Africa has the opportunity to quadruple its economy by 2040, but to do so it will need to find 11.4 trillion dollars in extra investment over that period, according to a Capital Economics report commissioned by Jersey Finance. By providing protection for investors and African wealth – through access to capital markets, expertise and experience, efficient cross-border investment pooling, robust regulation and tax neutrality – Jersey is well placed to make an important contribution to the economic growth Africa needs.
Pressure groups have accused offshore international finance centres (IFCs) such as Jersey, of facilitating immoral or illegal activities that suck capital out of developing economies and help large multinationals avoid paying taxes in African countries. The negative portrayal of IFCs has gained currency partly through the publication of large and headline grabbing estimates of the scale of supposed illicit capital held in such jurisdictions. The Capital Economics report reviewed these estimates and concluded that they are of limited rigour and largely fail to distinguish between legitimate and illicit activity.
While Africa has 15pc of the world’s population, it generates just four percent of global output. However the report points out that Africa is on the verge of a demographic dividend. While other continents face ageing populations, Africa’s working age population is expected to double to 1.2 billion over the next 30 years.
To support this shift, Capital Economics calculated that Africa will need to invest 85 trillion dollars – or about 100pc of current annual global gross domestic product (GDP). At current levels of investment, the region will fall 11.4 trillion dollars short. Even when combined, aid, domestic profits and local government funds together will not be able to plug this gap. The remainder – 6.1 trillion dollars – will have to come from foreign direct investment (FDI).
Attracting inward investment is not easy. Despite the continent’s unrivalled endowment of natural resources, too many nations have made themselves unattractive to investors through unstable governments and institutions, as well as inadequate economic, financial and social infrastructure. Commentators often speak of Africa as a region on the rise, but several of the continent’s countries still rank low on ease of doing business.
Bigger profits and higher rates of return must be seen for what they are: a catalyst for positive change, a motivator for foreign investors, and a force for good. Multinational companies that take the risks to invest in Africa should not be lambasted out of hand when they are creating jobs, paying wages and contributing to local taxes.
IFCs provide legal and bona fide services to private individuals, charities, businesses and governments engaged in valid cross-border economic activity. To assume that an activity conducted offshore must be illegal, illicit or immoral is no more than uninformed prejudice.
There is little to substantiate allegations of Jersey being used as a haven to avoid taxes in African countries. Our analysis of the biggest companies listed in London, New York, Europe and South Africa shows that almost no multinational companies with operations in Africa, other than those in the extractive industries or financial services, have vehicles registered in Jersey.
If there are abuses by multinational companies or foreign investors in Africa, they must be stopped. We would say to policymakers in the G8 and elsewhere: practices such as bribery, corruption, abusive tax avoidance and tax evasion must be stamped out. However in doing so, do not – whether explicitly or inadvertently – clamp down on much needed foreign investment.
There are not and never have been banking secrecy laws in Jersey. There is no legislation that would shelter the identity of wrong-doers who use the island’s financial services companies either from its own or appropriate foreign law enforcement authorities.
What is more, with a strong and independent regulatory body acknowledged by the International Monetary Fund (IMF), Jersey has tough legislation to deter money laundering, the financing of terrorism and the use of the island to secrete, store, invest or otherwise deploy the proceeds of crimes committed elsewhere in the world.
Jersey law was amended in 2008 to make it a criminal offence to not report even the suspicion of money laundering activity. Notably, the Jersey Royal Court imprisoned an individual for his role in laundering the corrupt proceeds of the despotic regime of General Sani Abacha, who ruled Nigeria during the 1990s.
The Jersey Financial Services Commission handbook for the prevention and detection of money laundering and the financing of terrorism also contains specific guidelines for wire transfers, correspondent banking, and trust company business.
Ultimately, Jersey can provide a platform to give local entrepreneurs in Africa the safety and security needed to take commercial risks, re-invest and grow businesses. We offer the legal certainty and corporate structures that global investors and philanthropists need to make investments across the continent.
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