Dear Readers
Introducing the IBSA
As you may have recently read, I am delighted to announce the organisation known as ITSAPT is re-launching as the International Business Structuring Association (IBSA)
ITSAPT was originally an extension of my red book, International Tax Systems and Planning Techniques, aimed at providing a vehicle for international business advisors to access and exchange knowledge, develop professional relationships and discover new business opportunities.
The field of international business structuring is so varied that a network of single-discipline professionals cannot provide the breadth and depth of skills required to help entrepreneurial business develop internationally. I want to remove the silos between professions and enable professionals to connect more easily and provide a true body where all professionals involved in this fast evolving field can join together. We already have over 150 members in 36 jurisdictions around the world and the time has come to take this to the next level.
Those of you familiar with the red book will know that my Polycon Lens Company case study illustrates the multi-discipline approach to business advisory work that is now required. This goes through twelve stages of its growth from a small manufacturing company into a multi-national organisation.
I will be holding a seminar at the Frobisher Rooms, the Barbican Centre, Silk Street, London EC2Y 8DS on Tuesday, 4th March at 6pm explaining the problems and opportunities that Polycon experienced as it grew to the global conglomerate. This mirrors, albeit in a very abbreviated format, the MA Course on International Tax Law that I teach at the University of London, and reflects the variety of disciplines that are needed to help Polycon’s growth requirements, as explained below. Please (click here) to register your interest in attending this seminar and we will contact you with further details.
For those of you who don’t know about Polycon, the first stage of Polycon’s growth internationally is to set up a manufacturing company in the fictitious Central European Republic (CER). Mr Holmes, Polycon’s founder and owner, will need advice on the type of entity that he should establish and will need to know the relevant lawyer and corporate service provider who can assist him. There may be shareholder ownership limitations, which may be avoided through the establishment of the entity in free zones within the CER. He will need to be introduced to an accountant that can comply with the global accounting and tax issues (including VAT registration), and will need to be introduced to a local banker who may be requested to finance the developing operation.
As the company grows and establishes foreign representative offices and sales subsidiaries in stages 2 to 5, these will need the professional assistance of various disciplines in all relevant countries. Mr Holmes will need the guidance of an international tax advisor to deal with how various taxes interact with each other across borders, taking into account relevant double tax treaty provisions, and particularly ensuring that anti-avoidance legislation does not impose obligations on Mr Holmes nor negate anticipated beneficial tax incentives.
In stage 6 of the case study, Polycon Lens Company acquires the Vizitech Group of companies and to do this Mr Holmes has had discussions with private equity fund managersas well as various investment bankers in order to assist in financing the acquisition costs. He has already used the services of his IP consultantswho have to date registered the various patents developed by the Polycon Group as well as the various trademarks employed in the business, but who are now vital in reviewing the intellectual property of the Vizitech Group. The IP consultant will need to determine what IP is relevant, who should own it and in the event of transferring the IP to other entities, valuing such IP for disposal purposes.
Stage 7 of the case study is the flotation of Polycon Lens company, with Mr Holmes needing to speak to the commercial lawyers in the relevant flotation country who would introduce him to various professionals involved in the public offering including NOMADS, corporate finance professionals at boutique practices or within international banks, and perhaps more recognised accountants that will be able to sign off on the relevant prospectus. Mr Holmes will also need the services of non-executive directors in order to fulfil the corporate governance requirements of a listed company, and, will certainly need to understand all the regulatory requirements of a listed company.
Stages 8-12 of the case study revolve around the creation of an internal finance company, re-branding Polycon lens company as the Eyemax group, developing an e-commerce sales organisation, investing in real estate and finally the creation of the Eyemax private equity fund itself. Various different professional advisorswill assist Mr Holmes at each stage, and as can be seen from the above brief review, I have highlighted in bold italics the variety of professional assistance that is involved in international business structuring for the Polycon Lens Group.
I therefore feel that the International Business Structuring Association is more inclusive of modern international business advisory elements and the newly launched website with full details of how to join can be found at (click here)
In addition to a change of name, I am very excited to share our plans to transform the structure of the organisation to facilitate this vision through a diverse range of activities and opportunities. To that end, we have appointed a Global Advisory Board to help guide the organisation as it grows and we are rolling out IBSA local Branches around the world throughout this year, starting on my home turf with the London Branch.
In addition to local Branches and the appointment of the Global Advisory Board, a number of new member benefits will also be rolled out throughout the year including individual or corporate listing in the IBSA online Member Directory, opportunities to publish and share articles through the IBSA online & newsletters, automatic local Branch affiliation where applicable and attendance at the 2 day IBSA Annual Conference.
Annual subscription membership is available for individual and corporate practices on a qualified basis. Membership will be awarded to those individuals and firms committed to enhancing and developing the practices associated with business structuring in a manner compliant with international transparency, corporate governance and social responsibility by meeting the IBSA criteria. For more information on how to join the IBSA (click here)
I do hope you will join me on this exciting new venture and as always, I value any comments that you may have (click here)
Finally, I am very pleased to be able to include as this month’s article the views of Kevin Gardiner, Chief Investment Officer at Barclays Bank, on the coming year’s economic prospects, particularly in the developing countries and particularly Africa. Kevin gave a very insightful presentation at the recent ITSAPT conference at the Mandarin Oriental hotel in November, and we at IFS, along with our clients, value his opinions and guidance.
With my best regards,
Roy Saunders
Dear Readers
The Glass is Still Half-Full
The calendar may have changed, but the advice we’re offering to our clients in the New Year hasn’t. There are many risks facing the global capital markets, but on balance we continue to see the investment glass as decidedly half-full rather than half-empty. We’re pleased to be able to say that our advice in this respect is intact not just since 2013, but since 2009.
For sure, neither the euro crisis nor US debt worries are going to disappear any time soon. But the ECB will continue to offer support should any peripheral economy need it, and the slow but visible integration of euro area bank supervision and regulation shows that the single currency’s financial and economic architecture is being built out a little more fully at last. Meanwhile, US consumers are in qualitatively better financial health than feared, and the US government’s deficit is disappearing quickly.
Overall, we think the global economy will continue to muddle through, and that markets are still not pricing this in completely. If anything, a risk we can see in 2014 is not that there will be too little growth, but perhaps too much of it (chance would be a fine thing, I hear you say). This could leave central banks not wondering what they can do to support their economies, but instead asking how quickly they should begin to disengage from them by allowing monetary conditions to start to normalise. The question may become most pressing for the Bank of England: UK unemployment is falling far more quickly than it has been forecasting.
To best capitalise on this outlook, investors with a moderate risk appetite should continue to allot the bulk of investment portfolios to securities that can benefit from ongoing growth, rather than to safe haven assets such as cash, government bonds or investment grade corporate credit. And for the time being, developed markets, rather than the emerging world, probably still have the tactical edge – essentially because it is the US and Continental Europe in particular where markets’ collective expectations fell furthest in the crisis, and so are still easiest to beat.
For investors keen to move beyond portfolio investing to a more hands-on engagement with growing businesses, and willing to look beyond conventional tactical and strategic time horizons, direct investment may be an attractive option. Here, opportunities in the emerging world will be plentiful. Emerging securities markets have underperformed of late, and may continue to do so for a while as the Federal Reserve reduces its purchases of bonds (‘Quantitative Easing’, or QE), and the injection of liquidity to global markets stops. However, few economists question the emerging world’s continuing, robust long-term growth. And few regions offer as much structural growth potential as Africa.
Of course, taking a direct, controlling stake in an existing business, or helping to create a new one, is riskier than portfolio investment. There is less liquidity – there are no “exchanges” – and concentration is greater. And Africa is riskier than most regions. Most of its securities markets are so underdeveloped that they do not even qualify as “emerging”, but are instead termed “frontier” markets. Moreover, widespread corruption and continuing political instability can make it a difficult continent in which to run a business. In my long experience as an analyst, booms in Africa have been few and far between, and have rarely ended happily.
No self-respecting pundit ever wants to say of a particular investment opportunity that “it is different this time”. Someone once labelled this the most dangerous phrase in finance, for good reason: you often hear it uttered precisely at the top of a boom, to justify why high valuations might not matter so much, just before prices fall back to earth. However, our collective reluctance to face up to uncertainty leads us often to construct investment narratives, generalisations and caricatures that are misleading, and which serve to mask a deeper reality: namely, the world is much less ordered than we’d like, there is no underlying deterministic “model”, and things are in fact subtly different every time. And this is as likely true of investment cycles in Africa as everywhere else.
Indeed, having said that we tend to generalise too often, I’m doing it myself here simply by talking about “Africa” as if it were a monolithic, homogeneous continent when of course there is huge variation in climate, population and natural resource endowments, and in political, legal and corporate infrastructures.
There is no substitute for detailed, locally-informed expertise when it comes to selecting individual opportunities. But simply in seeking out those opportunities, you may be yourself illustrating one of the unusual things about the current situation, which is that inflows of foreign direct investment (FDI) to Africa have already been large, and sustained over a number of years, even as Africa’s securities markets have been mediocre performers. Long-term investors – businesses and individuals – do seem to be taking a positive view.
Those investors are not all from China. The image we have of China buying-up much of Africa as it seeks to secure its long-term access to resources is one of those investment caricatures. Greenfield projects financed by China have been substantial, but those from Europe, the US, the Middle East and Asia more widely have been collectively much larger. Similarly, the importance to Africa of commodities and energy sectors can be overstated: if structural growth continues, manufacturing and eventually service sectors will grow faster.
Africa’s structural attractions are boosted by one of the fastest regional growth trends in the world – particularly in some of the sub-Saharan countries, where Nigeria for example has been growing at between 6%-7% recently. There are no guarantees where the economic outlook is concerned of course, but amidst the post-crisis obsession with financial balance sheets and monetary conditions it has been easy to overlook the underlying drivers of that growth. With its collective population set to more or less double in the next thirty years, and with information, capital and technology flowing across the world more easily than ever before, you need a convincing reason to believe that Africa’s living standards will not continue to catch-up with those elsewhere. Investing in Africa requires strong nerves and a long-term perspective, but the scale of the potential development ahead is exciting.
Kevin Gardiner
Chief Investment Officer, Barclays Bank plc
Roy Saunders, Chairman, (IFS) and (IBSA.) IBSA is the network for international business advisors and their clients, bringing together specialist advisors to enable businesses to optimise the structure of their international operation by enhancing resilience in tax planning, mitigating regulatory and market risk and enabling sustainable multi-jurisdiction growth.
Roy Saunders created International Fiscal Services in 1971 which is a niche international tax boutique at 44 Southampton Buildings, London, WC2A 1AP. Website: (click here) Email: (click here)