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Investment Guide

“Numbers Don’t Lie But People Do”

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Governments all over the world lose billions in revenue from corporate tax evasion every year. In many instances, citizens in a country pay a proportionally higher rate of tax than multibillion dollar companies.

Despite this being a global pandemic, Africa suffers more than most.

While delivering his Nelson Mandela lecture in Johannesburg, Sudanese-British mobile communications entrepreneur and billionaire, Mo Ibrahim, said more money is lost from multinationals not paying tax, through what he calls fancy accounting, than gained from aid.

“Physics and numbers don’t lie, but people do,” he says.

The continent is blessed with resources: Oil in Nigeria; gas and mineral reserves in Botswana; Angola, Ghana, and South Africa; the Democratic Republic of Congo has diamonds and cobalt; Mozambique has natural gas. These resources alone could lift millions of Africans out of poverty.

Former United Nations secretary general, Kofi Annan, wrote that the continent loses a huge amount of money from the use of shell corporations, offshore companies and tax havens by multinationals which often divert their profits.

But Dylan Buttrick, an associate at Norton Rose Fulbright South Africa begs to differ—slightly.

“It is important to understand the distinction between aggressive structures that facilitate tax evasion, and corporations that have tax efficient structures as a result of tax planning. In a world of increased globalization and multinationals, offshore structuring and tax planning is to be expected and remains legitimate,” says Buttrick.

The lack of infrastructure and resources makes it difficult for tax authorities to track payments. Revenue authorities would benefit from more sophisticated collection systems and processes that would help these authorities in enforcing compliance.

According to The Elders, an independent group of global leaders, transfer pricing—the practise of shifting profits to lower tax jurisdictions—cost Africa $38.4 billion every year, a number which Buttrick says is difficult, if not impossible, to quantify.

He says in recent years, African authorities have increased their focus on compliance with transfer pricing.

Buttrick further says the practise in the market is to ensure that transfer pricing policies comply with the South African tax laws, this despite significant chances in recent times, leading to a perceived uncertainty in some circles.

“Most multinationals do not indulge in invasion, i.e. fraudulent reduction of their tax, but may reduce their taxes in a particular jurisdiction through the use of legitimate tax planning tools, but beyond what certain politicians or even the public may deem appropriate,” says Buttrick.

Buttrick says from an exchange control perspective, South Africa’s banking and reporting system is fairly sophisticated and cross-border payments are easily monitored. The inflow and outflow of capital from the country will need to comply with exchange control regulations.

The G20 plans to fight international tax evasion by multinational companies. They will exchange tax information and support the Organisation for Economic Cooperation and Development (OECD) in its plans to prevent multinational companies from avoiding tax by moving profits across borders. The new rules would force companies to pay tax in the countries where they make their money, instead of where the tax rate is the lowest.

Companies like Google, Apple, Amazon and Starbucks are reported to have perfected the art of using loopholes within tax regulations. MercoPress reports that these firms argue that they are doing nothing illegal and have a duty to shareholders to minimize tax payments to maximize profits.

The OECD says that some of the existing tax rules, created in the 1920s, were designed to avoid double taxation of companies operating in more than one country. But this is haunting the industry nearly a century later as these same rules are being used to create double non-taxation.

The G20 leaders agreed to an unprecedented deal to share information on individual taxpayers. They plan to start exchanging information on tax matters among G20 members by the end of 2015.

David Cameron, the British prime minister, says the new tax rules state that only advanced nations will sign on the deal, but it’s important that developing countries participate in sharing tax regulations.

Reforming the outdated global tax framework needs to occur, with governments across the globe working together. Regardless, one question still bothers me: should multinationals be taxed on the basis of where they are doing business or on the strength or weakness of their lawyers?

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Economy

Cryptocurrency for Africans

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George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.


What is this new African cryptocurrency you are offering?

Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.

Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.

It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.

What is your own investment philosophy?

I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.

What advice would you give entrepreneurs wanting to invest in blockchain?

First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.

First cash-less, now card-less. What is the future of online banking?

If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.

Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.

What is your most prized investment and why?

My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.

Money, success, fame? Which is most important to you?

I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.

What do you spend your money on mostly?

Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.

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Investment Guide

King Price CEO On Why He Invested On Insurance

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King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.

(more…)

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Economy

Offering The American Dream

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Gar Lippincott and Daniel Ryan of Atlantic American Partners were in South Africa recently looking for high-net-worth individuals wanting to invest in the US.

It’s a warm spring day in September, and Gar Lippincott and Daniel Ryan have just arrived in South Africa. It is Lippincott’s first time in the country, and he is jet-lagged.

A little over two months ago, he was booked to fly here from the United States (US) but was turned back at immigration.

“At Atlanta airport, the lady looked at Daniel’s visa and let him through and she looked at my visa and she said ‘I am afraid you can’t get on the plane because you have to have a blank page on your passport’. I said ‘I have three blank pages’ and she said ‘no, it’s supposed to be the one that says visa on it’. She said it’s the rules in South Africa so I had to sadly go back home… now when I was coming, I was told that’s not an issue anymore so I am happy they have made traveling into the country easier,” says Lippincott.

With a brand-new passport, he’s here with Ryan looking for people who want to invest in the US in exchange for a green card.

Lippincott, the Managing Partner of Atlantic American Partners, says he has always been keen on South Africa for its growth opportunities and prospects.

“From what I understand, the things that are causing short-term decline in the economy in South Africa are set up to provide long-term growth and hopefully people will understand this,” he says. Ryan, the company’s Managing Director of Emerging Markets – Africa, agrees: “I lived in Malawi for 12 years and South Africa is still considered the shining one throughout the continent. Even with all the problems, everyone still wants to come here because of the opportunities.”

According to an AfrAsia Bank report, South Africa comes second to Mauritius in boasting the highest number of high-net-worth individuals.

These are the kind of people Ryan and Lippincott target through their work at Atlantic American Partners. The company has real estate investors and professional private equity fund managers that manage money for banks, insurance companies, and pension funds. In addition, they help people get US green cards and ultimately US citizenship through the US government’s EB-5 Immigrant Investor Visa Program.

“Basically we look for people who want to move to the United States and we help them do so legally by investing and the nice thing is, with our program, they are also able to get a nice return on investment,” he says.

According to Lippincott, for a $500,000 investment that creates 10 jobs for American workers, you could get a green card in about two years and be a US citizen in about six or seven years. “Twenty seven countries have an investor visa program but with most of them, it’s essentially a fee you pay, or you need to be actively engaged in the day-to-day operation of a business. For example, you invest $1.5 million in Australia, but you need to hire employees and generate a certain amount of revenue. One of the biggest advantages with our program is you actually invest the $500,000 into a fund. We act as a trustee of that money and within five to seven years, they get that money back with a bit of return on investment and you are a permanent citizen in the US.”

Atlantic American Partners invests the money in real estate developments like hotels, apartments and student accommodation.

“What’s nice about the program is it doesn’t only cover the investor; it covers the spouse and children under 21. Our biggest family was a Hungarian family with seven children so they got nine green cards for $500,000,” says Lippincott.

The company says it has had positive response in South Africa. “Two months ago, we were here and we had scheduled six presentations for 100 people and we ended up speaking to 450 people. Most were business people, people worried about the economy, people worried about the political future of South Africa and people concerned about the education future of their children,” says Ryan.

According to Lippincott, despite the news of the clampdown on immigration, the US economy is booming and will perish without immigration. In the era of Donald Trump and his anti-immigrant views, that’s heartening news indeed.

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