Give thanks for the Manx
2 May 2011
The Isle of Man’s ability to attract international investment and promote growth makes it a central plank in the UK’s recovery strategy. By Geoff Kermeen
Despite the overwhelming impact of the global economic meltdown upon the City of London, it maintains its status as the world’s leading international finance centre (IFC).
Nevertheless, the political and social backlash upon the City has been unrelenting, and small IFCs such as the Isle of Man have shared the blame for the financial crisis and its aftermath of cuts and deficit reduction.
However, when one peers through the smokescreen of post-credit crunch hysteria, a picture can be discerned of the Isle of Man’s true value to the global economy in operating on a ’hub and spoke’ basis with larger IFCs, such as the City.
Primarily, it cannot be ignored that small IFCs bring great liquidity to their larger counterparts, aiding capital flows and allocating such capital efficiently. An HM Treasury review in 2010 concluded that “the [British] Crown Dependencies make a significant contribution to the liquidity of the UK market. Together they provided net financing to UK banks of $332.5bn [£203.95bn] in the second quarter of 2009.”
This is largely accounted for by the upstreaming of deposits into UK-headquartered institutions. The majority of the approximately £50bn on deposit in the Isle of Man originates from outside the UK, yet ultimately ends up in the City. At the time of the crunch, it can be argued that this sizeable amount of liquidity aided the UK hugely.
In addition, the Isle of Man has positioned itself as a leader in several sectors that encourage and facilitate capital flows and inward investment into UK markets.
Mark Field, MP for the City of London, commented on the Isle of Man’s contribution recently. “The Isle of Man brings into a British sphere of influence some very important strategic global business,” he said.
His words echo the observation of the then Lord Mayor David Lewis in 2007, that the Isle of Man is a “core asset of the City of London”.
Isle of Man companies have built up impressive track records for raising funds successfully via global capital markets. Recent research shows that 53 Isle of Man companies are listed on AIM, more than any other offshore jurisdiction can boast.
In particular, the Isle of Man has developed strong links with the emerging markets, with the majority of Indian AIM-listed companies being Isle of Man-incorporated, together with, among others, businesses from China, Brazil and South Africa. As the UK looks to capitalise upon the growth of these markets in order to spearhead its own recovery, the Isle of Man clearly enhances the City’s international offering.
Manx companies are commonly used by international property investors fuelling the recovery in prime London real estate. Figures complied by CB Richard Ellis show that over 70 per cent of investment activity in the past two years in the London real estate market was by overseas investors. Such investors, a mixture of institutions and high-net-worth individuals, are attracted to the Isle of Man by its proximity to the UK and its highly flexible investment vehicles. In particular, the Isle of Man is uniquely able to offer the administrative convenience of its own VAT office, providing expedited registration and grouping.
The Isle of Man is also aiming to capitalise in a wider context upon its unique position as a low tax jurisdiction within the EU VAT and customs area. It has established a sophisticated entry processing unit for the clearance of goods being imported into the UK - and soon the whole of the EU - without the need for such goods to be brought physically into the Isle of Man.
Largely on the basis of this facility, a Chinese government think tank has identified the Isle of Man as a potentially important conduit in implementing its national ’Going Out’ strategy, aimed at encouraging business to seek opportunities overseas.
Flying and floating
The Isle of Man has consolidated its reputation as a centre of excellence for the provision of services to the global space and satellite industry, playing host to some of the world’s leading satellite operators, launch companies and space entrepreneurs.
London’s shipping, aviation and insurance markets benefit greatly from business drawn in by the Isle of Man. Its white-listed ship registry has seen tonnage growth of 14.9 per cent in 2010, a large part of which comes from shipowners in the Far East. This makes it the fastest-growing register in Europe and the fourth-fastest in the world. The Isle of Man’s aircraft registry has also experienced tremendous growth in its first three years of operation, becoming the fastest-growing registry devoted to business jets in the world.
The recent UK Budget focused upon the need for an economic recovery based on growth. The capital flows, professional services and international relationships provided and facilitated by the Isle of Man will be crucial in achieving this goal, maintaining the pre-eminence of the City of London as an IFC and increasing the global competitiveness of the UK.
Geoff Kermeen is head of Cains’ London office