Dubai Now has Critical Mass
Kitty Miv, Editor
18 July, 2013
Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.
This week's news that the Dubai Multi-Commodities Center Authority is set to become the largest free zone in the United Arab Emirates, having registered 1,270 new member companies in the first six months of 2013, bringing the total to more than 6,890, is nothing short of startling. Although the DMCCA sounds as if it is aimed primarily at commodities trading, which is nominally the case, in practice it forms a seamless part of the JLT (Jumeirah Lakes Towers) free zone, which has a much broader remit. It is one of between 15 and 20 existing and planned free zones in Dubai, depending on how you count them. From any perspective, Dubai now has critical mass as a business and financial center in the mid-East, and it's hard to see how any rival can catch it, over an area stretching from the eastern Mediterranean to the Far East.
India has completely blown its chances of becoming an important commercial hub; of course, it is vast, and will always be important, but no one in their right mind would consider basing an international holding or facilities company there. And unlike China, India doesn't have a convenient "offshore" center to work through. That could have been Mauritius, but the Indian Government has pursued a small-minded, short-sighted vendetta against Mauritius, with what purpose it is impossible to imagine, other than an attempt to control some fairly venal but not particularly dreadful behaviour on the part of Indian stock exchange investors. Shooting the messenger is the kindest description possible. Instead of attacking Mauritius, the Indians would have been better advised to treat it as a long-term partner.
So that leaves Dubai as a hegemon between Cairo (another disaster) and Calcutta. Strangely, the real estate upset of a few years ago may have worked to Dubai's long-term advantage: it allowed potential competitors (London, New York, Singapore, Hong Kong) to indulge in a spot of schadenfreude. For a while they enjoyed themselves, imagining and hoping that Dubai was going to sink (metaphorically, of course) into the Gulf. Now they have woken up to the reality of Dubai's burgeoning advance, and it's too late for them to catch up.
Dubai has dined out on what can loosely be called "Western" business so far, if that is interpreted to mean "developed," since China is an important player. But the sleeping giant that will ensure Dubai's regional dominance for the foreseeable future is of course Africa. Not quite sleeping, perhaps: there are some stirrings, and African economic activity is ratcheting up at an alarming pace at grass roots level. Internationally, though, Africa resembles a splintered Europe in the seventeenth century, with multiple monarchs doing all they can to steal their nations' patrimony and invest it . . . . where? Well, in Switzerland, Panama and Hong Kong, perhaps, but surely also through Dubai? Anywhere other than at home, of course. So that's one built-in advantage that Dubai possesses. Location, location, location! Ironic, that. As with the traditional offshore havens, Dubai will eventually have to become respectable, in the sense of no longer acting as a conduit for monies of uncertain origin, but by then it will stand tall as the only and obvious counting house for Africa's teeming millions of dollars.
So Hong Kong has finally fallen into line over the question of "Exchange of Information" (EOI) clauses in its tax treaties and "Tax Information Exchange Agreements" (TIEAs). For a long time the SAR was unwilling to include such clauses in its CDTAs, indeed its laws prevented it, and for that reason Hong Kong had very few double tax treaties, which eventually began to compromise its usefulness as a holding company location. Even after the law was changed to allow modern EOI wording in its tax treaties, Hong Kong could not (and would not) enter into TIEAs, which have in recent years become the norm between trading partners. There are probably a lot of people in the SAR who regret that the Rubicon has been crossed; but it was inevitable, and Hong Kong was just harming itself by continuing with its glorious isolation.
Andorra has come under immense pressure over the last few years from the EU and especially from its two "owners," France and Spain, to create a "modern" tax system, and it has dutifully obliged, with a raft of new taxes. So I shouldn't be complimenting it; but it had no choice, and has actually done it all in a way that involves very low rates and plenty of exemptions, so that its traditional business shouldn't suffer too much and only very wealthy people will end up paying not very much tax. I specially love it that Communist Francois Hollande is co-prince of Andorra, and I wish I had a picture of him in his robes. Does he wear a crown?
Good old France, going from one madness to the next even crazier madness, keeping scribes like me in business, week on week. This time it's a proposed tax on luxury hotels, to finance holiday camps and trips away for young people. Sounds just like the USSR in the 1970s, right? Well, that's what you get if you elect a Communist president. Even more amazing, the levy would be set at up to 6 percent. A task force attached to the National Assembly Cultural Affairs and Education Committee was asked to examine accessibility for the young to camps and other such organized trips. In its report, the task force noted that such schemes have become less popular for middle-class families due to rising costs. So, obviously, take another bite out of the rich. Except that these rich are foreign rich, who come to France to invest (and rapidly decide not to). It might work at the Cannes Film Festival, I suppose. And this is in the context of the inexorably rising level of general taxation, set to increase next year by 0.3 percent of GNP, taking it to more than 45 percent of GDP, which itself will decline this year and is expected to decline again next year. And that's before any further tax increases, which Finance Minister Pierre Moscovici studiously refused to rule out this week. The deficit will break Maastricht rules this year and next, while debt has been ballooning to reach more than 90 percent of GDP this year. The EU in its wisdom has given France an extra two years to bring the figures back under Maastricht levels (3 percent deficit and 60 percent debt) - whatever for? This is the 1990s all over again, when the original Maastricht rules were immediately flouted by Germany and France, with today's horrendous consequences.
Kitty's Encomiums and Execrations
Methodology: each week (this is the 61st) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as -1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is on + 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to -1, and another one in week six, dropping to -2; finally in week 13 it got something right, so it went back up to -1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52.
The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.
Andorra doing the minimum
Hong Kong knuckles under
And Kitty's Execrations:
Africa being chaotic
France rapidly sinking
« Go Back to Blogs