International Finance Centres (IFCs)1 galvanized US$1.6 trillion of additional finance to developing countries between 2007 and 2014, according to a new paper by Dr. Judith Tyson, a Research Fellow at the Overseas Development Institute (ODI).
The paper – International financial centres and development finance – also finds that IFCs boosted developing countries’ GDP by US$400 billion and tax revenues by US$100 billion during the same period.
The values cited in the paper highlight the crucial role IFCs play in addressing the need for developing countries to mobilize ‘billions to trillions’ of finance if economic development and the Sustainable Development Goals are to be met.
Commenting, Dr Judith Tyson, Research Fellow at the ODI, said: “International finance centres play a crucial role in funnelling much needed investment to developing countries. IFCs help facilitate the investment needed to create jobs, build critical infrastructure and drive economic development in some of the world’s poorest nations.
“These important benefits of IFCs for developing countries are often neglected in the debate surrounding policy, regulation and reforms targeting IFCs and more balance is needed in policy and public dialogue to reflect IFCs’ positive impact, as well as recent significant strengthening of the regulatory environment in IFCs.
“The danger of the current reform process is that, in their zeal, the various authorities will throw the proverbial baby out with the bath water, impairing the development community’s ability to deliver one of its most important policy goals – the mobilization of private finance for development while having a negligible effect on corruption and tax evasion in developing countries.”
Lorna Smith, OBE, Interim Executive Director of BVI Finance added: “The paper is unequivocal in stating that developing countries would have missed out on over a billion dollars of financing over the last decade if it were not for IFCs.
“IFCs are trusted and used by some of the world’s most reputable institutions, including Development Finance Institutions, when it comes to directing foreign direct investment to developing countries. The strengths and attractiveness of IFCs are clear: they provide secure, reliable and efficient jurisdictions that allow investors to mitigate the risks and barriers to investing in developing countries.
“Contrary to some of the criticism, IFCs like the British Virgin Islands have established themselves as key pillars in the drive to support some of the world’s most deprived and underdeveloped countries.
“The unbalanced and constant rhetoric against certain IFCs is unhelpful and risks undermining their positive contribution to the global economy. I hope this paper can help redress and rebut some of the unwarranted and frequently misguided remarks against jurisdictions like the BVI.”
The independent paper uses a mixture of primary sources, including interviews with multilateral development banks, DFIs and professional practitioners, and secondary sources including material from international organisations and agencies such as the IMF and United Nations.
The paper was supported by BVI Finance.
The full paper can be downloaded HERE.
Notes:
1. The papers defines an IFC as a centre for financial services where the majority of activity consists of:
· Relatively large numbers of financial institutions engaged primarily in business with non-residents;
· Financial systems with non-domestic assets and liabilities that are large in proportion to domestic financial intermediation and GDP;
· Financial systems that lack ‘financial depth’ in relation to asset markets, the resident investor base and resident financial institutions.
This definition excludes large financial centres, such as London and New York, because of their well-developed financial markets. It does include Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Ireland, the Isle of Man, Jersey, Luxembourg, Mauritius, the Netherlands and Panama.