Re­cent­ly, the T&T In­ter­na­tion­al Fi­nan­cial Cen­tre re­leased its an­nu­al re­port ti­tled Re­defin­ing Fi­nan­cial Sec­tor De­vel­op­ment. The stat­ed mis­sion of the IFC is ‘to at­tract and fa­cil­i­tate for­eign di­rect in­vest­ment in the fi­nan­cial ser­vices sec­tor that would en­hance the growth and di­ver­si­fi­ca­tion of the econ­o­my by cre­at­ing sus­tain­able em­ploy­ment and gen­er­at­ing for­eign ex­change.’ How well is it do­ing?

At a re­cent­ly con­clud­ed en­er­gy con­fer­ence host­ed by the En­er­gy Cham­ber, sev­er­al pan­el­lists be­moaned the lack of ca­pac­i­ty and ca­pa­bil­i­ty re­quired to make T&T a world leader in en­er­gy fi­nance when we are al­ready amongst the best in the world in sev­er­al oth­er as­pects of the en­er­gy sec­tor.

How is the IFC clos­ing this po­ten­tial­ly prof­itable gap?

There ap­pears to be a heavy em­pha­sis on Busi­ness Process Out­sourc­ing (BPO), a sub­set of out­sourc­ing that in­volves the con­tract­ing of the op­er­a­tions and re­spon­si­bil­i­ties of a spe­cif­ic busi­ness process to a third-par­ty ser­vice provider. Is this enough?

Will the cur­rent ef­forts add sig­nif­i­cant jobs and rev­enues and ad­dress glar­ing fi­nan­cial ser­vices gaps in T&T and be­yond?

Sev­er­al weeks ago, in these pages, for­mer Min­is­ter of Fi­nance and one of the ar­chi­tects of the IFC ini­tia­tive, Karen Tesheira, apt­ly ex­plained what the In­ter­na­tion­al Fi­nan­cial Cen­tre was in­tend­ed to be and it bears re­peat­ing.

She ex­plained: “Dur­ing the 2002 to 2007 ad­min­is­tra­tion, the gov­ern­ment of the day made sig­nif­i­cant head­way to­wards es­tab­lish­ing an IFC, in­clud­ing un­der­tak­ing a fea­si­bil­i­ty study which con­firmed that an IFC was a very com­pelling, achiev­able and ex­cit­ing di­ver­si­fi­ca­tion op­tion for T&T.

Dur­ing 2007 to 2010, fur­ther strides were made to mak­ing the IFC a re­al­i­ty. This in­clud­ed es­tab­lish­ing a board of di­rec­tors charged with set­ting up the IFC; des­ig­nat­ing the two Wa­ter­front build­ings as the ini­tial IFC head­quar­ters; draft­ing of the leg­is­la­tion nec­es­sary to es­tab­lish the IFC by con­sul­tants who had un­der­tak­en the fea­si­bil­i­ty study lead­ing to the IFC, Ire­land.

What is an IFC?

An IFC is es­sen­tial­ly a glob­al city which con­tains a num­ber of lead­ing in­ter­na­tion­al fi­nan­cial in­sti­tu­tions in which a wide range of fi­nan­cial ser­vices are pro­vid­ed to non-res­i­dents on a far larg­er scale than is ap­plic­a­ble to the do­mes­tic econ­o­my. Lon­don and New York are the more es­tab­lished tra­di­tion­al mod­els of in­ter­na­tion­al fi­nan­cial cen­tres.

How­ev­er, the mod­ern it­er­a­tions of an IFC, which is the mod­el pro­posed for T&T, are the huge­ly suc­cess­ful IFCs of Dubai and Ire­land, the es­tab­lish­ment of which had a tru­ly trans­for­ma­tive im­pact on those economies in a few short years.

In the case of the Dubai IFC (DIFC), it is a spe­cial eco­nom­ic zone area, es­tab­lished by leg­is­la­tion in 2004. It is em­pow­ered to cre­ate its own le­gal reg­u­la­to­ry frame­work for com­mer­cial and civ­il mat­ters and is the fi­nan­cial hub for the Mid­dle East, Africa and South East Asia with over 2000 reg­is­tered busi­ness­es and over 22,000 high val­ue work­ing pro­fes­sion­als.

The DIFC Zone’s laws are based on the Eng­lish le­gal sys­tem. These laws in­clude the British equiv­a­lent of the Com­pa­nies Act, Ar­bi­tra­tion Act, Em­ploy­ment Act and Elec­tron­ic Da­ta Pro­tec­tion leg­is­la­tion.

The DIFC has a ze­ro-tax rate on cor­po­rate in­come and prof­its; no re­stric­tions on for­eign ex­change or cap­i­tal/prof­it repa­tri­a­tion and 100 per cent for­eign own­er­ship. It hous­es hun­dreds of fi­nan­cial in­sti­tu­tions, in­clud­ing wealth funds and pri­vate in­vestors, res­i­den­tial spaces, five-star ho­tels, restau­rants and re­tail out­lets.

Three in­de­pen­dent bod­ies make up the DIFC—the DIFC Au­thor­i­ty, the DIFC Ser­vices Au­thor­i­ty and the Dis­pute So­lu­tion Au­thor­i­ty. The au­thor­i­ty is re­spon­si­ble for the over­all strate­gic de­vel­op­ment of the cen­tre, its op­er­a­tional man­age­ment and ad­min­is­tra­tion of its laws and reg­u­la­tions, oth­er than those re­lat­ed to fi­nan­cial ser­vices.

The Ser­vices Au­thor­i­ty is the reg­u­la­tor of fi­nan­cial and re­lat­ed ser­vices con­duct­ed in the cen­tre while the Dis­pute Res­o­lu­tion Au­thor­i­ty com­pris­es the courts, the Ar­bi­tra­tion Cen­tre and oth­er tri­bunals, all of which ap­ply Eng­lish-based laws.

The DIFC’s con­sid­er­able wealth is de­rived from sev­er­al sources, in­clud­ing the reg­is­tra­tion of com­pa­nies, busi­ness set-up, in­cor­po­ra­tion, grant­i­ng of li­cens­es, leas­ing of its build­ing in­ven­to­ry and com­mer­cial prop­er­ty own­er­ship.

The IFC Ire­land is the brain­child of one in­di­vid­ual—Der­mot Desmond who fi­nanced an IFC fea­si­bil­i­ty study by PWC. Aris­ing out of the study, the IFC Ire­land was es­tab­lished. As in the case of Dubai, the Ire­land IFC is a phys­i­cal­ly des­ig­nat­ed zone, lo­cat­ed near the cen­tre of Dublin, com­pris­ing of­fice build­ings, ed­u­ca­tion­al in­sti­tu­tions, hous­ing, restau­rants and shop­ping fa­cil­i­ties.

Cor­po­ra­tions which are reg­is­tered in the IFC Zone are ex­empt from Ire­land’s nor­mal tax­a­tion laws and fi­nan­cial reg­u­la­tions and en­joy a low cor­po­rate tax rate of 12.5 per cent and with a host of oth­er op­er­a­tions en­joy­ing a ten per cent tax rate which in­clude bank­ing ser­vices in for­eign cur­ren­cies, fi­nan­cial ad­vice and fi­nan­cial ser­vices, fund man­age­ment in­sur­ance and rein­sur­ance and back of­fice op­er­a­tions.

The IFC al­so of­fers an at­trac­tive suite of dou­ble tax­a­tion agree­ments. In fact, Ire­land’s IFC tax regime is cit­ed as one of the key rea­sons for com­pa­nies es­tab­lish­ing a base in Ire­land to es­cape the more rig­or­ous reg­u­la­tion of NYC and Lon­don with more than half of the world’s top 50 fi­nan­cial in­sti­tu­tions set­ting up busi­ness in the Zone, in­clud­ing Citibank and Sum­it­o­mo.

The Irish Cen­tral Bank, by amend­ment to the Cen­tral Bank Act, is re­spon­si­ble for li­cens­ing and su­per­vi­sion of banks and all ac­tiv­i­ties car­ried out by banks and all oth­er com­pa­nies not reg­u­lat­ed or gov­erned by spe­cif­ic leg­is­la­tion. All in­cor­po­rat­ed en­ti­ties are sub­ject to Irish cor­po­rate law which is ef­fec­tive­ly the same or sim­i­lar to Eng­lish laws.

Are we re­al­is­ing this vi­sion?

An­nu­al­ly, Forbes Mag­a­zine pub­lish­es a list of the high­est gross­ing in­dus­tries in the world, a list which con­sis­tent­ly con­tains the usu­al sus­pects of en­er­gy, tech­nol­o­gy, phar­ma­ceu­ti­cals, health care and fi­nan­cial ser­vices.

With se­vere down­ward pres­sure on en­er­gy prices ex­pect­ed, T&T has to di­ver­si­fy in­to ar­eas where we pos­sess com­pet­i­tive ad­van­tages, with the in­ten­tion of cre­at­ing sig­nif­i­cant jobs and for­eign ex­change.

Fi­nan­cial ser­vices will in­evitably be­come one of the linch­pins of this fu­ture di­ver­si­fied econ­o­my and de­mands the com­men­su­rate em­pha­sis that this im­plies. Is the IFC on the path to achiev­ing these im­por­tant goals?

Time will tell.