With the continued call for America’s tax reform, it will be in the best interest of emerging economies to be prepared for the worst. Whether Trump or Clinton wins at the polls, this policy may be implemented anyway. With the report of China overtaking America as the World largest economy…the United States will be making all frantic efforts to reclaim their position.
It is no longer news that the world is now a global village, with the effects of the internet shown in the greater ease of conducting business across different geographical boundaries and nations, the availability of international financial institutions that enable cross border investments, and not forgetting apt and timely international financial research and analysis, which have interlinked different economies together than ever. This has, therefore, made it imperative that what happens in a distant nation affects the other nation directly or indirectly.
The United States is the world’s largest national economy in nominal terms and second largest according to purchasing power parity (PPP), representing 22 percent of nominal global GDP and 17 percent of gross world product (GWP). The United States’ GDP was estimated to be $17.914 trillion as of Q2 2015, with a per capita income of $54,000.00 according to IMF. American businessmen have investments estimated to be over $2 Trillion outside the shores of US. The United States is a major business partner with different emerging economies of the world.
Emerging economies are economies progressing towards development but are not yet developed. They have institutions that are yet to be standardised like the ones in their developed counterparts. The foremost emerging economies, as classified by the IMF, are Brazil, Russia, India and China (BRIC), and these countries are progressing towards a developed status but are still lacking in certain crucial areas when placed side by side with other developed economies. After BRIC, other frontier or second stage emerging economies include Colombia, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines, Poland, South Africa, Thailand, Nigeria and Turkey. All these economies are directly linked to the economy of the United States. This link therefore makes it possible that whatsoever policy is made in the US will have a multiplier effect in some of these countries.
On November 8, 2016, the United States will head to the polls to elect a new president after the eight year term of the Barack Obama regime. During the presidential campaign, Donald Trump, the Republican flag bearer, proposed a strategic policy on corporate tax reforms. According to Justin Haskins, “Trump plans to lower the corporate tax rate from 35 percent to 15 percent and, most importantly, he has said he will encourage businesses with funds overseas to bring their assets back into the country by allowing them to do so without being taxed at the current corporate tax rate (or even Trump’s proposed rate). Businesses would need to pay only a 10 percent tax, a bargain, to bring their money out of hiding and back into the U.S. economy.”
Most analysts estimate there is currently at least $2 trillion sitting overseas belonging to U.S. businesses looking to avoid America’s highest-in-the-world corporate tax rate, a 10 percent tax could yield as much as $200 billion in additional tax revenue. Not only could the proposal have a significant impact on the economies of states such as Michigan, Ohio and Pennsylvania.
It is on record that Detroit, the South Side of Chicago, Cleveland, Buffalo, Erie, Toledo and many other areas in the US see tens of thousands of job lost to competing states or to foreign countries, mostly China and Mexico. Many inner-city areas have never experienced the kind of growth enjoyed by other areas, and not much has changed over the last decade. According to Justin Haskins, the most recent available government data shows about 46.7 million people live in poverty, including 21 percent children, which were about 3.8 million in 2009.
A lower corporate tax rate would provide significant benefits to the US economy and American households. According to Robert Carroll and Thomas Neubig (Ernst & Young LLP), a lower corporate tax rate would enable the United States to encourage additional domestic investments, attract foreign investments, and compete in the global economy. More investments made by companies mean more capital flowing into the US economy. In turn, workers have more capital, newer computers, updated facilities and technologies, and additional research with which to work. This translates into more jobs, higher worker productivity and ultimately, higher living standards.
Empirical evidence has shown that the corporate tax rate is a direct incentive that drives foreign direct investment in different countries and economies, and which most time affects the income/investment shift between one country and the other.
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The implications on emerging economies will include the facts that:
• There will be mass exodus of US Companies from emerging economies such as Mexico, China, India, Brazil, Russia and a host of African Countries. This is expected to affect the economy of such countries, hence they need to brace up and develop some counter policies ahead to reduce the negative impact of this policy;
Continued improvement on the economic fundamentals and outlook of emerging economies will help stabilise any possible shock. Managers of emerging economies should get prepared to reduce their corporate tax rates or introduce more proactive tax incentives in order to remain competitive.
• Relocating companies would cause a stir in these countries’ economies, which may lead to economic shocks, by way of falling stock market prices and the devaluation of some local currencies, etc;
• Increase would occur in expected returns, as it is expected that the reduction of the corporate tax rate as proposed by Donald Trump would make investments in the US more profitable. This will inevitably increase the premium expected, before investing in emerging economies;
• Possible job losses will probably increase, as fleeing companies will need to lay off a huge number of staff, hence compounding the already worsening unemployment position in so many countries, with the continued fall in commodity prices which has before the current fall in commodity prices in the international market, been driving growth in many of these emerging economies;
• There would be difficulty in attracting foreign direct investments, as it is believed that most emerging economies depend heavily on foreign investments. The IMF says that between 2009 and 2013, emerging markets received about US$4.5 trillion of gross capital inflows, representing roughly half of all global capital flows in that period. Investments, consciously or unconsciously, move towards economies that are more favourable to little or no increase in risk. Reducing the corporate tax rate, leaving other things equal, will make investments in US comparatively favourable to a host of emerging economies;
• It is projected by the IMF/World Bank that emerging economies’ contribution to the global GDP may not be attainable any more, as the massive exodus of US companies will drive GDP lower.
It is therefore imperative that emerging economies should brace up for any possible shock. Diversification of economies and the increase in contribution of the service industry and tourism will help to ameliorate possible shocks. The introduction of circuit breakers, as introduced in Chinese stock market during the January 2016 stock market volatility, will also benefit emerging economies, helping them restrict mass sale offs of such investments, hence reducing the negative effects on their respective economies.
Continued improvement on the economic fundamentals and outlook of emerging economies will help stabilise any possible shock. Managers of emerging economies should get prepared to reduce their corporate tax rates or introduce more proactive tax incentives in order to remain competitive.
With the continued call for America’s tax reform, it will be in the best interest of emerging economies to be prepared for the worst. Whether Trump or Clinton wins at the polls, this policy may be implemented anyway. With the report of China overtaking America as the World largest economy, after US has held this position for 150 years, the United States will be making all frantic efforts to reclaim their position.
The ability of the United States to achieve the desired benefit of this proposed tax reform however, will be directly related to the favourable working conditions of other economic determinants.
Eziukwu Princewill, a development finance analyst, can be reached through eziukwup@yahoo.com.
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America have spoken again, let me quickly refresh our economy managers or policy makers the urgent need to think outside-the-box,byy looking for innovators who will make things happen from position of social entrepreneurs and not elected or appointed government officials. Why? Not too long or sometimes in 2008, we heard President Obama,as a presidential candidate telling the people of America and by extension talking to the entire world during his innovative campaign,that if voted in, he will look for innovators and listen to them on how they can deploy technology and special information-knowledge to improve the America’s shale oil towards breaking the monoply created by OPEC (Oil producing and exporting countries),because he needs people who can help remove the ever increasing high oil price,which is affecting US economy, it has come to past, as we alll know oil market and price monopoly will never be the same. In 2016, again, another presidential aspirant has spoken on. America’s policy direction that will help US retain her position of world’s largest economy/GDP for the last 150years!
Meaning, America is bringing back home it’s Silcon Valley of prosperity creation anddd ownership, by policy of corporate tax reduction,which will reverse the capital and job flight that helped China,India, Brazil etc access to cheap. funds, technology and knowledge-transfer in the era where American companies where looking for how to escape heavy taxation and high labor costs,thus culminating in a huge capital flight of over $4 trillion US dollars! Either, the emerging economies likes or hate Donald Trumph he has given the world a new direction of preparation to overcome avoidable challenges in the weeks ahead. The yoruba will say “Ogun agboo tele ki npa aro to ba gbon” (a pre-knowledge of a luming or impending war does not kill a WISE disable person)
Hence, there is no better time to fix Nigeria than this emerging era and season of innovation from America to the 6continents,especially, as we are all about to witness another radical paradigm-shift in global economic miracle leap model from US-riding on on a proposed policy that seeks to reform by reducing corporate tax to 10% towards attracting cash flow reparation as recently postulated by one of the US presidential candidates,Mr. Donald Trump,a man many hates and many also like at the same time.
For isolated reference on how the second-tier-developing nations,like Nigeria our country can apply the 3L’s (LOOK.LISTEN and LEARN lessons) philosophy of innovation in volume prosperity creation-hinged on the 3 fundamental ingredients mix for the making of a nation’s economic miracle leap, which are below outlined with ash tag:
#Engage mass people production/value added products’ line export activities in clusters.
#Engage mass people in production/value added products’ line export activities in clusters.
#Engage mass people in production/value added products’ line export activities in clusters.
To re-emphasise it, for the above fundamental economic miracle leap ingredients mix to be well-organized or co-ordinated and delivered to give several millions of people solid economic empowerment soft-landing(moving fa milies/youths from mass poverty-to-volume prosperity ownership); “the making of 30 million millionaire-entrepreneurs.
It is against this backdrop, that I like to suggest, advise and recommend, the urgent need for our economy managers or policy makers to look,listen and learn ways of doing things differently, an unusual approach to make it happen! How? By simply applying the law of leveraging people with fresh ideas,known as the. innovators.
However, people in government (politicians and civil servants) may equally need to stop seeing selves as the best innovators of virgin ideas and policy makers at same time, but stand as economy managers whose first job is to look for innovators (people with creative ideas that can be fine-tuned and leveraged to make Nigerian economic miracle to truly happen in real time), as a team for a synergy-effect creation. The time is now or never, for people within and outside the government to pull together mega resources for mega prosperity creation purposes. Hence, the need for leaders to genuine listen,learn great 4Ws’lessons and take timely positive actions on-what to do,where to go,what policy to make and who (social entrepreneurs) can implement the outlined homegrown dynamics in sequence(phases) -riding on a 3-month-3-year short-term, a 3-6-year mid-term and a 6-10-year renewable developmental growth-expansion program of innovation everywhere in Nigeria.
According to my own view or. Opinion, for too long, our government leaders have been walking in an uncharted socio-economic waters(palliative growth,but no futuristic development). For a generational movement to happen, we need a solid wealth creation road map or clear vision for identifying innovation navigators towards fixing Nigeria-riding on economies of scale, scope and speed-driven by applied game of number in volume production and export to 6continents.
Let me repeat, for great lessons to be learnt,our home government must look for innovators (the caveat; people don’t have to be an economist or PHD holders to become an innovator or own unusual ideas for making things happen faster), all we need to do is have positive mindsets,while listening, and then, formulate policies that are enterprises and prosperity creation-friendly.
In addition, it is important for Mr. President and the 36state governors to note,Nigeria can no longer afford the luxury of sleepwalking or trials and errors in a new world of unlimited possibilities that is already in auto-pilot flight,therefore,leaders need to apply the principle of game of number (volume population advantage),like US with 300 million, China with 1.3billion and India with 1.2billion are currently leveraging the opportunity offered by massive population, as an advantage to reposition their nations’ GDP has world’s largest economies,so why not Nigeria with her over 200milion people and still counting?
Today,for any nation to rise from problems-to-prosperity level or from position of disadvantage to global economic miracle leap advantage or models, there is the need for policy makers to formulate policies that can and will give their people a critical mass economic empowerment platform in areas of comparative advantage or strength,via simultaneous promotion strategy of a vertical-horizontal agric farming value chain establishment linkages with multipe industries that will covert raw materials for massive production cum export activities,along our rural-urban corridors, everywhere in Nigeria.
Furthermore, it is high time governmental agencies responsible for grassroot-national economic-industrial development financing provisions,like CBN, Bank of industry etc moved from playing the twin-role of “the innovator of wealth creation ideas and provider of finance at same time, as they know it all”, whichis the major reason why it is difficult to create real taxable wealth in Nigeria, because, instead of listening to the innovators as providers of development finance the maintain the position of “I know it all” and thereby, fail to give innovators a positive listening audience, known as “your innovation is dead on arrival; they seems to discourage the innovator by telling him/her why the fresh idea will not work-based on their own limited mindset and thoughts,which is at variance with that of the innovator.
Regrettably, we all know that no leader or President Buhari cannot be everywhere at the same time,hence,the reason for giving appointments to some people to head agencies,to help government look for innovators who has at their disposal fresh ideas/innovations made possible through several decades of research and development (R&D) with sleepless nights before they could come up with virgin ideas, but under a day or within few minutes of meeting with such agencies responsible for provision of development finance, the innovation is murdered (dead on arrival), instead of listen and be positive on possibilities.
Finally, to get it right and fix Nigeria in real time, the government must change old ways of things,by looking for innovators who have broken patterns in ways of doing things differently in unusual methods. Our policy makers should stop building a nation before building the people, the new concept is to first build the people,who will become the economic entities that will help give economic empowerment platforms to the several millions that will work hard, create wealth and pay income taxes towards increasing their home governments’ IGR and leap their nation’s GDP and economic miracle.
Above all,since no nation is problem-free, I will fix Nigeria for my family’s future. Join us!
Olusegun A. Kowontan Jr.
President/CEO, Project Fix Nigeria,
The Nigeria House, 13b, Aina George street, Ilupeju industrial estate, Lagos.+234-7056-464-244
http://www.projectfixnigeria.com