Governments of the world’s leading economies have been discussing a global corporation tax rate in a bid to deter multinational companies from moving their operations to the ‘lowest bidder’ jurisdiction so they can pay less tax.

After months of reported informal talks during 2009, the issue was said to have been discussed privately at the G20 when it met in Pittsburgh, US, late 2009.

Jurisdictions, such as the UK, that have been resolutely against the idea in the past, are now prepared to talk about it, according to economic commentators. 

It’s because the UK, for example, collected £42.8 billion (USD 71 billion) in corporation tax in 2008-09, a fall from £46.4 billion (USD 77 billion) the previous tax year – and the government believes that it has been drained of corporation tax in part by the accounting and banking policies of some offshore firms.

However, if G20 leaders did talk in earnest about it, no formal consensus evolved – probably because the UK corporation tax rate of 28% ranks eighth in the Organisation of Economic Development listing of 30 countries (known as the ‘club of rich nations’).

So unless others increase their rates, the UK rate would have to fall, and every 1% off would mean a drop of £600 million in collected tax in the first year, and £1 billion in the second year. And any attempt to cut the rate would be expensive at a time when UK government debt is ballooning. 

Discussions on harmonising corporation tax have been complemented by talks on measures to bring the ‘lowest bidder’, smaller nations to heel – intended to stop them cutting their tax rates in order to poach ‘big players’. 

Penalties mooted include scrapping tax treaties, applying sanctions and charging extra taxes to companies who seek to avoid paying their country’s full rate of corporation tax.

The moves follow the departure of several major corporations who have shifted their operations base from the UK to places with cheaper, more stable tax rates: what’s been dubbed by detractors as a ‘race to the bottom’. But, to date, corporation tax harmony is no closer.

The G20 would have had enormous clout on the issue because it accounts for 90% of world economic output. However, in the past, even attempts to harmonise the basis on which European Union members calculate corporation tax, let alone harmonise the actual rate, have floundered. 

So it was little surprise that no announcement on the subject followed the G20 in late 2009.

But it’s an issue that will not go away. A poll by the Association of British Insurers shows that more than 60% of its members – top executives in the UK’s insurance firms – would consider leaving the country to get a better corporation tax rate.

‘Guinea’s military leaders agree a huge mining and oil deal with China’, reads a recent website headline.

It didn’t get much coverage: certainly not in the international consumer press. After all, media proprietors may have concluded, not so many readers will be interested in what’s happening in Guinea – or even know where it is. Give them news about a big US or European international deal affecting jobs and that’s much more likely to sell newspapers.

But the disclosure that a Chinese company will invest more than USD 7 billion into Guinean infrastructure and, in return, become a ‘strategic partner’ in all mining projects in the mineral-rich West African nation (Guinea is thought to have the world’s largest reserves of the aluminium ore, bauxite) is just another example of how the formerly-titled ‘emerging markets’ such as China are establishing trade ties in potentially lucrative environments such as Guinea – and how ‘emerging’ nations are doing business between each other, without dependence on any Western influences.

Western analysts may decry the Guinean deal while the legitimacy of Guinea’s government remains in question (a little-known Army captain seized power in December 2008). But, as Guinea’s mines minister Mahmoud Thiam says: “We’re putting down foundations.” It’s reported that the ‘foundations’ involve building ports, railway lines, power plants, low-cost housing and a new government centre in the capital, Conakry.

The same Chinese investor – officially undisclosed but reported to be the Hong Kong-registered China International Fund Limited, established in 2003 – has also ‘laid foundations’ in Angola. Its mission statement includes: “To sincerely share experiences and achievements of China’s economic reforms with developing countries.”

 It’s far from the only Chinese investor growing trade ties in Africa. China is now Africa’s second biggest trading partner, behind the US. Almost all of China’s imports, worth USD 56 billion in 2008, come from the oil-rich nations of Angola, Equatorial Guinea, Nigeria, the Republic of Congo and Sudan (according to the US’ Council on Foreign Relations).

And at a high-profile, China-Africa summit in Egypt in November, Chinese premier Wen Jiabao promised USD 10 billion in loans to the African continent for infrastructure and social programmes: double those pledged at a similar summit in 2006. 

He also announced that China’s direct investment in Africa, excluding the financial sector, rose by 79% to USD 920 million in the first half of 2009. 

Now let’s consider Venezuela, with its love-hate relationship with the US, leader of the Western nations. (Venezuela depends on the US as a trading partner, but President Hugo Chávez has frequently demonstrated his lack of trust in the US administration). 
Recently, Venezuela announced a USD 16 billion investment deal with China for oil exploration over three years in the Orinoco river, one of the longest rivers in South America (76% is in Venezuela, the rest in Colombia).

The move comes shortly after Venezuela signed a similar agreement with Russia, estimated to be worth USD 20 billion. President Chávez – who says the deals will boost oil production in Venezuela by about 900,000 barrels a day – often talks about a ‘muti-polar world’ in which Latin American countries are less dependent on Washington.

Again, Western analysts have been dubious – pointing out that the US is still the mainstay of the Venezuelan energy industry. 
But are Western nations at risk of complacency as they downplay economic influences beyond their reach, especially while the West struggles to shake off the shackles of what its politicians continue to call the ‘global’ economic downturn? 
Still ‘global’ – really? While the US pokes its head just above the recession parapet, and the UK stutters in and out of recession towards recovery, the economies of China and India have been growing in 2009 by rather more than was previously thought, according to the Asian Development Bank (ADB).

Government spending in developing Asian economies has enhanced the region’s growth prospects, it says (they renewed confidence quickly by pumping money directly into jobs, rather than into banks as in the West).

The ADB now expects China to grow by 8.2% in 2009, up from an earlier forecast of 7%. India’s forecast has been raised from 5% to 6%. The ADB has also raised its growth forecasts for Asian economies as a whole to 3.9% in 2009, from its previous forecast of 3.4%; and its 2010 forecast to 6.4% from its previous estimate of 6% – figures Western governments can only dream about. 
Meanwhile, among the so-called ‘advanced industrialised economies’, the UK has been printing money and issuing sovereign debt like there’s no tomorrow, leaving it with at least a year or two of public service cutbacks and low GDP growth. The US has a budget deficit equal to an eye-watering 14% of GDP, a level unmatched since the Second World War. Even the mighty German economy has endured a GDP contraction of 13%.

Western economists, who have argued that so-called ‘emerging markets’ will be sucked into the ‘global’ downturn, are themselves now emerging red-faced. Latest projections from the International Monetary Fund (IMF) are that emerging markets, as a whole, will grow by about 5% in 2010, while the developed economies, as a whole, could still be contracting into 2010 after a 4% shrink in 2009.

The reality, says the IMF, is that emerging ‘giants’ have massive domestic markets and are now doing a bigger share of their growth business with each other, rather than with the West. The recent expansion of intra-Asian trade is another ‘unsung story’ of the credit crunch.

Facts back up the assertion: at the time of writing, Brazil’s biggest trading partner is China, rather than the US; every one of the world’s top 10 performing stock indices is based in an emerging market economy; the Chinese stock market has grown by 88% in 2009; and Indian stocks have gained almost 70% during 2009.

But, argue Western analysts, such asset values have risen too fast and are liable to tumble…

Maybe that’s so, but analysts have trouble denying that these nations’ economies are in far better financial state than the Western economies they once admired. Bank bailouts and recession-fighting measures mean the average sovereign debt burden of the G7 nations will explode to 114% by 2014, according to the IMF – more than triple the projected sovereign debt ratio in the main ‘emerging markets’.

So could it be that the shift of economic power to the East, forecast for some while, is now upon us? And the West is poorly placed to respond? As reported in one of the leading Western daily newspapers towards the end of 2009: “There’s a swagger on the streets of Shanghai.”

Global accountancy network UHY extends its coverage within Scandinavia by appointing RevisorGruppen, a national group of 12 firms based in 17 locations in Norway.

RevisorGruppen was established in Norway, in 1990, by independent middle-sized auditing firms, with a shared aim to co-operate mainly through a common professional learning and education programme. With 38 partners and around 110 staff, RevisorGruppen provides a wide range of auditing, accounting, tax and business advisory services to clients ranging from small to medium-sized companies. The firm has a wealth of experience in a variety of sectors such as the motor industry, consultancy, education, construction, legal, not-for-profit, real estate, restaurant, retail and distribution, and shipping.

Chairman of the RevisorGruppen Board, partner Atle Flø from RevisorGruppen Møre AS, says: “We joined the UHY network for a number of reasons. Our main priority is to improve and expand the services we offer to our existing clients in Norway, followed closely by attracting new international business from Europe and beyond. Our membership of UHY also ensures that our clients will continue to receive the same high standards of service across the network both in Norway and across global borders.”

RevisorGruppen have offices in most of the principal locations in Norway, with ambitions to expand their national presence and capitalise on their international reach. Only very recently, a new member firm, based in Sarpsborg, also joined the group. In the north, member firms are situated in Trondheim, Stjørdal and Selbu; in the west in Åndalsnes, Ulsteinvik, Larsnes, Ålesund, Førde, Bergen, Voss, Sunnhordland; in the south Kristiansand, Skien, Drammen, Akershus; and two members in Oslo.

John Wolfgang, Chairman of UHY commented: “I am delighted to welcome RevisorGruppen to the UHY network. UHY prides itself on the quality and high standards of our members to serve our clients and RevisorGruppen deliver this and more. The group’s admittance to the UHY network adds a great deal of local market and sector expertise and we strongly believe the Group will provide the depth and breadth of knowledge and experience required to strengthen UHY’s presence in Norway.”

All members of RevisorGruppen are members of the Norwegian Institute of Public Accountants. Partner Jan Willem van Woensel Kooy, RevisorGruppen Mæland & Østbye AS, is a member of the board of directors of the Norwegian Institute of Public Accountants, the professional body for registered public accountants and state authorised public accountants in Norway.

Germany’s established presence in life sciences began with the founding of its market leader, Qiagen, more than 20 years ago.

Qiagen, a multinational with more than 30 subsidiaries in over 18 countries, is Europe’s largest listed biotechnology company. It has a portfolio of more than 500 products and more than 1,000 patents – and it was the first German company to go public on NASDAQ, the US stock exchange, 12 years ago.

Now, 15 German biotechnology companies are listed in regulated markets, and more in open markets, and the industry in Germany has more than 500 companies employing nearly 15,000 people, with a turnover of 2.19 billion euros (USD 2.99 billion) (2008 figures). A further 15,000 people are employed in academic and public sector biotechnology departments.

Most German life science companies are small to middle market-sized (SMEs). The average number of employees is 30; more than 40% of companies have fewer than 10 employees; and only 5% of companies have more than 100 employees. 

More than half of all employees in the sector have a university degree and the sector is also highly research-driven: 88% of companies conduct their own research and development, and more than half of all revenues goes into research and development.

Such has been the growth in the industry that in 2008 alone, 202 million euros (USD 276 million) was invested into it by venture capitalists.

Over those same years, UHY’s group of German firms, UHY Deutschland AG, has gained considerable life science expertise as it extends its reach significantly into the industry.

“Then the global credit crunch took hold” says Reinhold Lauer, of UHY Deutschland AG. “It has been a particular problem for ‘seed’ companies such as in the biotechnology sector. Venture capitalist investment dried up.”

Consequently, another source of finance has become important: it has resulted from alliances between biotechnology ‘minnows’ and ‘giants’ of the pharmaceutical industry, such as Glaxo and Pfizer.

Government grants for SMEs have also been a major financing source – they can amount to 50% of fundable costs. Conditions apply: a certain number of people have to be employed over a specified period, variable from state to state.

And the Government has continued to actively promote the industry – since 1996 it has staged the Bio Regio competition that grants subsidies to ‘clusters’ of biotechnology companies that can be found regionally around major cities (see map below). The launch of the Bio Regio competition spawned an upsurge in new biotechnology companies.

The UHY Deutschland AG group head office is at the heart of one of the principal ‘clusters’, in Berlin; it has branch offices in Bremen, Hamburg, Cologne and Munich – and is actively engaged in extending into other major German business centres.

About 40 established biotech companies are clustered in the same area as the UHY group’s principal office, in Berlin and Brandenburg. Ten of them are UHY Deutschland AG clients. “In Berlin, in biotechnology, it is either a Big Four firm or UHY Deutschland,“ says Lauer, highlighting UHY Deutschland AG’s long-standing expertise.

That expertise sets the group apart at business pitches in this sector, but now, in particular, its services are even more in demand because biotechnology companies are facing special tax problems:

1. Tax losses carried forward are not deductible partly or in total when more than 25% of all shareholders have changed

2. The transfer of shareholder loans into equity might under certain circumstances be treated as taxable income.

Indonesia, a vast, ‘pearlstring’ polyglot nation, has been an enigma for investors over the years

There’s no question – Indonesia has made significant economic advances under the leadership of President Susilo Bambang Yudhoyono, the country’s first directly elected president in newly democratic elections, since he took control in 2004. 

Stability also seems assured as his Democratic Party emerged from the April 2009 parliamentary elections as the largest party, with nearly 21% of the vote – and analysts see this result as an indication of voting trends in the 8 July presidential poll.

But the government of the world’s third-largest democracy and home to the world’s largest Muslim population faces huge challenges stemming from the global financial crisis and world economic downturn.

So, is it a good time to invest in the country – or should investors give it a wide berth, at least in the short-term?

Indonesia’s debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship. The government has introduced significant reforms in the financial sector, including in tax and customs, the use of Treasury bills, and capital market supervision. Indonesia’s investment law, passed in March 2007, has addressed many of the drawbacks facing foreign and domestic investors.
 
Yet the country still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. The non-bank financial sector, including pension funds and insurance, remains weak, and despite efforts to broaden and deepen capital markets, they remain underdeveloped.

Economic issues in early 2008 centered on high global food and oil prices and their impact on Indonesia’s poor and on the budget. The onset of the global financial crisis dampened inflationary pressures, but increased risk aversion for emerging market assets resulted in large losses in the stock market, significant depreciation of the rupiah, and a difficult environment for bond issuance. 

As global demand has slowed and prices for Indonesia’s commodity exports have fallen, Indonesia faces the prospect of growth significantly below the 6% or more recorded in 2007 and 2008. 

Foreign investment inflow

However, the global financial crisis has yet to stem flows of investment into Indonesia: foreign direct investment (FDI) in January 2009 jumped by 61% from a year earlier. It reached USD 710 million, far more than the USD 440 million recorded in the same period in 2007, according to data from the Indonesian Investment Coordinating Board (BKPM).

“In the face of the global economic crisis, BKPM will continue to attract FDIs by continuing to reduce bureaucratic constraints, while modernising and simplifying investment processes,��? said BKPM chairman Muhammad Lutfi when these figures were announced.

On the domestic front, statistics are equally buoyant. Actual domestic investment rose by 33.3%, to Rp 0.76 trillion from a year earlier at Rp 0.57 trillion.

In total, realised investment increased by 57.8% to Rp 7.15 trillion, up from Rp 4.53 trillion in the same period last year.

However, says Lutfi: “In the long run, domestic investment growth may outgrow FDI. Last year FDI growth was around 40%, but this year it may drop to around 20%, while domestic growth will be higher than FDI in the full-year.��?

Yet, in January, the rubber and plastics industry recorded the highest domestic investment value of Rp 300 billion. The construction sector recorded the highest FDI value of USD 384.6 million, followed by the trading sector at USD 74.4 million.

So is impending FDI gloom a reality; or if or when it happens, will it last long, especially as global surveys (reported in the last UHY International Business) indicate that the Asia-Pacific region will recover from economic woes much faster than elsewhere in the world?

Says Lutfi: “There are no countries in this world that can withstand the global economic crisis, but I believe our national economy is dealing with the crisis better than most.��?

Currently, however, BKPM is focusing on investments in three sectors — agriculture, infrastructure and energy — to address the issue of a potential slowdown in investments during 2009.

Overall, BKPM projects that investment, both domestic and foreign, will grow by 10.7% to 11.2% this year, although this growth still represents a decline on the 20.5% growth recorded in 2008.

With exports already hit by the global economic slowdown reducing demand, Indonesia would still need a boost in domestic consumption and investment to achieve a 4.5% GDP growth, as targeted by the government under revisions to the 2009 state budget.

Macroeconomic outlook

After July’s presidential elections, a high-level conference is destined to bring together regional and country heads to discuss the outlook for Indonesia, and the challenges and opportunities of doing business in South-East Asia’s most populous market.

Indonesia’s main exposure to the current crisis lies in its exposure to changes in capital flows, much like it did in the Asian financial crisis of 1997-98. 

International reserves once again look small, covering around 150% of the country’s short-term debt, well below the Association of Southeast Asian Nations (ASEAN) median of almost 600%, and putting it on a par with countries in the ailing Eastern Europe region.

However, unlike 10 years ago, and unlike most countries in Eastern Europe, Indonesia is set to run a current account surplus in 2009, just as it has done every year since 1998. This current account surplus will be an important source of capital inflows, and it means that despite its piles of short-term debt, Indonesia should have more than enough reserves to cover its expected external financing requirements in 2009.

The government’s finances also look strong. Public debt fell to just 30% of GDP in 2008, from a peak of 100% in 1999. Furthermore, the fuel price subsidy bill has been slashed by a big fall in global oil prices. This has freed up funds for more productive spending in areas such as infrastructure and education.

Furthermore, in 2009 the government is also set to deliver a large fiscal stimulus, which will see the budget deficit rise to 2.5% of GDP, from 1.1% in 2008. The main goal of this stimulus is to support economic growth in the short term. And Indonesia’s corporate income tax rate is reducing – from 35% last year to 28% in 2009 and down to 25% (the highest rate) in 2010.

One less favourable contrast between now and the Asian financial crisis, however, is that, as the developed world suffers deep recession, Indonesian export demand is extremely weak.

In the region, Japan saw its exports fall by 50% year on year in December 2008; Singapore experienced a 35% fall; Taiwan a 42% drop. And Indonesia has not escaped – its own exports fell by 36% in January 2009.

Japan, its largest trade partner, is expected to experience an economic contraction of 5.5% in 2009, suggesting the export picture will remain bleak. Importantly though, Indonesia is one of the least trade-exposed countries in Asia – just 33% of its GDP was accounted for by exports in 2008.

This advantage will not be enough to help it avoid economic recession in 2009, but its economic contraction is likely to be smaller than that experienced by many of its neighbours.

Where that leaves investors is, as always, a matter of judgement – no investment in an emerging economy is without risks. The question is: does profit potential from a hugely populous nation outweigh risk? Current investment levels suggest it does.

An analysis model heralds a new approach to performance and risk assessment.

One of UHY’s member firms, Govers Accountants/Consultants, was founded more than 80 years ago in The Netherlands in the very heart of what is nowadays called the Brainport region, a hotspot within south-east Netherlands’ top technology zone. 

There, sophisticated supply chains keep products moving in high tech, health, automotive and food industries. The companies that operate these supply chains are well represented in the Govers client portfolio.

“The leading thread that has always run through the history of our firm is the recurring question about the story behind the success of companies: what is it that makes the difference between poor, good and great performance?” asks partner Paul Mencke.

“What do the annual accounts of companies tell about the reasons behind companies’ performance? Are there any universal patterns hidden in the financial data, and what lessons are there to be learned?”

Faced with these questions, 30 years ago he and fellow partners developed their own unique approach, known as the financial analysis HARR® model. 

This model rearranges the profit & loss accounts of companies – and often produces surprising perspectives. Managing partner Peter Dubbers says the firm’s model “enables us to make the analysis very quickly, while supporting the outcome of the analysis with a wide variety of business knowledge”.

To appreciate the model, it’s important to explain its conceptual aspects. “We make a distinction between the transaction activities of the company on the one hand, and the supporting activities on the other hand,” says Mencke.

Figure 1 shows the conceptual distinction within companies between the transaction area (where the primary activities take place) and the organisation area (supporting activities). The logistic movements within the company are shown in yellow arrows. The orange-coloured arrows show the opposite flow of money.

The model shows the divide between primary and support activities of companies; stresses the value-added margin as a key element in business; and shows the connectivity of companies with their suppliers and their clients.

The transaction area is the place to discuss topics like the strategic position of the company in the supply chain, stock control, cycle time reduction, cash conversion, and reduction of waste.

The organisation area of the company is the place to focus on productivity, a lean approach, production automation, robotising and 24/7 concepts with unmanned hours. 

While the ratios within the transaction area differ per industry and per company, Mencke found through empirical research that the ratios within the organisation area follow more universal rules. Labour costs have a natural maximum of 60% of the value added, and both the cost of capital expenditure ‘Capex’ and ‘Other’ costs have a natural maximum of 20% of the value added. 

As an example of the model, Mencke compares the 2007 figures of two European airlines. Air France-KLM as an established party; Ryanair as the challenger.

Rearranged in the HARR® model format, the analysis shows the higher productivity of Ryanair:

1. 9,679 passengers per employee per year at Ryanair, versus only 715 at Air France-KLM

2. The less overhead (‘point-to-point routes’, instead of ‘from anywhere to everywhere’), identical cost of capital expenditures and eventually a huge gap in profits.

Dubbers points out that the cost of capital expenditures includes both on- and off-balance investments.

“Our approach rightfully ignores the question whether tangible fixed assets are bought or rented”, he says.

The model helps UHY’s Dutch member firm deliver value for its clients. “By looking at our clients through our clients’ eyes, we identify risks that we wouldn’t discover through a standard audit approach”, says Mencke.

“With the high level of wages in our country, Dutch companies can’t compete on labour costs anymore. It is very important to develop business formats with high labour productivity.“

“By using our HARR® analysis model, we are able to visualise the financial results of the introduction of production automation, robotising, 24/7 concepts. HARR® can be used to review the separate results of specific years. 

“But the approach is even more powerful when used on the results of a longer period to identify trends, or when used to compare companies as part of merger and acquisition processes.”

HARR® is an acronym for the Dutch words ‘Huur’ (Rent), ‘Afschrijving’ (Depreciation/Amortization), ‘Rente’(Interest) and ‘Resultaat’ (Profit).

The African continent’s zone will have estimated GDP of USD 624 billion and cover more than 527 million people 

Three African trading blocs have created a free trade zone of 26 countries – stretching from Egypt to South Africa – with a GDP estimated at USD 624bn.

It is hoped the deal will ease access to markets within the continent for global investors and end trading problems arising from the countries’ membership of multiple trading groups.

The deal also aims to strengthen the continent’s bargaining power when negotiating international deals.

Analysts say the agreement, signed in October 2008, will help intra-regional trade and boost growth. The agreement is also expected to stimulate joint infrastructure and energy projects in the zone. 

The three blocs that struck the deal were the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa). Six heads of state from the 26 countries attended a meeting in the Ugandan capital, Kampala, to sign the agreement. They plan to set a timeframe for integration within a year.

“The greatest enemy of Africa, the greatest source of weakness, has been disunity and a low level of political and economic integration,��? says Ugandan President Yoweri Museveni. “Bigger markets are a strategic instrument of liberating people from poverty.��?

Many of the leaders and representatives consider the new pact a way of giving Africa a greater voice on the world stage. President Museveni says that it is a step in the right direction for a continent that suffers unfairly within global trade.

South African President Kgalema Motlanthe says: “By coming together, the member states will have a strong voice in advancing our interests on the international scene.

“While Africa and other developing countries have marginal influence over the decisions that have brought the international finance systems to the brink of collapse, unjustifiably, African countries will bear the brunt.

“Developing countries must be included in the governance of all international financing institutions to mitigate adverse effects on them.��? 

Director-general of South Africa’s department of foreign affairs, Ayanda Ntsaluba, says: “When we have a pan-regional free trade area we will have a legitimate base to negotiate as a bloc. Then some of the internal contradictions that arise as we negotiate as separate regions begin to be taken away.��? 

Debbie Goldthorpe, chief operating officer at Africa Matters, which helps companies conduct business in Africa, believes the free trade zone will open up more opportunities for investors in the continent. Although “some way down the track��?, the bloc will enhance investors’ experience of trading conditions, such as in cross-border delays and different import and export duties.

The three blocs merging together are already well-established in their own right: they cover varying swathes of land and numbers of people.

The SADC covers a population of 248 million people and a zone where cumulative GDP is USD 379 billion (2006 latest figures).

The SADC’s members include South Africa, Tanzania, Zambia and Zimbabwe.

Comesa covers 398 million people. The area has a combined GDP of USD 286.7 billion (2006 latest figures). Among its members are Uganda and Sudan.

EAC is the smallest of the group in terms of GDP – USD 46.6 billion in 2006.

In all, the pan-Africa trade zone covers Angola, Botswana, Burundi, the Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, the Seychelles, Sudan, Swaziland, South Africa, Tanzania, Uganda, Zambia and Zimbabwe.

Declared targets of the new zone are to help streamline access to African markets; boost growth and intra-regional trade; establish joint infrastructure and energy projects; and establish a single customs union. It will encompass more than 527 million people. 

Globalisation of international supply chains, resulting in an immense increase in the volumes of cross-border flows of goods, also provide an opportunity for the zone to present savings in indirect taxes.

But of equally prominent interest to the zone is investment from China. Already, individual economic zone arrangements are operating between individual African states and China, such as the Chambishi Multifacility Economic Zone, Zambia. Based on its copper mine, it has obtained a promised USD 650 million investment from China over the next five years. Use of that zone is perceived to be an opportunity almost exclusively reserved for Chinese companies.

Several African governments, anxious to attract Chinese investment, are entering into similar arrangements. China is negotiating to open five ‘economic cooperation zones’ in various parts of Africa. All are likely to provide tax exemption and favourable rights of access to local minerals, in return for the creation of thousands of jobs.

Trade zone structures

Specialised areas offering tax incentives to foreign companies meeting certain conditions are common in developing markets.

At least 3,000 free trade zones – duty-free areas, providing warehousing, storage and logistics facilities, aimed at the trade, trans-shipment and re-exporting markets – are scattered around almost all parts of the globe.

The recognised market leader is the Jebel Ali Free Zone, Dubai, United Arab Emirates, which has grown from 19 companies in 1985 to more than 6,000 companies from over 110 countries. It is the flagship of the Dubai Government-owned Economic Zones World (EZW), which has been developed to harness Dubai’s expertise in this market and to export that expertise to sites across the globe.

EZW has recently developed agreements with Misurata Economic Zone in Libya and Djibouti Free Zone at the gateway to the Red Sea – moves intended to be the start of increased involvement across most of the emerging markets.

Other markets developing major free trade zones include Morocco, Turkey, Egypt and Jordan.

An extension of the traditional free trade zone is the export processing zone, which accommodates manufacturing and related facilities for the export market. Such zones are large and usually comprise several industrial estates. A variation is a hybrid that has a second area open to various businesses, alongside the export designated area.

Some zones are single factory export processing zones, where individual investors reach agreements with governments for an exclusive manufacturing arrangement, in return for tax and other concessions.

Special economic zones, sometimes called freeports, are widely used in China and are more ambitious in scope and larger than traditional free zones. Many accommodate any type of industrial or service sector and allow senior staff in investing businesses to reside on-site. Such zones may cover areas that include free trade zones and export processing zones within them.

Enterprise zones provide tax incentives and investment grants to businesses locating in deprived areas. They are mostly located in developed nations.

UHY’s African continent firms are in Angola, Egypt, Kenya, Morocco, Nigeria and South Africa.

Global accountancy network UHY publishes its latest edition of UHY International Business – Issue 20. This bi-annual publication features fresh insight, provided by our members, on the most current business challenges and key issues faced by companies and individuals around the world. Issue 20 covers the following topics:

• Who needs the West?

As Western economies stutter towards recovery, the relentless rise of China, India and Brazil marches on – buoyed by intra-trade that meets the needs of huge, under-supplied markets in each others’ jurisdictions, as well as with markets across vast tracts of Africa…

• Tax harmony no closer

Governments of the world’s leading economies have been discussing a global corporation tax rate in a bid to deter multinational companies from moving their operations to the ‘lowest bidder’ jurisdiction so they can pay less tax…

• The tide is changing

Determined efforts by the Mexican government to confront organised crime and corruption in business – with added weight from its own Sarbanes-Oxley-type legislation on corporate governance – are beginning to pay off…

• The taxman cometh offshore

Initiatives from the Organisation for Economic Co-operation and Development, the G20 and various national governments have been portrayed in the business press as an assault on low-tax jurisdictions. Taxpayers with offshore investments can’t afford to lie low much longer as governments tighten the regulatory noose on low-tax jurisdictions – or have we heard all this before …

UHY has targeted the following countries for expansion in 2011: Finland, Japan, Serbia, Costa Rica, Panama, Paraguay, Bolivia and Azerbaijan.

UHY is also seeking to expand its representation in Germany to Stuttgart, to complement existing coverage in the country.

Visit the How to Apply section of this website for details on how to submit your firm for consideration to join one of the world’s fastest growing global accountancy networks.

Global accountancy network UHY showcases the breadth and depth of its member firms’ services and capabilities through client case studies and invites you to review the client comments in its latest 2009 UHY Capability Statement. This edition includes 8 case studies covering a range of international clients across a variety of market sectors such as energy, chemicals, marine electronics, media, contract manufacturing, life sciences and protective equipment distribution. 

‘It’s during fluctuating times like these that we become still more aware of the close, enduring relationships we have with our clients – and how much our connection with their survival or success enables us to contribute to their strategic thinking and development processes: and how they trust us to become part of their business families. This is what I like most about working with our clients – the trust we share.’ says John Wolfgang, UHY Chairman.

The ‘2009 UHY Capability Statement’ offers an insight into the great variety of work undertaken by UHY member firms and how they continue to work together internationally throughout sectors, specialisms and geographical regions. It demonstrates the close relationships member firms foster with clients by offering innovative and practical solutions. Partners and specialist service teams go the extra mile to help clients achieve their business goals, realise specific opportunities and effectively manage risks by sharing our knowledge of local regulations, market practice and cultural norms across the globe.

John Wolfgang added: “The trust, openness and shared knowledge we enjoy together becomes embedded in our client work. The local communities that each of our members represent remain our bedrock – and to complement these foundations, despite the global downturn, we’ve been able to grow still further the geographical reach of our firms internationally into specific areas where our clients need us to be. But now we look forward, as together we emerge from the downturn stronger, ready and ambitious to succeed: working with our clients, helping them to be successful as part of their team.”