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What can Davos do to build a more sustainable world?

What can Davos do to build a more sustainable world?

By Alexander Friedman, Jerry Grinstein, Larry Hatheway, and Charles C. Krulak.

DAVOS – The World Economic Forum’s annual flagship meeting this year will focus on how to build a more cohesive and sustainable world. As always, the topic is timely, but also a little abstract. To help give it more concrete form, we have a few proposals to put the prevailing economic model on a better track and focus the discussion.

First, it is time to overhaul the US tax code to reduce structural wealth inequality. To that end, America should get rid of the “carried-interest” loophole. A provision that was originally intended to encourage long-term investment has become a massive tax break for financiers working in private equity and at hedge funds. Although the 2017 Tax Cuts and Jobs Act placed some limitations on this finance-friendly rule, it remains in place.

By the same token, America should do away with the “stepped-up cost basis” loophole, which has become a key way by which the rich avoid taxation when bequeathing their wealth to their heirs. As such, it has enabled the rich to become dynastic, undermining America’s ostensible commitment to meritocracy.

Second, the United States desperately needs to clean up its student-loan mess – a huge burden on the young – by establishing a national trust along the lines of what Australia has done. In Australia, a student borrows what she needs to fund her education, and the loan is repayable from a predetermined proportion of her subsequent income for a specified number of years. Students who end up with lower future incomes pay less than they borrowed, but this is offset by higher earners. And graduates who enter certain forms of public service should be offered debt-forgiveness incentives.

Third, we need to change corporate reporting to encourage more long-term, sustainable thinking. The first step is to end the obsession with quarterly earnings. The pursuit of financial analysts’ targets every three months warps the way CEOs and boards make decisions and undermines long-term thinking.

On a related note, share buybacks deserve more critical attention. S&P 500 companies now routinely use profits or borrowed money to repurchase their shares, instead of investing in new factories, business lines, or other key capital expenditures. Over the last ten years, around US$5 trillion has been spent on this method of boosting reported earnings per share (and thus the stock price). Corporate reporting should be changed to explain clearly how much of a share-price movement is largely attributable to buybacks, and boards and shareholders should adjust executive compensation accordingly.

Moreover, corporations worldwide should start reporting sustainability metrics. Corporate reporting influences corporate behavior, but companies generally are required to report only their financial position, based on audited income and balance-sheet accounting standards. This should be expanded to include broader stakeholder metrics such as customer satisfaction ratings, diversity scores, carbon footprints, charitable giving, political donations, and the pay gap between senior executives and average rank-and-file employees. Boards for stakeholder-reporting standards (special-purpose bodies, akin to the Financial Accounting Standards Board) should be created to oversee newly agreed worldwide conventions for non-financial reporting.

Fourth, a global agreement to levy a 0.1% tax on financial transactions, similar to what is done in Hong Kong, would help to rein in the financial system. A transaction tax benefits long-term investors over short-term speculators, adds just enough friction into the financial system to help reduce bubbles, and, most critically, better aligns the cost of managing the system to those who benefit the most from it. According to the Congressional Budget Office (CBO), a 0.1% transaction tax could produce around US$1 trillion in much-needed extra revenue in the US alone over a decade.

Fifth, countries need to raise minimum wages and index them to inflation. In the US, a federally mandated US$15 per hour national minimum wage would help to level the playing field, and automatically adjusting it in line with the rising cost of living would help everyone keep up. According to the Chicago Federal Reserve Bank, these steps would also increase aggregate demand in the world’s largest economy.

Sixth, in all countries an overhaul of national income accounting is in order. Since it was introduced in the 1940s, gross domestic product has assumed unofficial status as the primary measure of national welfare. Yet, when “progress” is equated with GDP, policymaking becomes an exercise in boosting gross national income without regard to the attendant social or environmental costs. New metrics are required to measure wellbeing net of cost.

National income should include the costs of externalities such as environmental degradation or greenhouse-gas (GHG) emissions. Thus measured, net income would more accurately reflect sustainable growth. Moreover, all countries should agree to common standards for incorporating other measures of social progress. These could include life expectancy; infant mortality; the detection, prevention, and treatment of common diseases; GHG emissions per capita; biodiversity; educational attainment; income distribution; human trafficking levels; and socioeconomic achievement by gender and minority groups. The Bretton Woods institutions could research and develop the new common standards of national welfare that we need, and introduce them through their widely followed publications.

Last, but by no means least, urgent action must be taken to address climate change in a way that shares the costs fairly within countries and between generations. Mitigation policies must be made appealing. Carbon taxes are necessary, but so are subsidies. According to the US Joint Committee on Taxation and the CBO, a carbon tax of US$25 per ton with annual inflation-adjusted increases of 2% would raise US$1 trillion in the US over a decade.

It makes sense to earmark even more than that amount to help those made worse off by the tax, namely today’s coal-, oil-, and gas-producing communities, as well as families on low or modest incomes hit by regressive taxation. Subsidies could take the form of cash payments, re-training, new infrastructure projects, and investment in alternative energy industries in “coal and oil country.” Importantly, the subsidies must be greater than the carbon tax revenues. The resulting increase in national debt is rightly the obligation of future generations, who will benefit most from the transition to a low-carbon economy.

In short, climate policy must have tangible benefits today if it is to be politically acceptable. Consider this: as e-commerce reduces demand for physical shopping, communities should buy vacant malls and stores – again with debt to be paid off by future generations – and replace them with carbon-capturing green spaces.

These practical steps, in aggregate, would go a long way toward helping realize the vision of “stakeholder capitalism” and sustainability that Davos has propagated for half a century.


Alexander Friedman is a co-founder of Jackson Hole Economics. Jerry Grinstein is a former chairman and CEO of Delta Air Lines and Burlington Northern Railroad. Larry Hatheway is a co-founder of Jackson Hole Economics. Charles C. Krulak is a former Commandant of the US Marine Corps and President of Birmingham-Southern College.


Copyright: Project Syndicate, 2020.
www.project-syndicate.org


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A Guest Contributor is any of a number of experts who contribute articles and columns under their own respective names. They are regarded as authorities in their disciplines, and their work is usually published with limited editing only. They may also contribute to other publications. - Ed.

Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.