Apple Still Avoiding US Tax

US multinationals in the Fortune 500 doubled the assets they hold in foreign subsidiaries between 2008 and 2014, taking advantage of loopholes in US and foreign laws to keep $2.1 trillion out of sight of tax authorities, a new analysis shows.

Here are the top 30 companies that disclose assets booked offshore, according to the Center for Tax Justice’s analysis of SEC filings. Apple leads the pack with $70 billion more held offshore in 2014 than in 2013, when a Senate investigation found the company pushed the limits of US and Irish law to keep its earnings taxed at 2% or less.

These companies tend to share common traits—technology and pharmaceutical companies can easily move intellectual property abroad, taking advantage of lax enforcement of transfer-pricing rules to move even US earnings overseas. Large industrial and energy firms often leverage capital-investment accounting rules to funnel more money abroad, and financial services companies routinely book their deals through low-tax jurisdictions.

At least 72% percent of the Fortune 500 operate subsidiaries in tax-haven jurisdictions—one in four of which are in the Cayman Islands—costing the government between $26 billion and $90 billion a year. The 57 Fortune 500 companies that disclose estimates of what their tax liability would be if they did not book their profits offshore would owe $184.4 billion in outstanding federal taxes.

Avoiding a tax bill of that size require a web of shell companies. PepsiCo, for example, operates 132 subsidiaries in offshore tax havens—one of their structures was a finalist last year in our inaugural tax-avoidance power ranking. Nike, which holds $8.3 billion offshore, has 52 subsidiaries, including some named after its shoe lines.

While the Obama administration has proposed closing loopholes that allow companies to shift profits and hide assets from the IRS, corporate lobbyists have thus far been able to keep them from becoming law.

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Poor people are getting terrible investment advice

You’d think the response to the question “How should I invest for retirement?” would be further, deeper inquiries about the individual hoping to retire someday, and then a nuanced plan considering that information. However, when you boil it down, age is the single most important factor when determining the investment advice you’ll receive from the retirement industry. The guiding principle: younger people get more stock (considered more risky), older people more bonds (less risky). But if you look around your office, you’ll see people with varying income and career trajectories, so the idea that everyone should have the same investment strategy—and risk tolerance—because of age seems beyond nuts.

That’s not the only way in which investment advice can suffer from oversimplification. Consider people with lower incomes, who are often lucky to have a retirement account at all. Several states are now stepping up and offering retirement accounts to people who don’t get such benefits through their employer, which tend to be low earners.Each state is taking a different approach to how the money will be invested. While most don’t offer much choice, there is a uniform push toward low risk investments. The thinking? Low income people can’t afford to lose any money in the market. That also means they have no shot at upside either. For that reason, some in the industry argue the states have it backwards—low income people should have riskier portfolios because they’re already starting from a lower asset base and need to be aggressive.

The states’ approach is closer to how lower earners currently invest. Using data from the 2013 Survey of Consumer Finances, the chart below shows how much stock Americans age 35 to 50 hold in their retirement accounts, segmented by income. I focus on retirement holdings because low-wage Americans often don’t have access to the stock market, but everyone with a retirement account has equal access to the market and is faced with similar investment choices.

As you can see, higher earners typically invest in stocks significantly more than middle to lower earners.

Researchers at Morningstar argue it should be the other way around. It’s not as crazy as it sounds. They point out that lower earners receive a more generous Social Security benefit relative to the income they need to replace in retirement. That benefit ends up representing an overwhelming share of their assets. Assuming Social Security is a safe asset, low earners, from a diversification perspective, should be positioned to take on more risk elsewhere. Another argument is that low income people are being left behind as the economy increasingly favors the owners of capital. Owning stock gives them a way to join that party.

That’s the theory and it makes a compelling argument that low earners may want to take on a lot of investment risk. But the reality is many low earners have meagre savings beyond their relatively small retirement accounts. The figure below takes the same group above—people with a workplace retirement account age 35 to 50—and takes the median liquid assets (checking, money market, or saving accounts) for different levels of household wage income.

The lowest income group has less than $2,000 in liquid assets. That means they have almost no financial cushion should they lose their job, need car repairs, divorce, or have a medical event. That leaves their retirement accounts as an emergency saving vehicle. Sadly, many people do use it this way: According to a survey from Aon Hewitt, low salary people withdraw from their retirement accounts at twice the rate higher income people do. Risky investments are a bad idea for an emergency fund because you may need to sell just when the market tanks.

As more people with diverse financial situations have retirement accounts, one thing is for certain: A one-size-fits all investment strategy based on age or some presumed risk tolerance is completely inadequate. There needs to be full consideration of your savings and income—both present and future—to figure out how much risk you can take.

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Nigerian Prtresident finally names a new Nigerian government cabinet—but it’s not that new

Four months after getting elected in landmark polls, Nigeria’s president Muhammadu Buhari has finally given his 21 nominations for a new government cabinet to the senate, but is yet to identify specific portfolios for each nominee.

The list of names, which was expected to break from a tradition of rewarding party cronies and supporters, includes former governors of Lagos, Rivers and Ekiti states, as well as a few operatives from Buhari’s APC party. There are also a few new names.

After being sworn in on May 29, there was eager anticipation of Buhari’s changed approach to governance as would be evidenced through his key appointments. After four months of waiting for names, it became a local social media meme with the hashtag #theList in recent weeks.

In Nigerian politics, ministerial appointments are closely watched particularly for crucial ministries like petroleum resources and finance. Outside of state governorships, much of the corruption and mismanagement in Nigeria’s history has occurred at the ministry level or at key government agencies. This week has seen the case of former oil minister Diezani Allison-Madueke, who was arrested, and later released on bail, for alleged money laundering.

Politically, the appointment of ministers allows the president and party leaders ‘reward’ members of their party and also set the agenda for the president’s entire policy and economic direction. There is also an ethnic slant as the Nigerian constitution requires the president to select one minister from each state.

Gender bias

The lack of female representation on the ministerial list- only three of 21 nominees- will certainly raise eyebrows and questions over the involvement of women in Buhari’s administration.

In general, the 21-person list has a balance of career politicians such as Lai Mohammed, the national spokesman of Buhari’s All Progressives Congress and career profesionals such as Osagie Ehanire, a surgeon with stellar qualifications from Germany.

The names included were governors Babatunde Fashola (Lagos), Rotimi Amaechi (Rivers) and Kayode Fayemi (Ekiti). Others named were Abubakar Malami; Abdurahman Bello Dambazzau; Aisha Jumai Al Hassan; Lai Mohammed; Adebayo Shittu; Solomon Dalong; Chris Ngige; Audu Ogbeh; Amina Ibrahim; Osagie Ehaneri; Emmanuel Kachukwu; Suleiman Adamu; Mrs. Kemi Adeosun; Ogbonnaya Onu; Ahmed Musa Bello; Ibrahim Usman Jubrin; Hadi Serika and Udo Udoma.

Buhari is expected to announce at least 15 more in compliance with Nigeria’s constitution which demands the appointment of a minister from each of Nigeria’s 36 states.

The long wait for ministers was understood to be as a result of Buhari’s careful selection process to find people who fit in his administration and with the fight against corruption being an obvious goal of the president, several integrity checks were supposedly carried out. Despite these checks and the long selection process, some people on the list have had to deal major allegations of corrupt practices. Former Lagos governor Fashola has faced a raft of accusations since leaving office with one of the most conspicuous being building a website for $390,000. Others like Amaechi and Chris Ngige have also had allegations of corruption laid against them.

Even though the names are yet to be matched with portfolios, there is already speculation. One of the fairly obvious matches is for Ibe Kachikwu, newly appointed head of Nigeria’s oil company (NNPC), to head to the ministry of petroleum. With Buhari confirming days ago that he will remain in charge of the ministry, Kachikwu could possibly be a junior minister in charge of day to day activities. Kachickwu’s selection presents another conundrum as he will likely vacate his current position leaving Buhari to select a new NNPC boss.

The Cost of Funding

Having a great idea is not enough to get millions of dollars of funding, or even any money at all. An idea is just a start.

Creating a plan, including a business plan, financial projections, marketing research and feasibility studies involves money, time and energy.

The effort of making that plan available to potential investors requires even more funds. Throwing it out on free platforms will not do the trick. It's too busy there. Quality investors don't have the time to roam all these solicitations. Actually, they don't have time for any solicitations at all.

An investor or funding source needs to be approached professionally. By introduction or recommendation for example, or with a well crafted message. Find websites where investors look for funding opportunities, go to business plan contests, attend investing conferences.

Once the plan gets into the hands of an investor, and the investor shows interest, the end is not in sight yet. This is just the beginning. Before the funding source digs in its pockets to provide funds for you, it needs to check your funding proposal.

The questions are: 

Who is this person? What is their experience? Have they done business before?

What kind of qualified team will execute this plan? What are their credentials?

Are the numbers and projections quoted realistic? 

Are the facts stated in the plan true? 

What are the risks involved, what will you do to mitigate the risks?

How will I get my money back, what kind of exit is possible? How long will it take?

What is the potential profit in this venture? 

What is the competition like? 

The funding seeker will have to answer these questions. The way he or she formulates these replies tells the investor a lot. Replies that are to the point, with quality information and complete documents are necessary.

In order to verify all of this information, the funding source will have to examine the project. This is called due diligence. There will be all kinds of expenses:

Travel expenses

Accountants fees

Analysts fees

Legal expenses

Funding sources will not pick up all of these expenses anymore, things have changed in the financial world. Investment banks and venture capital firms are well paid professions. They don't work for free. They do charge hefty fees.

Loan originators may be a bit more lenient and add on points to the settlement date of the loan, however, they need to do their homework. They are not banks who have you or the public in general as a customer. They want to be paid for their day-to-day routine. No matter what the outcome is of their time and energy invested in your proposal, they need to be paid.

Conclusion: in order to raise funds, you need some money. You need a budget to find funding. Use savings, partners, a small loan, or ideally, get started with your business. Start small, prove that it works and that it is profitable. It will buy you a lot of goodwill from your funding sources.

 

An afterthought: A great way to raise funds is to issue your own securities. It's like turning the tables in the funding process. You're the one in charge, setting the conditions. This prevents mistakes in the compliance process for raising capital with the public. The JOBS Act has relaxed the rules for fundraising.

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Octopus Launches $140m Growth Fund For Later-Stage Euro Startups

London-based Octopus Ventures, which last year revealed it had a $91.3m early stage fund, is today launching an new, separate, $140m fund designed to providing growth capital to “successful fast-growing later-stage companies across Europe”. The Octopus Zenith Opportunities II LP (“Octopus Opportunities fund”), will also provide much-needed follow-on investments into existing companies within the Octopus portfolio and invest between £250,000 and £25 million.

The first investment has been made, with Octopus leading the recent $60m round with Google Ventures into Secret Escapes, the London-based members-only luxury travel site.

In a statement Alex Macpherson, head of Octopus Ventures, said: “As the European ecosystem continues to develop and mature, this $140m fund allows Octopus to continue backing talented entrepreneurs from an early stage, but then to provide crucial on-going support.”

The appearance of more growth funding is welcome in Europe, which tends to be starved of these kinds of funds, forcing startups to head abroad (usually the US) to find it.

The move follows a new trend of growth funding in Europe. In June Fidelity Growth Partners Europe announced a new £150 million (nearly $250 million) fund and a complete rebrand under the new name of Eight Roads Ventures.

The African tech startup scene has been transformed in just four years

Last month DEMO Africa took place in Lagos, Nigeria, with 30 tech startups pitching to an audience of investors. The event—one of the biggest of its kind in Africa—is only its fourth year, but in that time the startup landscape has changed enormously.

Back in 2012, investing in the continent was still considered a risk, and there were few success stories to convince investors otherwise. But last year, startups listed on the online funding platform VC4Africa raised $26.9 million, more than double the amount in 2013. And that’s just a drop in the ocean; the total of venture capital invested was more likely closer to $500 million, considering sizeable funding rounds for the e-commerce companies Jumia, Konga and Takealot.

2015 has brought more big investments. Hotels.ng (an online booking platform), Parcelninja (a logistics service) and M-KOPA Solar (which provides solar equipment to rural households, and accepts mobile payments) have raised large rounds, and Kenya’s Weza Tele (fintech) and South Africa’s WooThemes Africa (web design) are starting to see some impressive exits.

That will further encourage investment, according to South African angel investor Daniel Guasco. “Success breeds success,” he told Quartz. VC4Africa’s founder, Ben White, noted that the number of venture applications on VC4Africa has grown 640% in the last three years, and their overall quality has risen. With a billion people in Africa, a growing middle class, fast economic growth compared to much of the world, and the rapid expansion of both internet and mobile penetration, White argued there are many new market opportunities for these startups.

What’s more, those opportunities extend beyond Africa’s borders, argued Aaron Fu, managing partner for Africa at Nest, a Hong Kong-based VC firm. He cited SuperFluid, a Kenyan startup Nest is incubating, which uses non-traditional data sources to assess people’s financial health. “While this certainly was accelerated by a need on this continent for alternatives to traditional financial statements and credit bureaus, it has applications to individuals regardless of where in the world they reside,” he told Quartz.

An interesting aspect of the recent flurry of investments in African startups is that they come from a variety of sources. These range from angel investors such as Guasco and his fellow South African Vinny Lingham, to big mobile operators such as Millicom and Safaricom. Private equity firms from abroad, such as Helios Investment Partners, are now starting to target the continent, while investment networks are also in vogue, such as the African Business Angels Network (ABAN).

African governments are also doing more. Rwanda has created a special visa for technology entrepreneurs. Kenya has launched Enterprise Kenya, through which the government plans to back tech startups itself, and has revised its company acts, including one that has been in place since 1948. The Nigerian government, a strong supporter of DEMO Africa, has launched a publicly funded incubator in Lagos and plans to back startups itself.

Fu says African governments could go still further—for instance, by mirroring schemes such as Singapore’s Early Stage Venture Fund (ESVF), whereby the government provides matching funds for VC investment. The African opportunity is evident, and there is still a long way to go.

The quest for economic freedom in South Africa is proving to be the ruling party’s downfall

The conventional interpretation of economic freedom in the Western world refers to the freedom individuals have to work, produce, consume and invest in an economy. But in South Africa it is interpreted as the material security of people.

It is this economic freedom that continues to elude many in post-apartheid South Africa. The fruits of economic prosperity have not necessarily trickled down to the broader population.

South Africa is ranked among the top five unequal countries globally with a Gini-co-efficient of 0.63. This is high. The index measures income distribution in households, with 0 representing perfect equality and 1 perfect inequality.

Using the Palma index, which measures the distribution of income ratio between the richest 10% and poorest 40%, South Africa is also highly unequal with a score of 7.5. 

 A key criticism against inequality measures is that they do not consider the impact that social welfare grants can make on reducing poverty. The Human Development Indexshows that, while there has been some improvement, life expectancy is only 61 yearsand the average years children spend at school is ten.

South Africa’s welfare system has been expanded. But the government led by the African National Congress (ANC) is accused of giving people social grants instead of true economic freedom.

The quest for economic freedom

At the birth of the South African democracy in 1994 the idea of freedom was intimately linked to that of transformation, not just politically, but socially and economically. Democracy implied not just changing the state. It entailed a more inclusive ownership of the economy, with all citizens sharing in the country’s wealth.

This was evident in many ANC discussion documents, including its “Ready to Govern” policy guidelines for a democratic South Africa released in 1992. The first step to transformation was to secure political power. This would put the ANC in a better position to advance social and economic change.

In conceptualizing the role of the state, the ANC envisaged that it would remain the gatekeeper and driver of the transformation project. In its self-conceptualization, the ANC would continue to fight for the complete liberation of people.

After political power was seized, the liberator (as in the ANC) would then be charged with leading the complete socio-economic rebirth of society through transferring wealth from the rich to the poor. This would be done through a developmental state, which would seek toactively guide economic development to meet the needs of the people.

What is interesting is the sense of entitlement to govern that emerges. The liberator party, through state capture and cadre deployment, would advance the democratic aspirations of its people to wealth, prosperity and economic freedom. This of course implied a moral and ethical elite that carried the best of the people at heart.

Economic freedom as an elusive dream

Economic transformation of unequal societies in a democratizing context is difficult. It requires a creative mix of policy options underpinned by a commitment to social justice.

Two out of 54 African states have successfully pursued a developmental agenda while maintaining a degree of democratic legitimacy: Mauritius and Botswana. For a democracy to endure, the people must see it as legitimate and to be delivering the promised goods.

As South Africa enters its third decade of democracy, the socio-political environment is becoming increasingly volatile as inequality deepens. The country has high unemployment rates, and protests against a lack of basic services are an almost a daily occurrence. Business confidenceis slowly declining in the midst of sluggish economic growth. We also cannot ignore the rise of systemic state corruption. And the failures of the education system could condemn future generations to a life of poverty and hardship.

 In response, the ANC has sought to undermine institutions that should hold it accountable. These include the public protector and the the media. It has blamed history for the country’s economic woes. It has also undermined the doctrine ofseparation of powers and used cadre deployment to entrench patronage for state capture.

Democratic stability is being undermined through unethical actions, endemic corruption, and a lack of delivery on key socio-economic issues. This is exacerbated if a sense of entitlement to govern emerges within liberator parties. They eventually see themselves as accountable to the political party and not the people. They begin to believe that the liberator will govern forever.

Because the ability of people to hold the liberator accountable diminishes, discontent finds expression in violent and destructive service delivery protests. People opt out of the formal mechanisms of participation, such as elections. A little less than half of South Africa’s voting age population now do not participate in elections. Support for the ANC among the voting age population has declined to 35%.

Looking into the future

In the midst of South Africa’s incomplete liberation because of a failure to make good on the promise of economic freedom, a mediocre track record of delivery on key socioeconomic issues and growing political volatility, the question that emerges is whether the liberator will relinquish power if the people will it so.

South Africa will hold local government elections next year. It seems that the ANC will either lose municipalities or win with smaller margins, thus reducing its dominance of municipal councils. Will the party respect the voice of the people, even when a vote is cast for another political party?

Inequality creates breeding grounds for revolt and instability, even against liberators. Societies only remain patient for so long before they start demanding the promised fruits of democracy and freedom. This can either be through the ballot box or through outright revolt. For South Africa, the 2016 municipal elections may very well give the country a glimpse into what extent the will of the people is indeed respected.