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Ncube’s plan to launch offshore financial centre myopic: Experts

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FINANCE minister Mthuli Ncube’s latest plan to launch an offshore financial services centre in Victoria Falls (OFSC) has been described as “too ambitious” and “myopic” by investment analysts, amid calls for the Treasury boss to focus on elementary issues currently affecting the economy.

Speaking to delegates attending the Victoria Falls Commodities Exchange workshop this week, Ncube revealed the plan to launch an OFSC, saying the government is working flat out to attract investment.

“As you might be aware, the government of Zimbabwe is exploring the setting up of an offshore financial services centre in Victoria Falls, of which the envisaged commodities exchange will be a key component.

“The OFSC will help develop and deepen the financial service sector, through provision of opportunities for global investment. We can all agree that investment is essential in driving economic growth and creating an attractive investment climate is one step towards achieving that,” he said.

The Treasury chief said that in reality, an attempt to create an investment environment in which international capital can flow freely requires both the supporting legislation and the underlying products, of which the commodities exchange is part of the infrastructure that provides the investment products.

 Economist Tawanda Purazeni described the initiatives as far-fetched, saying they are likely to be dogged by the prevailing bottlenecks in the economic environment.

 “The government’s quest to open another financial hub in Victoria Falls is a far-fetched concept. Arbitrages currently prevailing in the exchange rate speak volumes of the warped nature of the economy. There is a general lack of confidence in the investment environment locally and internationally and I do not see foreign direct investment being attracted.

“The closure of the Zimbabwe Stock Exchange sometime last year and the banishment of Old Mutual speak volumes of the command nature of the economy. Investors need the assurance of policy consistency and the operation and dictates of market forces for their investment decisions. More still needs to be done on this front,” he said.

 In investment terms, an OFSC is a jurisdiction that makes available financial services to non-residents with the purpose of circumventing aspects of the non-resident’s home country or jurisdiction. These financial centres are generally used as locations for asset holding companies to achieve tax avoidance.

Too often, they are used illegally for tax evasion. Associated advantages are that company assets such as intellectual property are parked in these foreign entities. This can protect these assets from liability and allow the allocation of certain revenues to the assets rather than allocation to the country of use or sale — where taxes may be higher, as well as allowing holders of such assets at death to pass ownership to heirs or third parties without going through their home country probate system.

But Yona Menon, an analyst at Ethos Capital Partners, also expressed doubt that such benefits will easily flow into Zimbabwe, arguing the move is premature.

 “It seems a bit premature. This sort of initiative needs to be supported by a predictable economic and policy environment. There could be some value in laying down a foundation for the future. But for now it’s difficult to see it drawing any significant foreign capital without changing investor perceptions of Zimbabwe’s long-term economic outlook,” he said.

Quizzed on what urgently needs to be done for trust to be regained within the economic environment issues, the analyst said there is no immediate solution to this.

“I don’t think there’s a quick fix. Investors need to trust the environment and I think there will need to be a prolonged period of competent and consistent economic management,” Menon added. — STAFF WRITER.

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