Three BRIC Economies ‘Worst Culprits for Trapping Company Cash’

Russia, India and China – three of the so-called ‘BRIC economies’ – have been voted the worst in the world to repatriate company funds from in a poll of financial professionals.

In the first of a series of ‘trapped cash’ pulse surveys conducted by Euromoney, corporate treasurers and finance directors of international companies with combined annual sales of more than US$250bn across industries voted China the ‘least efficient’ country to repatriate cash from. Second was India, with Russia third, Argentina fourth and Turkey fifth.

By contrast, the US, Germany and the UK were voted the ‘most efficient’ countries in the pulse survey, which was conducted during February.

India was also ranked top among countries which companies had considered investing in but were dissuaded from doing so by its onerous regulatory and tax regime, with Iran ranked second and the United Arab Emirates (UAE) and China ranked joint third.

Trapped cash basically represents money that is legitimately earned overseas, but which proves hard to repatriate. It results from factors such as foreign exchange controls (FX), capital requirements, restrictions on inter-company lending, and taxation on cross-border flows and dividends paid.

The impact on companies includes reducing their ability to put cash surpluses in one part of the business to work elsewhere. This can prevent businesses from offsetting debt, raising borrowing costs, and could restrict future investment and growth plans.

Although the governments of China, India, Russia and Turkey have made concerted efforts in recent years to ease restrictions on the flow of capital, the survey results indicate that greater reform is required to improve a company’s ability to repatriate cash swiftly and easily.

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