COMMENTARY: Foreign And Local Investment: Fairness For All

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By Sir Ronald Saunders

There has always been tension between encouraging foreign investment and promoting local entrepreneurship.  In many countries, local businesses are expected to pay a range of domestic taxes while governments exempt foreign investors from obligation for the same taxes in order to attract their money, knowledge and, in some cases their technological skills.

Where foreign investors do bring their own money, have greater knowledge and possess technological skills, granting them tax holidays for prescribed periods of time is utterly fair.   But granting such tax holidays on a perennial basis, as many investors have come to expect in small countries, is unfair and the practice should be re-examined.

The purpose of granting a tax holiday is three-fold: to provide an investor with a fair return on investment, to allow a business to establish, and to transfer technological skills to the local population.  However, unless the business model is flawed and its success is predicated on a subsidy from the government (which is what continuous tax waivers would be), the investment should be reviewed.

An example of how tax holidays could be justified is coming into sharp focus in relation to the ‘Blue Economy’ – a short-hand term for developing the resources of the sea which form part of the territory or the exclusive economic zone of a country.  In Guyana, for instance, where large reserves of oil and gas have been discovered within the country’s territorial waters, those resources would have remained in the sea-bed for centuries longer than they already have, if investors with the money, knowledge and technological skills had not sought to develop them.  And, Guyana would not today be looking forward to the immediate financial gains and long-term economic benefits that are expected to result from the investment.

The benefits of this investment in Guyana is worth the government entering fair, co-operative and predictable arrangements with the investors.  All sides would be rewarded, particularly if Guyanese companies participate in the industry through the provision of goods and services, and Guyanese are trained to assume positions in all aspects of the business.

However, in other instances where investors, local and foreign, enter a market in competition with existing businesses, they should not expect, or be granted, any tax or other concessions that are not enjoyed by the current operators.

Investors, entering an industry where other companies are already established, bring no new knowledge or skills.   If they choose to compete with new money, they should do so on terms no better than those applicable to established businesses.  Should they be granted additional concessions, existing business would rightly demand a level playing field.  They will demand the same concessions, resulting in government giving away much needed revenues.  In the end, government’s revenues suffer and so too does human and economic development on which government must spend.

The tourism industry, in all its aspects, has become an area where governments grant tax concessions that should be significantly reduced.  After more than 50 years of existence, tourism is a mature industry in the region.  Governments should not still be granting decades of tax concessions to hotels – established or new – nor should they be accepting the minimalist passenger head tax that cruise ship companies pay to many of them.

Cost-benefit analyses that have been conducted of the cruise industry, have revealed that far greater benefits are reaped by the cruise ship companies than accrue to the government and the country.  This reality is especially glaring when consideration is given to the cost to governments of building, maintaining and expanding port facilities, and complying with environmental requirements.

Each of the governments in the Caribbean is trapped by the other in relation to tax and other concessions in the tourism industry.  Governments have been unable to fashion a common approach to the fees that they should charge cruise ships.  They have also not been able to agree a regime for tax concessions to the hotel and yachting businesses.  They hurt themselves still further by competing with each other to lure business by lowering their fees for cruise tourism, and by granting bigger tax concessions to hoteliers and yachting companies.

It should be noted that some hotels and yacht businesses pay their taxes.  They should be used as the example for others.

It is fair enough that the cruise ship companies, the hotel owners and the yacht companies should earn profits.  After all, they are putting their money into a business which employs people, buys goods and services, and trains employees.  Additionally, their investors are entitled to a return on their money.  However, the return should be fair and equitable on all sides.  To get there, governments in the region should first agree on minimum standards beyond which none of them will fall.  Further, they should establish machinery for enforcing the minimum standards with penalties if they themselves break it.  A gentleman’s agreement will not do; such agreements are respected more in breach than in compliance.

Perhaps a law, justiciable under the Caribbean Court of Justice, is required under the terms of the CARICOM Treaty. One thing is for sure, if the business continues as is now usual, the Caribbean will be consigned to the role of hewers of wood and carriers of water; a seat at the feasting table will evade the region.

Wrapped up in all this is the refrain that to question the terms of foreign investment is somehow to be “hostile to foreign investment”.  That refrain is short-sighted. It is an excuse for those who would do nothing to remedy inequities or to balance relationships more fairly.  Every investor, local or foreign, deserves fairness, cooperation and the right to benefit from their investment.  So, too, does a country and its people.

That is why governments and investors should seek to maximise fairness and proportionality in the arrangements they make.

 

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1 COMMENT

  1. Notes From A Native Son Of The Rock! “Everything can be explained to the people, on the single condition that you want them to understand.” ― Frantz Fanon, The Wretched of the Earth!

    The Good Ambassador has made an excellent case for abandoning the Land Base Hotel Tourism Industry Tax concessions! This mere voice will venture into the deep blue and sail abeam of the floating majestic hotels since “The Afrocentric method considers that no phenomena can be apprehended adequately without locating it first. A phenom must be studied and analyzed in relationship to psychological time and space. It must always be located.” – Dr. Molefi Asante on the Theory of Social Change!

    In the !7th Century, Captain Henry Morgan went from bloodthirsty pirate and privateer to a British Hero and Sir Henry Morgan, Lieutenant Governor of Jamaica! As a pirate, he was given a Royal Licence to attack and seize Spanish ships, sailing the Caribbean Seas, with their cargoes of gold and silver and to raid and sack cities in Cuba, Colombia, Panama and Venezuela!

    In the 21st Century, the Cruise Industry has continued the approved 17th Century Piracy sailing the Caribbean Seas in their majestic floating hotels complete with approved, regulated and signed charter from the might of the North Atlantics as Privateers and taking the booty for their shareholders! Globalization and the World Wide Web has taught that in any enterprise the strategy is to be the low cost provider! This should not be confused with Low Quality! Just as with Morgan, they are now establishing their governance on small cays and islands and controlling the commerce and industry with licences to develop, own and manage Ports and Harbours on Caribbean SIDS! “Colonialism hardly ever exploits the whole of a country. It contents itself with bringing to light the natural resources, which it extracts, and exports to meet the needs of the mother country’s industries, thereby allowing certain sectors of the colony to become relatively rich. But the rest of the colony follows its path of under-development and poverty, or at all events sinks into it more deeply.”― Frantz Fanon, The Wretched of the Earth!

    Consider this question! Why have Caribbean Governments and the people of African Descent resident on these SIDS been shut out of this national and global development!

    “A People that is solely dependent upon another for economic existence sooner or later dies. As we have in the past been living upon the mercies shown by others, and by the chances obtainable, and have suffered there from, so we will in the future suffer if an effort is not made now to adjust our own affairs.” Marcus Mosiah Garvey Jr., founder and first President-General of the Universal Negro Improvement Association, African Communities League and The Black Star Shipping Line (1919−1922)!

    From Port Infrastructure building to Facilities and Operations Management To Majestic Floating Hotels and their ownership of Islands of Tourism & Hospitality all across the Caribbean and Lucayan Archipelago, when will this political, economic, socio-cultural, technological, legal and ecological paradigm change! Lest We Remember the Floating Majestic Hotels trade on the North Atlantic Stock Exchanges!

    The “sandaled buccaneer” has modeled its management practices on the old colonial model which clearly says that the Directorship Capacity is not within or to be trusted! “There is, in (The English Speaking Caribbean) a division of labour which says that the black community will occupy and control the politics and the white (North Atlantics, Arab and Chinese) elite will control the economy…All of us as citizens of (these Caribbean and Lucayan SIDS) have to examine this model and transform it. It has to be transformed in order to fulfil the vision if our ancestors in General Bussa’s (King Court) time, General Greene(Hannibal) and Clement Payne (Adams,VC Bird, Crompton, Manley, Pindling),” – Prof. Dr. Hilary Beckles, Chairman of the CARICOM Reparations Commission (CRC) and Vice Chancellor of the University of the West Indies (UWI)!

    If that is not enough, turn to our own Caribbean Development Bank (CDB)! LEST WE REMEMBER! (CDB) published ‘TRANSFORMING THE CARIBBEAN PORT SERVICES INDUSTRY: TOWARDS THE EFFICIENCY FRONTIER! CARICOM does not need to enact A Law! The Politicos and The Bureaucrats need to read its findings and recommendations in its 133 pages! Fanon warned of their ineptitude “As we have seen, its vocation is not to transform the nation but prosaically serve as a conveyor belt for capitalism, forced to camouflage itself behind the mask of neocolonialism. The national bourgeoisie, with no misgivings and with great pride, revels in the role of agent in its dealings with the Western bourgeoisie. This lucrative role, this function as small-time racketeer, this narrow-mindedness and lack of ambition are symptomatic of the incapacity of the national bourgeoisie to fulfill its historic role as bourgeoisie. The dynamic, pioneering aspect, the inventive, discoverer-of-new-worlds aspect common to every national bourgeoisie is here lamentably absent. At the core of the national bourgeoisie of the colonial countries a hedonistic mentality prevails—because on a psychological level it identifies with the Western bourgeoisie from which it has slurped every lesson. It mimics the Western bourgeoisie in its negative and decadent aspects without having accomplished the initial phases of exploration and invention that are the assets of this Western bourgeoisie!”

    “The tourism industry, in all its aspects, has become an area where governments grant tax concessions that should be significantly reduced. After more than 50 years of existence(over 60 years in Antigua), tourism is a mature industry in the region. Governments should not still be granting decades of tax concessions to hotels – established or new – nor should they be accepting the minimalist passenger head tax that cruise ship companies pay to many of them.” so said the Good Gentleman, writer, academic, former journalist and Ambassador Extraordinary and Plenipotentiary not this mere voice in the wilderness!

    For Caribbean and Lucayan SIDS’ Port Development and Management, this is the Buccaneers and Privateers rationale for taking control:
    Ports require CAPITAL and PROFESSIONAL MANAGEMENT;
    To Be competitive, Port Infrastructure needs REGULAR UPGRADE and ENHANCEMENT;
    Governments have competing needs for CAPITAL; Governments manage ports with POLITICAL AGENDAS; Private operators run ports for Commerce NOT JOB CREATION; and, Here is the kicker which all of the Caribbean SIDS have exhibited a shortsighted vision and lack of understanding Capitalism – GROWING USAGE DEMAND CAN PAY FOR PRIVATELY FINANCED INFRASTRUCTURE! From The Strategic Plan of One of the Floating Majestic Hotels!

    There will be no Fairness from North Atlantic Shareholders! “In the colonial context the settler only ends his work of breaking in the native when the latter admits loudly and intelligibly the supremacy of the white man’s values.” ― Frantz Fanon, The Wretched of the Earth!

    Educate of the People of African Descent to think Strategic, Long Term and To Unify to create Social, Financial and Ecological Development!

    Oh Gad! Have Mercy Pon US!

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