Jersey’s PR campaign continues with report on Jersey’s “Value to Africa”

Following Jersey Finance’s various promotional materials including Value to Britain, its Moving Money report which claims to show the beneficial role of offshore centres, and its publications on Jersey’s links to Russia, China and India, comes a report on Jersey’s Value to Africa.

Launched yesterday at an event at Chatham House in London, it was accompanied by a series of tweets such as this one:

“Governance is ultimate driver of demand for #Africa’s equity markets #Jersey can help African countries improve governance and structures”

After reading the report and its different sections dealing with Africa’s potential and its need for Foreign Direct Investment, criticizing NGO estimates of Illicit Financial Flows and offshore wealth, and finally promoting Jersey as a jurisdiction which is compliant with international tax and money-laundering standards, it is still hard to find in it a convincing answer to two essential questions:

a) How exactly will Jersey help Africa?

and

b) Why Jersey?

This paragraph in the report summarizes its main pro-Jersey points:

“Jersey can efficiently facilitate investment into Africa and support philanthropic activities there. It is a location where investors from across the globe can pool their funds and conduct cross-border deals safe in the knowledge that they are protected by a legal system based on internationally respected English common law and with a trusted centuries-old judiciary. The self-governing island’s ‘tax neutrality’ ensures that any investment routed through it will not incur additional taxation, while its physical, cultural and business links to the City of London ensures access to deep capital markets.”

Which doesn’t really answer either of the questions above.The first sentence makes a strong claim which is not supported by the rather generic information in the rest of the paragraph.

The report correctly notes that domestic tax revenues are low and that tax authorities in Africa tend to have low capacity. Strangely, it then ignores  the possibility that both of these might improve over time, particularly in the 25-year timeframe proposed.

It also largely reduces the role of government spending to providing infrastructure and strong institutions, scooting over the need for increased public spending to support healthy and educated citizens. There is no mention of the potential for industrial policy to create jobs and greater value in local economies, despite citing data from a UN report which contains “Africa” and “Industrializing for Growth” in its title.

Lastly, since a large part of the argument revolves around the need for more Foreign Direct Investment (FDI) into Africa, it’s worth noting what the United Nations Conference on Trade and Development (UNCTAD) had to say about that in June 2013:

“… to date, there is no evidence to indicate that FDI in Africa is contributing to economic diversification through backward and forward linkages. Under such circumstances, the tendency of FDI to reinforce enclave-type development – with external integration gaining more importance over the internal integration of the local economy – is a real concern. Against this background, this note questions the automatic efficiency gain assumptions implicit in the design of FDI policies in many African countries.”

“It is misleading to assume that attracting FDI per se will automatically generate opportunities for technology transfer, linkages with domestic enterprises and opportunities for diversification into more dynamic activities.”

“… policies towards FDI should be designed as a complementary component of a wider and more integrated development strategy needed to raise growth, create jobs, build productive capacity and foster a dynamic and vibrant domestic private sector.”

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3 thoughts on “Jersey’s PR campaign continues with report on Jersey’s “Value to Africa”

  1. Hi

    Thanks for covering the report. Let me try and answer your questions:

    How will Jersey help Africa?

    That will be up to African Countries but our assistance comes though the ability to bring private capital to the continent, and where required to help Africans invest in other parts of the world. Of course it isn’t the only solution, internally generated capital and aid is crucially important too, but with just $51bn of aid in 2012, not sufficient for the challenge. Capital Economics, the independent report authors calculate a shortfall of some $11trn by 2040, and that the private sector will need to fill at least 60% of that figure. Without capital there will be insufficient jobs and growth. We accept for certain kinds of investment non private sources of capital may well provide the best solution.

    I should mention for the sake of your readers that all three reports that you have referenced have been undertaken by highly qualified Economists and or Academic Professors with global reputations, including the Dean of Law at Texas A+M University and a Professor of Financial Integrity at Case Western Reserve, who has also held senior positions with the IMF.

    Why Jersey?

    We are global experts in cross border financial services and the international investor community including governments, institutions and HNWs trust our governance, we are highly rated by the IMF, FATF, OECD and World Bank, and a leading early adopter in the transparency programme, holding the role of Vice Chair in the OECD’s Global Forum, and have contributed to the development of the new CRS standard which I am sure will be adopted by the G20.

    In addition as a small country with a developed tax administration and significant financial and regulatory capabilities we will offer capacity building technical assistance and exchanges with African countries. Indeed we have already undertaken some of this assistance. Following the publication of the report we have already had expressions of interest in terms of collaboration from African countries, and received a warm welcome for the report findings from Africans who attended the Chatham House launch. I hope this clarification is helpful to you and your readers.

  2. Thanks Geoff, it is indeed encouraging that African countries are interested in working with Jersey, and it would be great to read more about the technical assistance being provided.

    The question Why Jersey has 2 parts:

    1) Why specifically Jersey, i.e. what are its unique advantages in comparison to other jurisdictions in particular offshore centres and

    2) Which of the benefits provided by Jersey are particularly relevant for Africa.

    Jersey’s benefits as listed in the report are largely similar to those mentioned in other Jersey Finance reports about China, India and Russia. Are there any which are particularly relevant for African countries?

    For example, to illustrate Jersey’s “Value for Africa” in practice it would be useful to include data or a case study about foreign direct investment to Africa which has already occurred and in which Jersey has played a role.

    Regarding the reports on Jersey by the OECD’s Global Forum, IMF and others: thanks for the heads up, have taken a look at the most recent peer review reports for Jersey.

    Although overall Jersey is considered compliant, the reports also find some concerning gaps in Jersey’s legislative framework, for example that “not all relevant entities and arrangements are consistently required to keep reliable accounting records” (OECD page 7).

    In addition, these evaluations largely look at legislative compliance rather than practical effectiveness.

    2 examples:

    – The most recent MONEYVAL report on Jersey’s anti-money laundering efforts (2013) finds that only 5 persons had been convicted in Jersey for money-laundering up to November that year, all “related to third party laundering of drug trafficking proceeds locally” (page 7).

    Does this mean that in 2013 there were zero convictions of non-residents for money-laundering? According to the IMF around 90% of Jersey’s financial sector customer relationships are with non-residents (IMF, 2009, page 9).

    – The MONEYVAL report also notes that “at least one investigation and conviction have resulted from a suspicious activity report (SAR). However, when considering the average number of SARs received (over 1700 per year)…the discrepancy with the results achieved raises questions and concerns” (MONEYVAL page 8).

    About the authors of the reports commissioned by Jersey Finance: Capital Economics, according to its website, is a private consultancy firm. The academics who produced other reports published by Jersey Finance, meanwhile, seem to have invested significant time and effort on these publications.

    Would Jersey Finance be willing to publish a) the terms of reference for their work and b) the cost and sources of funding to support their research?

    Lastly, on your question in the comments to a separate post about Jersey as a secrecy jurisdiction: this blog covers secrecy jurisdictions as ranked by the Financial Secrecy Index produced by the Tax Justice Network. The Financial Secrecy Index has been extensively referenced by academics, global media, NGOs and international organizations including the OECD. Jersey is currently ranked 9th in the world on the 2013 Financial Secrecy Index.

    • Hi

      I have answered your questions in the ordered asked.

      1) Why specifically Jersey, i.e. what are its unique advantages in comparison to other jurisdictions in particular offshore centres

      Jersey has historically been named one of the world’s leading financial centres and, thinking in particular of offshore financial centres, consistently ranks in the top one or two. It only achieves these rankings because investors know it has efficient and robust regulation with world-leading expertise in maximising global investment flows.
      Jersey has particular expertise in banking and capital markets that other finance centres do not possess. And in a globalised world distance is irrelevant: Jersey has substantial business for example in China, the Middle East and India, who are attracted by the island’s strong legal framework, expertise and knowledge, and its commitment to promoting global capital flows.

      2) Which of the benefits provided by Jersey are particularly relevant for Africa.

      Jersey provides:
      • Protection for investors.
      • Protection for African wealth.
      • Access to capital markets.
      • Expertise and experience.
      • Efficient cross-border investment pooling.
      • Efficient and robust regulation.
      • Tax neutrality.
      • Time-zone, language and lifestyle benefits.

      Jersey’s expertise lies in helping investment flows in whatever sector is most important to the investor. For example, mining is a hugely capital-intensive industry, and requires access to huge amounts of investment. Jersey, with its expertise and legal framework that helps facilitate such investment, can be an important link in the chain.

      Many investors feel reluctant to invest directly in Africa as they worry about whether their funds will be used in an efficient way. Many parts of Africa have undeveloped legal systems and lack property rights, face corruption, economic challenges and political instability. As an offshore financial centre, Jersey can help entrepreneurs and investors to overcome some of these problems by providing a secure jurisdiction through which investment flows are channelled, and providing business administration and support functions that are not currently available in many parts of Africa.

      Regarding your comments the reports on Jersey by the OECD’s Global Forum, IMF and others:

      • The quote from the Global Forum on accounting records is taken from the report on the assessment carried out in 2010. Since then there has been a Supplementary Report published in July 2014 which gives Jersey a compliant rating for accounting records.

      In 2010 the assessors concluded that Jersey’s domestic laws provide a satisfactory framework for the exchange of relevant information. Jersey met the standards in 6 of the 9 areas under review. Three areas relating to legal implementation were assessed as being in place but with room for improvement. However the assessors noted that the apparent gaps they identified have not prevented Jersey from engaging in effective information exchange. Nevertheless changes to the Regulations have been made to ensure that they are fully compliant with the standards. The assessors also said “Overall, this review of Jersey identifies a legal and regulatory framework for the exchange of information which generally functions effectively to ensure that the required information will be available and accessible… Jersey’s practices to-date have demonstrated a responsive and cooperative approach.”

      A supplementary report was published in July 2014 which showed that Jersey’s laws and regulations met all nine of the elements making up the standard.

      On the basis of the 2011 report Jersey in October 2013 was rated by the Global Forum as largely compliant, a rating that it shares in common with Germany. Italy, the UK and the USA.

      The Global Forum reports does in fact deal with practical effectiveness as well as the laws and regulations.

      On the Moneyval quotes what is not taken into account is that the majority of the SARs are in respect of activity in other jurisdictions to whom the SARs are sent by the FIU, and who then engage in prosecutions. Jersey has been the recipient of significant sums as a share of the assets seized resulting from successful prosecutions that owed much to the information that we provided.

      Capital Economics is a well-respected independent economic research company. The founder, Roger Bootle, is one of the City of London’s best-known economists. As well as running Capital Economics, which he founded in 1999, Roger is also a Specialist Adviser to the House of Commons Treasury Committee and an Honorary Fellow of the Institute of Actuaries. Capital Economics have invested significant time and effort to research thoroughly and deliver on this publication.

      Would Jersey Finance be willing to publish a) the terms of reference for their work and b) the cost and sources of funding to support their research?

      • The report was commissioned by Jersey Finance following a tender process.

      It was commissioned to provide the most comprehensive, rigorous and quantitative analysis to date of the true value of Jersey to Africa and the role of an international finance centre in deliverable sustainable growth in developing countries – and it has delivered that.

      • The report was paid for by Jersey Finance. We are unable to disclose fees.

      In respect of you comment re Jersey being currently ranked 9th in the world on the 2013 Financial Secrecy Index.

      • Jersey is committed to a number of international initiatives on transparency.
      • Jersey is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes and with effect from June 2014 joined the Multilateral Convention on Mutual Assistance in Tax Matters. Jersey has also been appointed as a vice-chair of the AEOI working group of the Global Forum, which will monitor the implantation of the new international standard, as requested by the G20. This is a reflection of Jersey’s international standing as a cooperative jurisdiction complying with international standards.
      • Jersey complies with all relevant international standards on financial regulation, AML and tax transparency and information exchange and that this compliance is recognised by the relevant international bodies.
      I hope this answer your points rasied.

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