Evita Nyandoro: why governance matters more than ever
23 March 2020: it’s important that businesses consider the challenges around governance and the monitoring of regulations – especially when venturing into emerging markets, writes Citi’s Evita Nyandoro.
The US-China trade war and Brexit highlight how global trade now dominates business, particularly with trade talks to be negotiated. While this used to relate only to multinationals, many small and medium-sized companies are now increasingly doing business across international borders.
An increase in connectivity and technology has seen more scrutiny around how individuals and companies conduct themselves. Therefore, it is important that businesses consider the challenges around governance and the monitoring of regulations – especially when venturing into emerging markets.
Knowing the tax regulations that apply to the specific country is important. These include (but are not limited to) employee and company taxes, customs duties and withholding taxes. Transfer pricing rules should also be considered. More than 135 countries are now collaborating to put an end to tax avoidance, which has culminated in the Base Erosion and Profit Shifting framework.
Businesses need to fully understand the foreign exchange regulations that apply to countries they are moving into so they understand any restrictions that may apply on the movement of foreign currency, particularly the repatriation of profits. Some countries require a court order before foreign currency above a certain threshold can be moved out of the country in specific instances. Most countries with onerous foreign exchange controls require central bank approval, which can be a protracted process. Knowing such limitations upfront ensures that businesses are prepared for the financial implications of delays.
Understanding the local laws and considering the costs of compliance is a key challenge. Regulations vary and some countries may also have local laws on areas such as indigenisation that may affect whether a company wants to have a presence in a country or just conduct business through intermediaries.
The increased focus across the globe on financial conduct regulations, anti-bribery and corruption legislation also means that companies would have to abide by the laws of both the new market and country of origin – which may be significantly different.
Companies that achieve success are normally the ones that can maintain a similar standard or quality of product or service as they move into new territories. Common problems include getting people with the right skills who are willing to work in these new territories, and also understanding and complying with the most recent immigration regulations. Organisations need to spend some time investigating these before they commit to investments in order to ensure a smooth transition into countries by employees.
It’s vital to remember to enlist expert advice from specialists such as qualified accountants, lawyers, tax advisers and bankers when beginning due diligence. This will save business leaders from costly mistakes and lengthy delays that could cost them market share and a critical head-start on their competitors.
Middle East and Africa Regulatory Reporting Head at Citi