Look Back, Leap Forward
A look back at 2011 and how we in the region can prepare for the year ahead.
Words by Nigel Rouse of KPMG.
Looking back at the last twelve months, one cannot help but think that most developed economies have been locked in a state of economic ‘limbo’. The economic issues that plagued Europe and the US in 2010 (in fact most ‘developed’ economies) have only become worse; national debt and unemployment have increased, social unrest seems to have gathered momentum and the future of the Euro appears even less certain.
Over the next twelve months it is tough to see things getting much better. The difficult political and economic decisions needed to bring about recovery (largely in the form of jobs) within these sovereign states will not come about easily, nor will any subsequent recovery happen quickly. With public debt approaching post Second World War levels and youth unemployment at unprecedented levels, one fears that a sustainable recovery will take years to engineer and implement.
Despite all of the negative news coming from Europe and the US, if we in the Caribbean focus on areas of local and overseas opportunity we may be partially able to shelter ourselves from these issues. One may consider the region’s main areas of opportunity to be likely to include:
a number of economies are actually growing at the moment (mainly those with significant natural resources). For example, Brazil is currently going through a period of strong economic growth, with GDP growing by 7.5% last year, aided by the largest discovery of oil in 30 years. I am positive that with continued growth these economies will present excellent opportunities for us in the region (especially within the offshore finance and tourism sectors);
many believe there is currently a lot of spare capacity within the market (especially within state owned entities). Through the continued privatisations of these assets, local governments will be able to unlock productivity gains from these businesses, which will in turn help stimulate supporting businesses and drive overall economic growth (consider the gains made under the Thatcher Administration in the 1980s in the UK for example);
Public Debt and Taxes:
higher national debt and unemployment will mean higher taxes in most developed economies. Plans to reorganise corporate structures in lower tax jurisdictions that may have been seen as too expensive or awkward to implement in the past are likely to become increasingly attractive as corporate (and personal) taxes outside of the region become more onerous. Lower tax jurisdictions within the region are well placed to benefit from an y such restructuring reorganisation initiatives. In order for companies and individuals to maximise the potential benefits from these opportunities, they will need to become increasingly creative in their approach to marketing, as well as more diligent at managing themselves internally. Key things that they will want to consider are:
as a lot of the opportunities lie outside of our traditional markets, we will need to be increasingly innovative and determined in targeting new business. Business networking, the internet and business alliances are all areas that will help us tap into opportunities in these unfamiliar territories;
businesses will need to ensure that they are properly set up to manage an increasingly onerous level of administrative and disclosure based requirements from overseas tax and regulatory authorities. Developments such as Foreign Account Tax Compliance Act (FACTA) will only continue as overseas governments become increasingly wary of lower tax destinations;
Accounting and Management Information:
a lot of businesses will experience some form of financial strain or pressure over the coming months/years. It is vital that companies ensure their internal accounting, business planning and reporting structures are sufficiently robust to allow management teams to get them through these difficult times. A proper management reporting and budgeting framework should provide management with the necessary information and time to mitigate potential exposures and to take correcting action before an issue escalates into a crisis
In summary, 2011 was certainly a tough year for most countries. Many developed economies have yet to start formulating credible strategies for a sustainable recovery, let alone implement them. 2012 is likely to be just as trying. It is important that governments and businesses in the Caribbean develop clear strategies now that allow them to both benefit from opportunities in growing ‘niche’ markets, as well as properly manage their ongoing operations through a potentially turbulent and difficult year ahead. If we in the region can manage this, we will be well placed to weather, if not benefit, from the coming storms.
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