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New Freemont Group website

PUBLICATIONS / Newsletters / 2012 / Newsletter July
New Freemont Group website and office
Beginning of July, our new website went live. After many years, it was time for a more modern design that is fully responsive with the latest smartphones and tablets. Built on a WordPress platform, it allows for better content management and better social integration. Accessibility as well as SEO has greatly improved, and our news articles and archives are now easily searchable.
What is more interesting is that our newsletter readers can now discuss our articles as well as offer suggestions in the comment section on our website. Please drop a comment, we’d love to hear your opinion.
Another exiting new development is the opening of the Freemont Panama office in the growing tourist destination of Santa Fe. This more central location allows us to better serve Panama’s large expat community and tourists. Clients who wish to visit our Panama branch can now do so well outside of the busy city in a relaxing and stunningly beautiful location.

Russia joins World Trade Organization
Nineteen years have passed since Russia first applied to the World Trade Organization (WTO). But after Russia’s patriarch Vladimir Putin cleared the final hurdle last week, Russia will finally join the WTO on August 22nd. It is another milestone in the transition of the former Soviet Union, and an opportunity for investors.
In 2011, Russia was the world’s ninth largest exporter, shipping $522 billion in goods and $54 billion in services to its trading partners. Last year, Russians imported $323 billion in goods and $90 billion in services. Under the agreement with the WTO, Russia has to lift or reduce many tariffs on these goods and services.
On average, the final legally binding tariff ceiling for the Russian Federation will be 7.8% compared with a 20111 average of 10% for all products. More specifically: the average tariff ceiling for agricultural products will be lowered 2.4 percentage points to 10.8%, and the ceiling average for manufactured goods will be 7.3% vs. the 9.5% average today on manufactured imports. A detailed overview can be found on the WTO website.
More importantly, foreign companies will receive market access to previously restricted sectors. Banking, insurance, telecommunications, transport & distributions will all be liberalized August 22nd or in the foreseeable future.
Russia also made commitments on government procurement arrangements, limiting corporate and agricultural subsidies and many more specific subjects.
Cyprus is uniquely positioned to benefit from Russia’s liberalization policies. As we wrote in February: Russia imposes a withholding tax on outgoing dividends to most other countries of 15% and 20% on interest, but dividends to holding companies in Cyprus are taxed at a mere 5% (on investments in companies with more than $100.000 share capital). In addition, Cyprus does not tax holding companies that invest in this way; no corporate tax, no capital gains tax and no withholding tax if dividends are sent abroad. Neither does it have stringent thin capitalization rules or minimal interest requirements that could undermine the benefits just mentioned.
We have seen a steady increase in Russian clients and Non-Russian clients who invest into Russia. Moreover, any entrepreneur investing in Russia without using Cyprus would be shooting himself in the foot. Contact us today if you’d like to know more about these benefits.

Emerging markets continue to grow
Developing economies in Asia, South America and Africa continue to grow in spite of economic depression in the US and EU, says Ernst & Young in collaboration with Oxford Economics in their Rapid-growthmarket forecast (RGM). “RGMs are likely to weather the ongoing Eurozone crisis and remain engines of global growth, though many will see expansion slow this year. Their expansion is expected to accelerate once more in 2013.”
You’ll find that the rapport is filled with astonishing achievements by emerging markets and the BRICS in particular, but what do these mean to you? There are many findings that could directly affect your business. For example:
The number of emerging markets households enjoying an income of over US$30,000 will more than double to 149m by 2020, overtaking the US (120m) and the Eurozone (116m). These households will have discretionary income to spend on leisure pursuits, consumer goods and holidays.
Up until now, most Western businesses would enter Asian markets because the availability of cheap labour to produce consumer goods for the developed world. In the coming years, we will see a reverse in trends: goods going from West to East.
“Emerging market consumers are on average markedly younger than their rich-world counterparts, and are increasingly concentrated in cities, making them readily accessible. As they become richer, they want new homes equipped with modern amenities and filled with consumer durables. Sales in Western markets hinge upon replacement cycles and the pace of new household formation: in emerging markets, demand growth is much faster because many households are first-time buyers: that explains why refrigerator sales in China rose by 25% a year between 2005 and 2009.”
It is not just the products that those new consumers are after, they are also looking for the same convenient ways to get them. This creates a demand for manufacturers of retailing equipment, but also for business-to-business services — ranging from extension services for farmers to the development of software for tracking stock, transactions and customer profiles.
Entrepreneurs should not underestimate the opportunities in Africa: the continent has shown significant progress. For example, over the last ten years, mobile phone penetration has risen from less than 5% to almost 50% , and internet penetration is now at 10%. These are averages: some African countries perform better, and naturally urban areas are more advanced than rural areas.
Open trade policies have led to clustering of certain manufacturing sectors in certain areas, for example car production in Mexico, development of hair care products in Brazil. and Electronics production in China, Taiwan, South Korea and Japan. Low (labour) costs is only part of the motivation: production expertise and distribution networks are just as important. This is an important factor when consideration outsourcing.
RGM’s can be leading innovation in particular areas, unhindered by the law of the handicap of a head start. Banking by mobile phone for example is well developed in Kenya and Brazil, but is a bigger step to take for many Western consumers. Innovation driven companies can benefit from consumer signals in RGM’s to fine-tune their products.
As a side-note, the rapport calls on RMG governments to make the same mistakes as in the developed world: Asian consumers safe rigorously against old age and misfortune and “must be persuaded to save less and spend more to become true consumers.” It seems some western economist still think they know it best.
Overall, it is an interesting read and while the old economies’ prospects might look a bit bleak, emerging market have a bright future ahead of them.

Francois Hollande: fairly blind
Is it a coincidence that it was the French economist Frédéric Bastiat who wrote:
 “L’Etat c’est la grande fiction par laquelle tout le monde s’efforce de vivre aux dépens de tous les autres.” (The state is the big illusion on which everybody tries to live at everybody else’s expense.)
The illusion lies in the fact that government does not create anything and can at best only distribute wealth (minus administration costs). Usually the wealthy win at the expense of the poor: while the rich might pay higher income tax rates, they receive corporate subsidies, protective legislations and have more means to avoid taxes too. Yet the masses only see what is directly visible, thinking that taxing the rich can solve their problems. Such blindness inspired Bastiat to write his famous broken window parable.
When a window is broken, it creates job opportunities for a window repairman, who’ll have more income to spend on the baker and so on. But had the window not been broken, money that would otherwise be needed to repair a window would now be spent and create job opportunities elsewhere. The economy just lost a window. But those are unseen economic effects. It is the economic blindness of the average voter that leads to destructive government programs such as cash for clunkers (governments destroying second hand cars), but also to self destructive tax policies.
Tax money can stimulate the economy, but it would stimulate it more if it were left in the hands of the businessmen and the consumers. Trying to stimulate with tax money is like Baron Von Münchhausen dragging himself out of the swamp by his hair: it cannot be done.
In the United States, president Obama wants to raise taxes, because he believes it would be a more fair system. The new French president Francois Hollande seeks to increase the highest income tax rate to 75%, but his justification is more extreme: during his election campaign he told the public: “Above 1 million euros, the tax rate should be 75% because it’s not possible to have that level of income.”
Really he said it: “I will not accept such indecent riches”
First lets analyse Obama’s claim that taxing the rich higher is fairer. The average French worker earns €30,000 per year. France income tax rates are as followed:
  • Up to €5,963 0%
  • Between €5,964 – €11,896 5.5%
  • Between €11,897 – €26,420 14%
  • Between €26,421 – €70,830 30%
  • Between €70,830 – €250,000 41%
  • Between €250,000 – €500,000 44%
  • Between €500,000 – €1,000,000 45%
  • Above €1,000,000 75%
The average French worker, assuming he does not use any deductions available to him, pays €3433 income tax per year. A French top earner making €250,000 per year pays €89,142 income tax, almost 26 times as much. A wealthy Frenchman making €1.5 million per year would pay €799,142, more than 232 times as much tax as the average French worker. By what standard can that be called fair?
Hollande’s intend, however, is to tax everybody making over €1 million one hunderd percent. But even with 75% he will soon have his way: No self respecting rich person will allow such exploitation.
We invite you to share your opinion in our comment section.
Also see in this context this interview with actor Will Smith on French television. Smith is a strong supporter of (the tax policies of) president Obama. But what does he think of 75% tax?

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