterparties’ ownership to find “substantial U.S. owners” (generally, certain U.S. persons holding more than 10% of an entity). In many countries the existing anti-money laundering legislation generally requires that financial institutions look through entities only when there is a 20% or 25% owner, leaving a gap between information that may be needed for FATCA compliance and existing procedures. Even how to deal with non-FATCA compliant financial institutions and whether to completely disengage business ties with them, remains open.

The following is an outline of some of the lessons learned in approaching FATCA compliance and the considerations financial institutions should make:

Focus on reducing the problem

Reducing the problem through the analysis and filtering of legal entities, products, customer types, distribution channels and account values, which may be prudently de-scoped, can enable financial institutions to address their distinct challenges and to identify areas of significant impact across their businesses. This quickly scopes the problem areas and focuses the resource and budget effort to where it is most necessary.

Select the most optimal design solution

FATCA legislation is complex and comprehensive as it attempts to counter various potential approaches to evade taxes. Therefore, understanding the complexities of FATCA and distilling its key implications is crucial in formulating a well rounded, easily executable FATCA compliance programme in the limited time left.

Selecting an option for compliance is dependent on the nature of the business and the impact of FATCA on the financial institution. However, due to compliance time constraints and the number of changes required by financial institutions, the solution design may well require tactical solutions with minimal business impact and investment. This will allow financial institutions to achieve compliance by applying low cost ‘work arounds’ and process changes. Strategic and long-term solutions can be better planned and phased-in with less disruption to the financial institution thereafter.

Concentrate on critical activities for 2014

FATCA has phased timelines, which run from 2014 to 2017 and beyond. By focusing on the “must-do” activities, which require compliance as of 1 January 2014 – such as appointing a Responsible Officer, registering with the IRS, and addressing new client on-boarding processes and systems – financial institutions can dedicate the necessary resources more efficiently and effectively to meet immediate deadlines.

Clear ownership – both centrally and within local subsidiaries

FATCA is a strategic issue for the business, requiring significant and widespread change. Typically it starts as a ‘tax issue’ but execution has impacts across IT, AML/KYC, operations, sales, distribution and client relationship management. It is imperative to get the right stakeholders and support onboard to ensure that the operational changes are being coordinated, managed and implemented by the necessary multidisciplinary teams across the organization. These include business operations, IT, marketing, and legal and compliance, to name but a few. Early involvement and clear ownership is key from the start.

Understand your footprint in Africa

Many African financial institutions have operations in various African countries and even overseas, and have strategically chosen to make further investments throughout Africa. The degree to which these African countries have exposure to the FATCA regulations needs to be understood. It is best to quickly engage with appropriate stakeholders, understand how FATCA impacts these African countries and the financial institutions’ foreign subsidiaries, and find solutions that enable pragmatic compliance.

What next for financial institutions in Africa?

Negotiations with the U.S. are under way with over 60 countries to enshrine FATCA in national law of countries around the world via IGAs. Implementation of FATCA is approaching on 1 January 2014 and many local financial institutions have either not started or are just at the early stages of addressing the potential impact of FATCA. In South Africa, only few of the leading banks are completing impact assessments and already optimizing solutions. Other financial services groups and asset management institutions are in the process of tackling the impact assessment. Industry representative in Ghana, Kenya, Mauritius, Namibia, Nigeria and Zimbabwe have started engaging relevant government and industry stakeholders, but the awareness is seemingly oblivious to date. In the rest of Africa, FATCA is mainly unheard of.

Financial institutions choosing to comply with FATCA will first need to appoint a responsible officer for FATCA and register with the IRS, ensure proper new client on-boarding procedures are in place, then identify and categorize all customers, and eventually report U.S. persons to the IRS (or local tax authorities in IGA jurisdictions). Institutions will also need to consider implementing a host of other time-consuming operational tasks, including revamping certain electronic systems to capture applicable accountholder information and/or to accommodate the new reporting and withholding requirements, enhancing customer on-boarding processes, and educating both customers and staff on the new regulations. Where possible, institutions should seek to achieve these tasks through enhancing existing initiations so as to minimise the cost and disruption to the business.

Conclusion

Financial institutions in Africa face tight FATCA compliance timelines with limited budgets, resources, time, and expertise available. This is coupled with having to fulfil multiple other regulatory requirements. To add to the burden, FATCA has given stimulus to several countries in the European Union to start discussing a multilateral effort against tax evasion. The support of other countries in the IGA process indicates that some of these countries will follow with their own FATCA-equivalent legislation in an attempt to increase local tax revenues at a time when economies around the world are under unprecedented pressure. The best approach for African financial services industry groups is to engage their local governments in dialogue with the IRS and Treasury, while for African financial institutions to pro-actively assess their FATCA strategic and operational burdens as they inevitably prepare for compliance.

 

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

The Ernst & Young Africa Sub-Area consists of practices in 28 countries across the African continent. We pride ourselves in our integrated operating model which enables us to serve our clients on a seamless basis across the continent, as well as across the world.

Ernst & Young South Africa has a Level two, AAA B-BBEE rating. As a recognised value adding enterprise, our clients are able to claim B-BBEE recognition of 156.25%.

Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. All Ernst & Young practices in the Africa Sub Area are members of Ernst & Young Africa Limited (NPC). Ernst & Young Africa Limited (NPC) in turn is a member firm of Ernst & Young Global Limited, a UK company limited by guarantee. Neither Ernst & Young Global Limited nor Ernst & Young Limited (NPC) provides services to clients.

For more information about our organisation, please visit www.ey.com/za

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Developing World’s Share of Global Investment to Triple by 2030, Says New World Bank Report

Posted on 18 May 2013 by Africa Business

Seventeen years from now, half the global stock of capital, totaling $158 trillion (in 2010 dollars), will reside in the developing world, compared to less than one-third today, with countries in East Asia and Latin America accounting for the largest shares of this stock, says the latest edition of the World Bank’s Global Development Horizons (GDH) report, which explores patterns of investment, saving and capital flows as they are likely to evolve over the next two decades.

Developing countries’ share in global investment is projected to triple by 2030 to three-fifths, from one-fifth in 2000, says the report, titled ‘Capital for the Future: Saving and Investment in an Interdependent World’. With world population set to rise from 7 billion in 2010 to 8.5 billion 2030 and rapid aging in the advanced countries, demographic changes will profoundly influence these structural shifts.

“GDH is one of the finest efforts at peering into the distant future. It does this by marshaling an amazing amount of statistical information,” said Kaushik Basu, the World Bank’s Senior Vice President and Chief Economist. “We know from the experience of countries as diverse as South Korea, Indonesia, Brazil, Turkey and South Africa the pivotal role investment plays in driving long-term growth. In less than a generation, global investment will be dominated by the developing countries. And among the developing countries, China and India are expected to be the largest investors, with the two countries together accounting for 38 percent of the global gross investment in 2030. All this will change the landscape of the global economy, and GDH analyzes how.”

Productivity catch-up, increasing integration into global markets, sound macroeconomic policies, and improved education and health are helping speed growth and create massive investment opportunities, which, in turn, are spurring a shift in global economic weight to developing countries. A further boost is being provided by the youth bulge. With developing countries on course to add more than 1.4 billion people to their combined population between now and 2030, the full benefit of the demographic dividend has yet to be reaped, particularly in the relatively younger regions of Sub-Saharan Africa and South Asia.

The good news is that, unlike in the past, developing countries will likely have the resources needed to finance these massive future investments for infrastructure and services, including in education and health care. Strong saving rates in developing countries are expected to peak at 34 percent of national income in 2014 and will average 32 percent annually until 2030. In aggregate terms, the developing world will account for 62-64 percent of global saving of $25-27 trillion by 2030, up from 45 percent in 2010.

“Despite strong saving levels to finance their massive investment needs in the future, developing countries will need to significantly improve their currently limited participation in international financial markets if they are to reap the benefits of the tectonic shifts taking place,” said Hans Timmer, Director of the Bank’s Development Prospects Group.

GDH paints two scenarios, based on the speed of convergence between the developed and developing worlds in per capita income levels, and the pace of structural transformations (such as financial development and improvements in institutional quality) in the two groups. Scenario one entails a gradual convergence between the developed and developing world while a much more rapid scenario is envisioned in the second.

The gradual and rapid scenarios predict average world economic growth of 2.6 percent and 3 percent per year, respectively, during the next two decades; the developing world’s growth will average an annual rate of 4.8 percent in the gradual convergence scenario and 5.5 percent in the rapid one.

In both scenarios, developing countries’ employment in services will account for more than 60 percent of their total employment by 2030 and they will account for more than 50 percent of global trade. This shift will occur alongside demographic changes that will increase demand for infrastructural services. Indeed, the report estimates the developing world’s infrastructure financing needs at $14.6 trillion between now and 2030.

The report also points to aging populations in East Asia, Eastern Europe and Central Asia, which will see the largest reductions in saving rates. Demographic change will test the sustainability of public finances and complex policy challenges will arise from efforts to reduce the burden of health care and pensions without imposing severe hardships on the old. In contrast, Sub-Saharan Africa, with its relatively young and rapidly growing population as well as robust economic growth, will be the only region not experiencing a decline in its saving rate.

In absolute terms, however, saving will continue to be dominated by Asia and the Middle East. In the gradual convergence scenario, in 2030, China will save far more than any other developing country — $9 trillion in 2010 dollars — with India a distant second with $1.7 trillion, surpassing the levels of Japan and the United States in the 2020s.

As a result, under the gradual convergence scenario, China will account for 30 percent of global investment in 2030, with Brazil, India and Russia together accounting for another 13 percent. In terms of volumes, investment in the developing world will reach $15 trillion (in 2010 dollars), versus $10 trillion in high-income economies. China and India will account for almost half of all global manufacturing investment.

“GDH clearly highlights the increasing role developing countries will play in the global economy. This is undoubtedly a significant achievement. However, even if wealth will be more evenly distributed across countries, this does not mean that, within countries, everyone will equally benefit,” said Maurizio Bussolo, Lead Economist and lead author of the report.

The report finds that the least educated groups in a country have low or no saving, suggesting an inability to improve their earning capacity and, for the poorest, to escape a poverty trap.

“Policy makers in developing countries have a central role to play in boosting private saving through policies that raise human capital, especially for the poor,” concluded Bussolo.

Regional Highlights:

East Asia and the Pacific will see its saving rate fall and its investment rate will drop by even more, though they will still be high by international standards. Despite these lower rates, the region’s shares of global investment and saving will rise through 2030 due to robust economic growth. The region is experiencing a big demographic dividend, with fewer than 4 non-working age people for every 10 working age people, the lowest dependency ratio in the world. This dividend will end after reaching its peak in 2015. Labor force growth will slow, and by 2040 the region may have one of the highest dependency ratios of all developing regions (with more than 5.5 non-working age people for every 10 working age people). China, a big regional driver, is expected to continue to run substantial current account surpluses, due to large declines in its investment rate as it transitions to a lower level of public involvement in investment.

Eastern Europe and Central Asia is the furthest along in its demographic transition, and will be the only developing region to reach zero population growth by 2030. Aging is expected to moderate economic growth in the region, and also has the potential to bring down the saving rate more than any developing region, apart from East Asia. The region’s saving rate may decline more than its investment rate, in which case countries in the region will have to finance investment by attracting more capital flows. The region will also face significant fiscal pressure from aging. Turkey, for example, would see its public pension spending increase by more than 50 percent by 2030 under the current pension scheme. Several other countries in the region will also face large increases in pension and health care expenditures.

Latin America and the Caribbean, a historically low-saving region, may become the lowest-saving region by 2030. Although demographics will play a positive role, as dependency ratios are projected to fall through 2025, financial market development (which reduces precautionary saving) and a moderation in economic growth will play a counterbalancing role. Similarly, the rising and then falling impact of demography on labor force growth means that the investment rate is expected to rise in the short run, and then gradually fall. However, the relationship between inequality and saving in the region suggests an alternative scenario. As in other regions, poorer households tend to save much less; thus, improvements in earning capacity, rising incomes, and reduced inequality have the potential not only to boost national saving but, more importantly, to break poverty traps perpetuated by low saving by poor households.

The Middle East and North Africa has significant scope for financial market development, which has the potential to sustain investment but also, along with aging, to reduce saving. Thus, current account surpluses may also decline moderately up to 2030, depending on the pace of financial market development. The region is in a relatively early phase of its demographic transition: characterized by a still fast growing population and labor force, but also a rising share of elderly. Changes in household structure may also impact saving patterns, with a transition from intergenerational households and family-based old age support to smaller households and greater reliance on asset income in old age. The region has the lowest use of formal financial institutions for saving by low-income households, and scope for financial markets to play a significantly greater role in household saving.

South Asia will remain one of the highest saving and highest investing regions until 2030. However, with the scope for rapid economic growth and financial development, results for saving, investment, and capital flows will vary significantly: in a scenario of more rapid economic growth and financial market development, high investment rates will be sustained while saving falls significantly, implying large current account deficits. South Asia is a young region, and by about 2035 is likely to have the highest ratio of working- to nonworking-age people of any region in the world. The general shift in investment away from agriculture towards manufacturing and service sectors is likely to be especially pronounced in South Asia, with the region’s share of total investment in manufacturing expected to nearly double, and investment in the service sector to increase by more than 8 percentage points, to over two-thirds of total investment.

Sub-Saharan Africa’s investment rate will be steady due to robust labor force growth. It will be the only region to not see a decrease in its saving rate in a scenario of moderate financial market development, since aging will not be a significant factor. In a scenario of faster growth, poorer African countries will experience deeper financial market development, and foreign investors will become increasingly willing to finance investment in the region. Sub-Saharan Africa is currently the youngest of all regions, with the highest dependency ratio. This ratio will steadily decrease throughout the time horizon of this report and beyond, bringing a long lasting demographic dividend. The region will have the greatest infrastructure investment needs over the next two decades (relative to GDP). At the same time, there will likely be a shift in infrastructure investment financing toward greater participation by the private sector, and substantial increases in private capital inflows, particularly from other developing regions.

Source: WorldBank.org

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Developing countries to dominate global saving and investment, but the poor will not necessarily share the benefits, says report

Posted on 18 May 2013 by Africa Business

STORY HIGHLIGHTS
  • Developing world’s share of global investment to triple by 2030
  • China, India will be developing world’s largest investors
  • Boost to education needed so poor can improve their well-being

In less than a generation, global saving and investment will be dominated by the developing world, says the just-released Global Development Horizons (GDH) report.

By 2030, half the global stock of capital, totaling $158 trillion (in 2010 dollars), will reside in the developing world, compared to less than one-third today, with countries in East Asia and Latin America accounting for the largest shares of this stock, says the report, which explores patterns of investment, saving and capital flows as they are likely to evolve over the next two decades.

Titled ‘Capital for the Future: Saving and Investment in an Interdependent World’, GDH projects developing countries’ share in global investment to triple by 2030 to three-fifths, from one-fifth in 2000.

Productivity catch-up, increasing integration into global markets, sound macroeconomic policies, and improved education and health are helping speed growth and create massive investment opportunities, which, in turn, are spurring a shift in global economic weight to developing countries.

A further boost is being provided by the youth bulge. By 2020, less than 7 years from now, growth in world’s working-age population will be exclusively determined by developing countries. With developing countries on course to add more than 1.4 billion people to their combined population between now and 2030, the full benefit of the demographic dividend has yet to be reaped, particularly in the relatively younger regions of Sub-Saharan Africa and South Asia.

GDH paints two scenarios, based on the speed of convergence between the developed and developing worlds in per capita income levels, and the pace of structural transformations (such as financial development and improvements in institutional quality) in the two groups. Scenario one entails a gradual convergence between the developed and developing world while a much more rapid one is envisioned in the second.

In both scenarios, developing countries’ employment in services will account for more than 60 percent of their total employment by 2030 and they will account for more than 50 percent of global trade. This shift will occur alongside demographic changes that will increase demand for infrastructural services. Indeed, the report estimates the developing world’s infrastructure financing needs at $14.6 trillion between now and 2030.

The report also points to aging populations in East Asia, Eastern Europe and Central Asia, which will see the largest reductions in private saving rates. Demographic change will test the sustainability of public finances and complex policy challenges will arise from efforts to reduce the burden of health care and pensions without imposing severe hardships on the old. In contrast, Sub-Saharan Africa, with its relatively young and rapidly growing population as well as robust economic growth, will be the only region not experiencing a decline in its saving rate.

Open Quotes

Policy makers in developing countries have a central role to play in boosting private saving through policies that raise human capital, especially for the poor. Close Quotes

Maurizio Bussolo
Lead Author, Global Development Horizons 2013

In absolute terms, however, saving will continue to be dominated by Asia and the Middle East. In the gradual convergence scenario, in 2030, China will save far more than any other developing country — $9 trillion in 2010 dollars — with India a distant second with $1.7 trillion, surpassing the levels of Japan and the United States in the 2020s.

As a result, under the gradual convergence scenario, China will account for 30 percent of global investment in 2030, with Brazil, India and Russia together accounting for another 13 percent. In terms of volumes, investment in the developing world will reach $15 trillion (in 2010 dollars), versus $10 trillion in high-income economies. Again, China and India will be the largest investors among developing countries, with the two countries combined representing 38 percent of the global gross investment in 2030, and they will account for almost half of all global manufacturing investment.

“GDH clearly highlights the increasing role developing countries will play in the global economy. This is undoubtedly a significant achievement. However, even if wealth will be more evenly distributed across countries, this does not mean that, within countries, everyone will equally benefit,” said Maurizio Bussolo, Lead Economist and lead author of the report.

The report finds that the least educated groups in a country have low or no saving, suggesting an inability to improve their earning capacity and, for the poorest, to escape a poverty trap.

“Policy makers in developing countries have a central role to play in boosting private saving through policies that raise human capital, especially for the poor,” concluded Bussolo.

Regional Highlights:

East Asia and the Pacific will see its saving rate fall and its investment rate will drop by even more, though they will still be high by international standards. Despite these lower rates, the region’s shares of global investment and saving will rise through 2030 due to robust economic growth. The region is experiencing a big demographic dividend, with fewer than 4 non-working age people for every 10 working age people, the lowest dependency ratio in the world. This dividend will end after reaching its peak in 2015. Labor force growth will slow, and by 2040 the region may have one of the highest dependency ratios of all developing regions (with more than 5.5 non-working age people for every 10 working age people). China, a big regional driver, is expected to continue to run substantial current account surpluses, due to large declines in its investment rate as it transitions to a lower level of public involvement in investment.

Eastern Europe and Central Asia is the furthest along in its demographic transition, and will be the only developing region to reach zero population growth by 2030. Aging is expected to moderate economic growth in the region, and also has the potential to bring down the saving rate more than any developing region, apart from East Asia. The region’s saving rate may decline more than its investment rate, in which case countries in the region will have to finance investment by attracting more capital flows. The region will also face significant fiscal pressure from aging. Turkey, for example, would see its public pension spending increase by more than 50 percent by 2030 under the current pension scheme. Several other countries in the region will also face large increases in pension and health care expenditures.

Latin America and the Caribbean, a historically low-saving region, may become the lowest-saving region by 2030. Although demographics will play a positive role, as dependency ratios are projected to fall through 2025, financial market development (which reduces precautionary saving) and a moderation in economic growth will play a counterbalancing role. Similarly, the rising and then falling impact of demography on labor force growth means that the investment rate is expected to rise in the short run, and then gradually fall. However, the relationship between inequality and saving in the region suggests an alternative scenario. As in other regions, poorer households tend to save much less; thus, improvements in earning capacity, rising incomes, and reduced inequality have the potential not only to boost national saving but, more importantly, to break poverty traps perpetuated by low saving by poor households.

The Middle East and North Africa has significant scope for financial market development, which has the potential to sustain investment but also, along with aging, to reduce saving. Thus, current account surpluses may also decline moderately up to 2030, depending on the pace of financial market development. The region is in a relatively early phase of its demographic transition: characterized by a still fast growing population and labor force, but also a rising share of elderly. Changes in household structure may also impact saving patterns, with a transition from intergenerational households and family-based old age support to smaller households and greater reliance on asset income in old age. The region has the lowest use of formal financial institutions for saving by low-income households, and scope for financial markets to play a significantly greater role in household saving.

South Asia will remain one of the highest saving and highest investing regions until 2030. However, with the scope for rapid economic growth and financial development, results for saving, investment, and capital flows will vary significantly: in a scenario of more rapid economic growth and financial market development, high investment rates will be sustained while saving falls significantly, implying large current account deficits. South Asia is a young region, and by about 2035 is likely to have the highest ratio of working- to nonworking-age people of any region in the world. The general shift in investment away from agriculture towards manufacturing and service sectors is likely to be especially pronounced in South Asia, with the region’s share of total investment in manufacturing expected to nearly double, and investment in the service sector to increase by more than 8 percentage points, to over two-thirds of total investment.

Sub-Saharan Africa’s investment rate will be steady due to robust labor force growth. It will be the only region to not see a decrease in its saving rate in a scenario of moderate financial market development, since aging will not be a significant factor. In a scenario of faster growth, poorer African countries will experience deeper financial market development, and foreign investors will become increasingly willing to finance investment in the region. Sub-Saharan Africa is currently the youngest of all regions, with the highest dependency ratio. This ratio will steadily decrease throughout the time horizon of this report and beyond, bringing a long lasting demographic dividend. The region will have the greatest infrastructure investment needs over the next two decades (relative to GDP). At the same time, there will likely be a shift in infrastructure investment financing toward greater participation by the private sector, and substantial increases in private capital inflows, particularly from other developing regions.

 

Source: WorldBank.org

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Morningstar Announces Findings from Third Global Fund Investor Experience Report; United States Scores the Best and South Africa the Worst

Posted on 15 May 2013 by Africa Business

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions.

 

CHICAGO, May 15, 2013 /PRNewswire/ — Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today released its Global Fund Investor Experience report, which assesses the experiences of mutual fund investors in 24 countries across North America, Europe, Asia, and Africa. Morningstar’s evaluation of investor-friendly practices in fund markets worldwide identified the United States as the best market for fund investors based on criteria such as investor protection, transparency, fees, taxation, and investment distribution, while South Africa scored the worst. This year’s report also includes first-time reviews of fund investor experiences in Korea and Denmark.

“We launched the first Global Fund Investor Experience report in 2009 to examine the treatment of mutual fund shareholders in 16 countries with the goal of advancing a dialogue about best practices worldwide. Since that time we’ve had numerous conversations with regulators and investment companies in multiple countries about their existing policies and ways to improve,” John Rekenthaler , vice president of research for Morningstar, said. “Working with our analysts around the world, we expanded our survey to 24 countries this year. We hope our survey findings will help investment companies, distributors, and regulatory bodies around the globe continue to focus on improving the environment for investors.”

Morningstar researchers evaluated countries in four categories: Regulation and Taxation, Disclosure, Fees and Expenses, and Sales and Media. Morningstar weighted the questions and answers to give greater importance to factual, empirical answers as well as the high-priority issues of fees, taxes, and transparency. Morningstar assigned countries a letter grade for each category and then added the category scores to produce an overall country grade. The report’s authors gathered information from available public data and from Morningstar analysts. Below are the overall country grades, from highest to lowest scores and then in alphabetical order:

United States:  A

Sweden: B-

Korea:  B+

Switzerland: B-

Netherlands:  B

United Kingdom: B-

Singapore:  B

Australia: C+

Taiwan:  B

Belgium: C+

Thailand:  B

Canada: C+

China:  B-

France: C+

Denmark:  B-

Italy: C+

Germany:  B-

Japan: C

India:  B-

Hong Kong: C-

Norway:  B-

New Zealand: C-

Spain:  B-

South Africa: D

The United States garnered the highest score for the third time with a top grade of A. While the United States is not a leader in the area of Regulation and Taxes, it has the world’s best disclosure and lowest expenses. South Africa, in contrast, received the lowest grade largely because of poor disclosure practices. The new countries reviewed in this year’s report—Korea and Denmark—earned grades of B+ and B-, respectively.

New Zealand showed the largest improvement from the 2011 study rising to a C- from a D- because of positive regulatory changes and an encouraging expansion of disclosure requirements. Morningstar anticipates that the New Zealand government’s ongoing review of all fund regulations will result in even more improvements and investor-friendly practices in the years to come.

Among the key findings of the study:

  • Bans on advisor commissions are spreading around the world. In the UK, the Retail Distribution Review (RDR) has already brought such a ban into effect, while similar moves are underway in Australia and the Netherlands.
  • While the U.S. and European fund markets are roughly similar in size, U.S. investors pay significantly lower fees than European investors.
  • Fund companies in most countries continue to treat the names of portfolio managers as trade secrets, leaving investors no way to determine who is responsible for a fund’s success or failure.
  • Australia and New Zealand do not require funds to publicly disclose full portfolio holdings, while France, South Africa, Korea, and the UK only disclose holdings to current owners.

To read Morningstar’s complete Global Fund Investor Experience report, click here.

SOURCE Morningstar, Inc.

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Global Trade Partners in the 21st Century

Posted on 15 May 2013 by Africa Business

WASHINGTON, May 15, 2013/African Press Organization (APO)/ — Remarks

Robert D. Hormats

Under Secretary for Economic Growth, Energy, and the Environment

World Economic Forum

Pretoria, South Africa

May 14, 2013

 

 

As Prepared

 

Thank you Lyal for the kind introduction.

I am delighted to be in South Africa again. I visited last fall with Secretary of State Hillary Clinton.

What was most striking then, and continues to be the case today, is the extent to which the image of Africa has changed. According to the IMF, growth in sub-Saharan Africa will surge to 6.1% next year, well ahead of the global average of 4%.

Africa is booming in nearly every sector, ranging from massive energy developments in Mozambique, Tanzania, Ghana, and other countries; to the growth of Rwanda and Kenya’s information and communications technology sectors; to South Africa’s thriving auto industry. And, though far from declaring victory, Africa is reaching a turning point in its hard-fought battles against poverty and corruption.

Today’s Africa looks nothing like what, in 2000, The Economist referred to as the “Hopeless Continent.” It is critical that we concentrate the world’s eyes on the new image of Africa, that of progress and promise. Perspectives are evolving—in 2011, The Economist referred to Africa as the “Rising Continent” and, last March, as the “Hopeful Continent.”

Trade is at the heart of Africa’s economic resurgence. So, in this context, I will speak first about America’s vision for global trade in the 21st century and then, focus on implications and, indeed, opportunities for Africa. America’s global trade agenda in the 21st century is shaped by a foundation laid, in large part, in the mid-20th century. After World War II, American and European policymakers worked together to build a set of international institutions that embodied democratic and free market principles.

The GATT—which led to the WTO—World Bank, IMF, and the OECD were designed to foster international economic cooperation. These institutions were vital to the economic prosperity of the United States, and to the success of America’s foreign policy and national security for the next three generations.

As we move into the 21st century, a new multi-polar global economy has surfaced. The emergence of a new group of economic powerhouses—Brazil, Russia, India, and China, of course, but also countries in Africa—has created momentum (if not necessity) for greater inclusiveness in the global trading system.

At the same time, these new players must assume responsibilities for the international economic system commensurate with the increasing benefits they derive from the global economy. In addition to the geography of international trade, the nature of trade and investment has evolved to include previously unimaginable issues such as e-commerce and sustainability.

So, part of our vision for trade in the 21st century is to build a system that is more inclusive, recognizes the new realities of economic interdependence, and matches increased participation in the global trading system with increased responsibility for the global trading system.

We are making progress with bringing new players into the global trading system as equal partners. Free Trade Agreements with Korea, Colombia, and Panama entered into force last year.

And, we are continuing negotiations on the Trans-Pacific Partnership—or TPP as it is more widely known. With Japan’s anticipated entry into the negotiations, TPP will grow to include 12 countries of different size, background, and levels of development. The agreement, when finalized, will encompass nearly 40% of global GDP and one-third of global trade.

In addition to TPP, we are embarking on a Transatlantic Trade and Investment Partnership with the European Union. TTIP—as it is being called—will strengthen economic ties between the United States and Europe, and enhance our ability to build stronger relationships with emerging economies in Asia, Africa, and other parts of the world.

TPP and TTIP are truly historic undertakings. Our objective is not only to strengthen economic ties with the Asia-Pacific and Europe, but also to pioneer approaches to trade and investment issues that have grown in importance in recent years.

These agreements will seek to break new ground by addressing a multitude of heretofore unaddressed non-tariff barriers, setting the stage for convergence on key standards and regulations, and establishing high quality norms and practices that can spread to other markets. TPP, for example, will raise standards on investment and electronic commerce, and afford protections for labor and the environment.

Our agenda also includes strengthening the multilateral trading system through the World Trade Organization. For example, the United States would like to see a multilateral Trade Facilitation Agreement, which would commit WTO Members to expedite the movement, release, and clearance of goods, and improve cooperation on customs matters. A Trade Facilitation Agreement would be a win-win for all parties—Africa especially.

Cross-border trade in Africa is hindered by what the World Bank calls “Thick Borders.” According to the latest Doing Business Report, it takes up to 35 days to clear exports and 44 days to clear imports in Africa. Clearing goods in OECD countries, in contrast, takes only 10 days on average and costs nearly half as much. Countries like Ghana and Rwanda have benefited tremendously from the introduction of trade facilitation tools and policies.

Ghana, for instance, introduced reforms in 2003 that decreased the cost and time of trading across borders by 60%, and increased customs revenue by 50%. A multilateral Trade Facilitation Agreement will create a glide path for increased trade with and within Africa.

Our views for 21st century global trade partnerships go beyond Europe and the Asia-Pacific, and efforts at the WTO. We are committed to supporting Africa’s integration into the global trading system. The cornerstone of our trade relationship with sub-Saharan Africa is the African Growth and Opportunity Act—known as AGOA. Of all of our trade preference programs, AGOA provides the most liberal trade access to the U.S. market.

Exports from Africa to the United States under the AGOA have grown to $34.9 billion in 2012. While oil and gas still represent a large portion of Africa’s exports, it is important to recognize that non-petroleum exports under AGOA have tripled to nearly $5 billion since 2001, when AGOA went into effect. And, compared to a decade ago, more than twice the number of eligible countries are exporting non-petroleum goods under AGOA.

South Africa, in particular, has made great strides in diversifying its exports to the United States. Thanks to AGOA, the United States is now South Africa’s main export market for passenger cars, representing more than 50% of exported value in 2012. Because AGOA is such an important mechanism for African countries to gain access to the U.S. market, the Administration is committed to working with Congress on an early, seamless renewal of AGOA. Our trade relationship with Africa goes beyond AGOA. For instance, AGOA represents only one-quarter of South African exports to the United States. The composition of South Africa’s exports to the United States, moreover, reflects complex interdependencies and industrial goods.

And, our trade relationship with Africa is not just about one-way trade. There is an immense opportunity for U.S. companies to do business on the continent.

We recently launched the “Doing Business in Africa Campaign” to help American businesses identify and seize upon trade and investment opportunities in Africa. The campaign was announced in Johannesburg, in part, because South Africa can play a prominent role in directing U.S. investment into other parts of the continent.

Although progress has been made on diversifying exports beyond energy, there is much more to be done. African ingenuity and entrepreneurship must be unleashed to drive innovation and growth throughout the continent. This requires closer integration to share ideas, transfer knowledge, and partner on solutions. Through AGOA and the “Doing Business in Africa Campaign”, we are promoting a business climate in Africa that enables and encourages trade and investment. However, realizing these goals is goes beyond trade preferences and commercial linkages.

Africa is also featured in America’s vision for global trade in the 21st century.

For example, we recently launched the U.S.-East African Community Trade and Investment Partnership—the first of its kind—to expand two-way trade and investment. The Partnership is designed to build confidence among the private sector by building a more open and predictable business climate in East Africa. We are considering a variety of mechanisms to accomplish this, including a regional investment treaty and trade facilitation agreement. The Partnership highlights our desire to help Africa integrate and compete in today’s global economy.

I will conclude with one final point. I began by saying that trade is at the heart of Africa’s economic resurgence. Trade is also at the heart of America’s economic recovery. We have a common interest and a common goal.

When it comes to enhanced trade, what is good for Africa is good for America. And what is good for America is good for Africa.

Thank you.


SOURCE

US Department of State

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Mobile Technologies to Fast Track Financial Transactions for the Unbanked in Asia

Posted on 14 May 2013 by Africa Business

4th Annual Summit on Mobile Payments & Banking Greater Mekong/ Emerging Markets will be taking place in Phnom Penh, Cambodia from 12-13 June 2013.

Singapore, Singapore –(PR.com)– 1. Mobile technology is fast becoming the first choice for many consumers to access financial services especially among the economies of the unbanked population. At the 4th Annual Summit on Mobile Payments & Banking Greater Mekong/ Emerging Markets which will be taking place in Phnom Penh in Cambodia on 12 – 13 June 2013, key industry stakeholders from the financial institutions, mobile operators and solution providers will congregate to discuss the latest developments in mobile payments in the growing affluent economies of South East Asia, South Asia, East Asia, Central Asia, Eurasia, Middle East and Oceania.

2. This year summit’s will have a special focus on emerging economies of Fiji, Indonesia, Philippines, Sri Lanka, Cambodia, Vietnam, Laos and Myanmar. Key issues include an assessment of the growing opportunities in the region, success stories on how to design, establish and operationalize mobile payments solutions, evaluation of the various technology and challenges, discussion on IT strategies to drive revenue opportunities, cost efficiencies and the future transformation of the customer retail banking experience.

3. Companies expected to speak at the summit include: National Bank of Cambodia, Department of Finance, (Philippines), VeriFone, Rural Bankers Association of the Philippines, Quezon Capital Rural Bank, Hattha Kaksekar, ACLEDA Bank Plc, Viettel Telecom, Globe Telecom Inc / G-Xchange Inc, BICS Asia, Maybank, Chunghwa Telecom, Western Union, Standard Chartered Bank, Alpha Payments Cloud, Bank Mandiri, Etisalat, ControlCase, EPIC Lanka Group, Ayeryarwady Bank, Vodafone, FINTEL Fiji, Bank of the Lao PDR, Bank of Ayudhya and more.

4. EPIC Lanka Group, a world class software solutions provider in its core technology areas of Secure Electronic Payments and Information Systems Security is the summit’s Associate Sponsor.

5. Exhibitors at the summit include SecureMetric, the fastest growing digital security technology company and ControlCase, a United States based company with headquarters in McLean, Virginia and PCI center of excellence in Mumbai, India.

6. The CEO of the conference organizing company, Magenta Global Pte Ltd, Singapore, Ms Maggie Tan, said: “A new report from Juniper Research finds that over 1 billion phone users will have made use of their mobile devices for banking purposes by the end of 2017, compared to just over 590 million this year. The emerging economies in this region are likely to see a huge increase in mobile subscribers who are mostly unbanked. Banks must implement at least one mobile banking offering either via messaging, mobile browser or an- app based service. Some banks are already doing so with larger banks deploying two or more of these technologies. This Summit has been specially convened to take the industry forward.” She invites all telco operators, financial institutions and technology service providers to join this Summit and contribute to the greater development of the banking and financial services sector in this region.

7. The event will be held at the NagaWorld Hotel.

Notes for Editor

About Magenta Global – Organizer

Magenta Global Pte Ltd is a premier independent business media company that provides pragmatic and relevant information to government & business executives and professionals worldwide. The organization provides the opportunity to share thought-provoking insights, exchange ideas on the latest industry trends and technological developments with thought leaders and business peers. With a strong focus in emerging economies especially in Africa, Middle East & Central Asia, Magenta Global works in partnership with both the public and private sectors.

About EPIC Lanka Group – Associate Sponsor

Established in 1998, Epic is a trendsetter and renowned for innovative software solutions in the region. The company has successfully implemented pioneering mobile banking solutions in Sri Lanka, Malaysia and several other countries winning an unprecedented number of national and international accolades in the recent past including APICTA Gold Award for Asia pacific’s best banking solution. Time and again Epic has proved their technological dominance, product supremacy and entrepreneurial excellence at Asia Pacific level.

About SecureMetric – Exhibitor

SecureMetric is one of the fastest growing digital security technology company. Our products and solutions have been successfully shipped and implemented in more than 35 countries worldwide. As a multinational company, SecureMetric’s technical team consist of top security experts from China, Indonesia, Malaysia, Middle East, Philippines, Singapore, Vietnam and United Kingdom. Cross region and cross culture exposure has made SecureMetric a company that is always ahead. With our innovative products and services, we are poised to help our customers to be the best in their industry.

About ControlCase – Exhibitor

ControlCase provide solutions that address all aspects of IT-GRCM (Governance, Risk Management and Compliance Management). ControlCase is pioneer and largest provider of Managed Compliance Services and Compliance as a Service and a leading provider of Payment Card Industry related compliance services globally.
Magenta Global
Merilynn Choo
65 6391 2549
Contact

http://www.magenta-global.com.sg/GreaterMekongMobilePayments2013/

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Time for “Dark Continent” to invest in renewable energy

Posted on 09 May 2013 by Africa Business

By Dr Nawal Al-Hosany

Dr Al-Hosany is director of the Zayed Future Energy Prize and the Director of Sustainability at Masdar

In her role as the Director of Sustainability at Masdar; Dr Nawal Al-Hosany leads a team responsible for developing Masdar’s sustainability standards and policies. She is also mandated to oversee the processes of sustainability auditing, monitoring and reporting.

In 2011, Dr Al-Hosany further assumed the post of Director of the Zayed Future Energy Prize; where she oversees the implementation of the objectives, mandate and strategic direction of the prize.

Dr-Al Hosany is a board member of Masdar Investment LLC and of the Emirates Authority for Standardization and Meteorology. She is also an Adjunct Professor at the Masdar Institute of Science and Technology.

In her commitment to remain at the forefront of the social science and sustainable development landscape, she has participated in numerous continuing professional development courses and continually seeks opportunities to stay updated on latest project management methods, as well as leadership, planning and decision-support mechanisms.

Dr Al-Hosany has been published globally in international journals and newspapers, including the International Journal of Management of Environmental Quality, Renewable and Sustainable Energy Reviews, Renewable Energy, and International Journal of Renewable Energy Engineering.

Throughout her career, Dr Al-Hosany has been an active member of various boards in the UAE and around the world including the Advisory Panel for the Momentum for Change initiative of the UNFCCC, the Troika Plus of Women Leaders on Gender and Climate Change; the Climate Justice Dialogue Advisory Committee (an initiative of the World Research Foundation), and the Energy Efficiency Global Forum.

Dr Al-Hosany has also served as Sherpa to the UN Secretary General High Level Group for ‘The Sustainable Energy For all’ initiative for its Principle; HE Dr Sultan Ahmed Al Jaber, Chief Executive Officer of Masdar.

In 2011, Abu Dhabi Magazine cited Dr.Al-Hosany as one of the 40 most influential Emiratis who have helped shape the emirate. She has also received several medals and accolades for her professional achievements, including a Chevening Fellowship from the British Foreign and Commonwealth Office and the Emirates Business Women Award in the Professional and Career Achievements category.

Prior to assuming her current roles, Dr Al-Hosany held senior leadership positions with the General Headquarters of the Abu Dhabi Police, including Head of Design and Studies in the Engineering Department. In 2007, she became the first-ever female Deputy Director in the Abu Dhabi Police.

Dr Al-Hosany graduated from the Faculty of Engineering at the UAE University and obtained her PhD from Newcastle University in the UK. She is also credited as one of the first two Emirati women to climb Mt. Kilimanjaro, the highest free-standing mountain in the world at 5,895 meters above sea level.

 

About the Zayed Future Energy Prize: The Zayed Future Energy Prize embodies the vision of the late founding father of the UAE, Sheikh Zayed bin Sultan Al Nahyan who laid the foundation for renewable energy and sustainability as part of his legacy in sustainable development in the UAE. An annual award, the Prize is managed by Masdar, on behalf of the Abu Dhabi government and seeks to award achievements and innovation in the fields of renewable energy and sustainability, as well as to educate and inspire future generations.


Most of us are familiar with the satellite image of the world at night, showing Europe and parts of Asia ablaze with light. But despite its enormous size, larger than both China and the United States combined, Africa remains dark, with only a few pinpricks of light here and there.

Africa’s economies have shrugged off a global slowdown to record average growth of almost five percent. After ten years of high growth, 22 out of 48 countries have officially achieved middle-income status, defined by the World Bank as having per-capita income in excess of US$1 000. The combined population of these countries is 400 million people. Another ten states, representing 200 million people, could reach this landmark by 2025, the World Bank said. Africa’s population is expected to double by 2050, with a seven-fold increase in GDP if current trends are maintained. In order to provide universal access to electricity and sustain these growth rates, total energy production must double by 2030 from current levels, according to a recent report published by the International Renewable Energy Agency (IRENA). Electricity still remains the only sure route to economic growth.

While some 99% of north Africans have access to electricity, only 77% of people in South Africa do. This figure drops to 29% for sub-Saharan populations outside South Africa, according to IRENA.

Like many other observers, including myself, IRENA believes the time is right for massive investment in renewable energy across the continent. “Africa has the opportunity to leapfrog to modern renewable energy,” IRENA said, noting that renewable energy technologies represented the most cost-effective solution for remote, off-grid areas and for extending electrification grids. Costs of solar photovoltaic have fallen by over 80% over the last two years to less than one US dollar per watt, with further price drops expected.

Renewable energy brings multiple benefits, including increased energy security, job creation, rural development and technological development. Finally, we should not forget that access to energy is particularly important for women, who have traditionally borne the burden of fetching water and cooking over open fires, with attendant respiratory health impacts and fire hazards associated with dirty fuels. The daily lives of these women, and their families, is made immeasurably better if they can access clean energy for household needs.

These are compelling benefits. In my work with the Zayed Future Energy Prize, which recognises and rewards leadership in five categories, I have been privileged to interact with renewable energy pioneers on several continents. Their creativity, persistence and leadership has led to their discovery of innovative solutions tailored for local conditions in business, non-profit and education. Interest has grown steadily over the past five years, with a record 579 nominations received from 88 countries last year – a 36% increase. I call upon leaders in renewable energy and sustainability in Africa to step forward for nomination this year, as with their help, we can finally put to rest the cliché of the dark continent.

For more information on the prize, please visit www.ZayedFutureEnergyPrize.com or email Serene Serhan at sserhan@masdar.ae


· YouTube video about last year’s winners: http://www.youtube.com/watch?v=Mwf2VxivHY4

· Frequently asked questions (FAQ): https://www.zayedfutureenergyprize.com/en/application-process/faq/

· A brochure with further details is available at: https://www.zayedfutureenergyprize.com/resources/media/9185ZFEPHighSchoolFlyerFINAL.pdf

· Submission process video tutorial: https://www.zayedfutureenergyprize.com/en/application-process/submission-process-video-tutorial/

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PLATINUM SPONSOR INTERVIEW: “Symbion and many other companies from the United States are ready to invest in Africa.”

Posted on 07 May 2013 by Africa Business

Exclusive interview with Paul Hinks, CEO of Symbion Power, platinum sponsors at the upcoming African Utility Week (http://www.african-utility-week.com).

1) Why the recent decision to acquire the stake in the South African company EJP Power?
We wanted a foothold in South Africa and we wanted to strengthen the management of our organization on the Africa continent.  EJ Power has good, experienced management who live in Africa.  We can’t manage day to day business with a whole day of time difference and between 9,000 and 13,000 kms of distance, depending which of our current operations you measure it against.

2) Is this a vote of confidence in South Africa’s economy and future?
It’s a vote of confidence in Africa.  South Africa’s economy is mature compared to many of the emerging economies in Africa but it’s a hub for African business so a good location to have people.  But we don’t consider South Africa as the only hub in Africa these days.  There are others in West Africa and East Africa where the economies are thriving.

3) You already have a good track record in Tanzania.  Can you tell us how your project is progressing there?  How important has your relationship with the government been?
Tanzania is the first country in Africa that we have worked in. Until then we were heavily focused on Iraq and Afghanistan so it has been a pleasure to return to Africa.  We now own 3 power plants in Tanzania generating 217 Megawatts and we have recently signed an agreement with the utility there, TANESCO, to jointly develop a 400MW power plant and a 650km transmission line in the south at Mtwara.  This plant will have the potential to provide natural gas fired power to neighboring countries such as Mozambique and Malawi and eventually it can feed the Southern African Power Pool. It’s an important Public Private Partnership due to the large gas deposits that have been discovered, in addition to the existing gas field at Mnazi Bay.

4) How excited are you about entering the Nigerian market?
Very excited. Nigeria is the most vibrant market in the energy sector in Africa and it’s so very, very different than the Nigeria we used to hear about decades ago.  I tell everyone who is skeptical to just go there and see what’s happening and not rely on old information, or the words of people who haven’t been in recent years.   We will soon open a new office in Lagos that will become the headquarters of our African independent power business.  South Africa will be the headquarters for our construction and engineering business but we intend to pursue IPP opportunities in South Africa too.

5) What is your vision for Symbion in Africa?
I’d like to see Symbion become one of the leading independent power companies on the continent who can also build our own infrastructure at economic costs.  I’d also like us to leverage our origin in the United States to bring other US interests into our developments such as the various government agencies that provide debt funding and credit support as well as other US and African private sector companies.  The name Symbion comes from the word Symbiotic, which means a relationship of mutual benefit between two or more entities.  That’s what we strive to achieve. We have many different partnerships in Africa and elsewhere.

6)  What surprises you about this industry?
What most surprises me is that electricity, a commodity that people all over the world see as being essential for daily life and critical to growth, is so insufficient in Africa.  However, right now I see great efforts being made throughout the continent to change this although some places are still woefully behind the curve.

7)  What has been the secret of Symbion’s success so far?
Symbiotic partnerships with local companies.  Not being greedy and trusting and sharing with our local partners.  Symbion’s men and women are committed and they are courageous.  They aren’t intimidated by adverse news reports about security issues and we make our own judgments about the risks we will take.  Eight years of Iraq and Afghanistan built a very strong team who look out for each other.

8 )  What will be your message at African Utility Week?
My message to everyone at African Utility Week is that Symbion and many other companies from the United States are ready to invest in Africa.  These firms are ethical, they have integrity and they need partners in both the public and private sectors.  The US government wants to support both the US and the African private sector as this is the route to development on the continent.  President Obama’s strategy for Sub Saharan Africa was set out in June 2012 and I am sure that everyone will soon see that he is committed to it.

9)  Anything to add?
Yes,  as well as my duties as the Chief Executive Officer of Symbion Power I am also the Chairman of the Corporate Council on Africa which is the largest (not for profit) organization in the United States that promotes trade and investment between the United States and Africa.  Until this year it was exclusively American but now we have opened the doors to companies from Africa too.  I’d encourage private sector players who have interests in partnering with US companies to join the CCA www.africacncl.org because this is where you can get the introductions and the information you need to build new relationships with some of the major players in the US.  I’d also encourage public utilities to attend our CCA US Africa Summit in Chicago in October this year.  Details on membership and the Summit can be found on the website.

 

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Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth -

Posted on 30 April 2013 by Africa Business

The Government of Tunisia, the African Development Bank and the United States Government have released a report

 

TUNIS, Tunisia, April 30, 2013/African Press Organization (APO)/ The Government of Tunisia, the African Development Bank (http://www.afdb.org) and the United States Government have released the report entitled “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth”. The report, aims at identifying the most binding constraints to growth in Tunisia in order to identify areas where policy reforms are most needed. The study attempts to identify these constraints, both as they were manifested in the years leading up to the revolution and today. The methodology starts from the widely accepted proposition that private sector investment and entrepreneurship are ultimately the keys to sustained economic growth and follows the Growth Diagnostics approach proposed by Ricardo Hausmann, Dani Rodrik and Andrès Velasco.

The application of the methodological framework has revealed two broad categories of binding constraints to economic growth in Tunisia:

First, a lack of effective institutions to ensure public sector accountability, the rule of law, and checks and balances on power in Tunisia results in weak protection of property rights and barriers to entry. Property rights and investment freedoms are fundamental to the development of entrepreneurship and to investment, innovation and risk-taking, and therefore to achieving growth in productivity and the higher wages and living standards that accompany it.

Establishing a sound framework of economic governance including institutions that provide investors with a clear and transparent set of rules and assurance that they will be able to reap the fruits of their investments will require a sustained effort.

Second, although social security programs and labour protections are intended to enhance the pay, benefits and economic security of workers, many measures currently in place in Tunisia have been counterproductive in achieving these aims for all but the most fortunate Tunisian workers. Rather than enhancing the provision of acceptable jobs, they result in reduced investment, greater informality, lower worker pay, higher unemployment, and increased economic insecurity. Firms remain small and use a variety of means to circumvent the formal requirements of employing workers, including informality or under-declaration of employees.

Their inability to adjust employment according to market conditions discourages them from growing to attain economies of scale and from investing in worker training. These responses in turn reduce innovation and productivity growth and make Tunisian firms less competitive internationally. Tunisia’s slow growth in labour productivity relative to other middle-income countries reinforces the pressure to reduce private sector wages. Alternatives for designing social security systems and labour market protections should be considered with the aim of protecting people rather than specific jobs.

These binding constraints operate on a national level and therefore have negative consequences both in faster growing and lagging regions. While a lack of investment in infrastructure and poor school quality are widely believed to reduce investment and employment opportunities in lagging regions, the lack of demand for the products and workers emanating from those regions is primarily driven by national and international markets. Indeed, the constraints identified in this diagnostic may be even more binding on the growth of lagging regions.

The identified constraints affect exporting firms and foreign-owned firms to a somewhat lesser extent than firms primarily serving domestic markets. Exporters enjoy exoneration of social charges and other taxes for several years and, given their larger scale and higher productivity, are better able to adhere to formal labor requirements. They also appear to have been less subject to infringement of property rights under the prior regime. However, the identified constraints are still likely to dampen investment and employment creation by exporting firms as well. Meanwhile, the constraints present a tremendous barrier for Tunisian firms serving the domestic market – some of which would otherwise supply exporting firms or export directly but under current circumstances cannot expand or innovate to the degree needed to compete internationally. Although Tunisia has relied upon an industrial policy and various tax breaks to promote innovation and competitiveness, without removing these fundamental obstacles further government efforts to directly subsidize or promote innovation are not likely to succeed in transforming the economy.

In addition to the two binding constraints identified above, risks have emerged since the revolution that could become binding constraints if not effectively addressed. First is the risk that social unrest becomes persistent and pervasive, in which case it would deter investment in the coming years. Related to this is the risk of macroeconomic instability that could emerge if internal social and economic pressures override the government’s commitment to fiscal sustainability. In addition to this risk, the analysis highlights the problematic nature of the financial sector; the low quality of primary and secondary education, particularly in lagging regions; the need for improved water resource management; and the limits of Tunisia’s current seaport capacity and management. Although not currently binding constraints, these problems could become more important constraints in the future.

Based on the outcomes of this analysis, the African Development Bank and its partners will support Tunisia in overcoming these constraints to achieve a stronger and sustainable broad-based growth.

 

SOURCE

African Development Bank (AfDB)

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U.S. Ranks First In ‘KPMG Green Tax Index,’ Tops Countries Using Tax Code To Shape Sustainable Corporate Activity

Posted on 29 April 2013 by Africa Business

About the KPMG Green Tax Index

The KPMG Green Tax Index focuses on 21 major economies around the world that KPMG International believes represent a major share of global corporate investment activity. A high ranking in the Index does not necessarily mean that a country is “greener” than others. It means that the government is more active than others in using the tax system as a tool to influence corporate behavior and achieve green policy goals.

A lower ranking does not mean that a government has no green tax or incentive instruments in place. Every nation listed on the KPMG Green Tax Index uses green taxes and incentives to an extent worthy of investigation by corporate tax and sustainability professionals. Countries in which the government does not use green taxes or incentives at all, or does so only minimally, have not been included in the sample of countries selected for review in the Index.

Scoring has required some discretion and judgment to be used and so scores should be taken as indicative, not absolute, in providing a view of those governments with the most active and developed green tax and incentive systems in place. Full details of the scoring methodology can be found at www.kpmg.com/greentax.

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

 

NEW YORK /PRNewswire/ – The United States ranked first among 21 countries most actively using the tax code to influence sustainable corporate activity, according to the inaugural edition of the KPMG Green Tax Index, reflecting the country’s extensive and long-established program of federal tax incentives for energy generally, including specific incentives for energy efficiency, renewable energy and green buildings.

Japan, the United Kingdom, France, South Korea and China were also among the leading countries using tax as a tool to drive sustainable corporate behavior, according to the index. Key policy areas explored in the index include energy efficiency, water efficiency, carbon emissions, green innovations and green buildings.

“The KPMG Green Tax Index provides important directional insight for corporate sustainability decision makers, CFOs and board members into how countries are using taxes to influence corporate behavior,” said John Gimigliano , principal-in-charge of sustainability tax in the Washington National Tax practice of KPMG LLP. “Japan, for example, tops the rankings in its promotion of tax incentives for green vehicle production, while the United States favors a comprehensive system of renewable energy tax incentives. As a result, we’re seeing more green cars coming out of Japan and dramatic growth in the U.S. renewable sector.”

“These activity-based rankings can be of value to corporate sustainability decision-makers as they allocate budgets and evaluate investments around the world,” said John Hickox , advisory partner and U.S. practice leader for Climate Change & Sustainability Services at KPMG LLP.

The KPMG index identified over 200 individual tax incentives and penalties of relevance to corporate sustainability. At least 30 of these have been introduced since January 2011, reflecting the quickening pace of green investment globally.

The KPMG Green Tax Index – Overall Country Rankings

U.S.

1

Netherlands

8

Finland

15=

Japan

2

Belgium

9

Germany

U.K.

3

India

10

Australia

17

France

4

Spain

11=

Brazil

18

South Korea

5

Canada

Argentina

19

China

6

South Africa

13

Mexico

20

Ireland

7

Singapore

14

Russia

21

*Scoring: The KPMG Green Tax Index attributes scores to green tax incentives and penalties according to arguable value and potential to influence corporate behavior. Scores should be taken as indicative, not absolute, in providing a view of governments with the most active and developed green tax systems in place.

U.S. Ranking
The United States tops the KPMG Green Tax Index ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy and green buildings.

According to the KPMG Green Tax Index, the U.S. tax code provides a range of tax credits, including a production tax credit on renewable energy and tax incentives construction of efficient buildings.

The United States uses green penalties less than other Western developed nations apart from Canada. When green tax penalties alone are considered, the United States drops to 14th.

“The KPMG Green Tax Index demonstrates how important it is for corporations to make sure their head of sustainability and their head of tax are talking,” said KPMG’s Gimigliano. “At many companies these functions may have never met. One critical lesson from the Green Tax Index is that for companies to enhance the return from its green spend, the tax and sustainability functions should collaborate before the investment decision is made.”

“Green investment continues to gain momentum globally and the KPMG Green Tax Index provides a greater understanding of the entire financial picture of green investments, pre- and post-tax,” added KPMG’s Hickox.

Ranking of Additional Global Economies

Japan is ranked 2nd overall but, in contrast to the United States, scores higher on green tax penalties than it does on incentives. Japan also leads the ranking for tax measures to promote the use and manufacture of green vehicles.
The United Kingdom ranks 3rd and has a green tax approach balanced between penalties and incentives. The United Kingdom scores most highly in the area of carbon and climate change.
France occupies 4th place in the overall ranking with a green tax policy more heavily weighted toward penalties than incentives.
South Korea ranks 5th, and like the United States, has a green tax system weighted toward incentives rather than penalties. South Korea leads the ranking for “green innovation” which suggests that South Korea is especially active in using its tax code to encourage green research and development.
China ranks 6th with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials) and green buildings.

“The very investments that can drive change and secure competitive advantage may never be made if green tax systems are not fully understood and used,” said KPMG’s Gimigliano. “Investments that struggle to make a case on a pre-tax basis can flourish after green tax analysis. Companies should not underestimate the potential of green tax incentives to deliver efficiency and productivity benefits, drive innovation and contribute to the bottom line.”

SOURCE KPMG LLP

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