The Regional Post interviewed Daniel A. Witt, the President of the International Tax and Investment Center (ITIC) learn more about his perspectives on advancing free markets, trade, and investment in transitioning economies while also exploring his thoughts on Armenia’s tax structures and proposals for progress. Mr. Witt visited Armenia in the framework of EBRD’s 33rd Annual Meeting and Business Forum “Delivering Impact Together,” which took place in Yerevan, Armenia from 14-16 of May.
Interview: Arshak Tovmasyan
Mr. Witt, you have a substantial exposure to diverse international environments, particularly emerging markets like those found in Post-Soviet nations, Asia, and Africa. Through a Western business and investment lens, in your opinion, what key factors should investors take into consideration when stepping into these frontier markets?
Firstly, I would like to say that it’s great to be back in Armenia, I see a huge change and development since my last visit decades ago, and it’s a real testament to your government’s commitment to open investment policies, progrote policies, and open trade- the things that were taken for granted a decade ago. Now, I see it as a badge of recognition of good macroeconomic policies and admirable investment policies of Armenia, creating a whole new ecosystem. As I’ve been telling government officials in this part of the world since 1991, it was coming from a Soviet mindset, the less the government does the better; get out of the way and let the entrepreneurs thrive, and that’s what we’ve seen here in this digital high tech scientific sector.
What do you know about the efforts of Armenia towards positioning the country as a technological hub? And how would you evaluate the effectiveness of Armenia’s policies in attracting investors?
I would say that I know a fair amount about the matter, yet I was pleasantly surprised to read about the depths of the Synopsis investment. The fact that Philip Morris put in 30 million dollars as a non extractive investment, and i personally find that remarkable. You see, this is how you invest in your future in science, knowledge, economy, and also educating a new generation of workers. You think about the supply and demand side as it's supplying good jobs in science and technology but also contributing in educating the next generation and I think that’s really critical.
One of my favorite quotes from Walter Wriston goes “Capital is a coward it flows and stays where its treated kindly,” and Armenia is a kind investment destination and that is why you attracted Synopsis, the Philip Morris R&D center, Adobe, Nvidia, and those are just the big names showing your success. This happened because you created the right environment, i call it the policy infrastructure and it really comes with legal regulatory tax and most importantly, rule of law, which has been proven over and over again in countries all over the world, that countries with competitive tax regimes, less red tape, less bureaucracy and respect for property rights attract investment and they retain investment from their domestic.
Don’t you find it interesting that the jobs from Belarus went to Poland and Lithuania, which are in the European Union, and they didn’t go to Armenia or other neighboring countries?
Absolutely, and you saw the growth in Kazakhstan too, but as I said in Uzbekistan back in February, given the tragedy with the war between Russia and Ukraine, I think you have a once in a generation opportunity to attract the young people to work in science and IT, supply chains going to the west. When I was in Uzbekistan, I’m also an independent director of a big financial holding company in Kazakhstan, I said the same thing there, and that is that the middle corridor to get goods from China to Europe, breaking a record in January where it left China and entered Turkey by land in 10 days.
This creates opportunities for the youth, for the development of these exciting sectors, new transportation quarters and new access to new markets. Those are the critical elements that fosters the demand side and the supply side. In this part of the world, the youth are your new majority. For example in Kazakhstan, more people are born after 1991 than before, so they don't remember the Soviet times. This new generation is impatient and wants everything without understanding the work ethic. But in terms of the demographics, fiscal policy, that’s a huge workforce that would be contributing to society and paying texas. Unlike many other parts of the world,you’ve got a demographic engine that could empower Armenia for the next many decades.
From your experience, what advice would you give to Armenian policymakers to attract and retain high-caliber international investments in priority sectors such as high technologies?
It’s critical to have well-defined fiscal policies that support innovation and technology. I believe that’s the future. If you have those well-designed policies combined with education programs then that will develop the manpower to work in those innovative technology and science fields. The knowledge economy. I was blown away when I learned about the Tumo center; it's fantastic because so many of those things in neighboring countries or any other part of the world are only accessible for the rich kids or the elites. But here, it is for everyone.It’s simply an amazing innovation. You want to create opportunities to skill your youth, so they stay and work here.
You’re creating a nice virtuous circle as it is a win-win cycle where the young people are getting trained and becoming workers, staying and paying taxes and coming from the informal sector to the formal sector. All too often, a tax system has an unintended consequence, it makes small companies and individuals hide. If a tax system is viewed as punitive and confiscatory, you hide from it, it’s human nature. But your modern tax system has had the opposite effect and we see this also in Belarus.
Would you say that one of the key reasons why Armenia is so flexible on taxation and creating this ecosystem is to attract investments from international investors?
Yes, and you shouldn’t look at it as giveaways because they were an informal sector to begin with. Again, I would debate with fellow tax people that these are tax giveaways and are costly subsidies or tax breaks. But as long as these companies are in the informal sector in the shadow economy, you're getting zero and a lot less than you would if you welcome them in. Having said this, let’s take the welcoming approach, which I believe is a fundamental shift of thinking. Such international investors and businesses bring in more than just money; they bring skills, training for all workers, and access to the market.
I think that's a key thing of an intensive program to help foster innovation, technology and growth vs industrial policy. Another key thing that is being done here in Armenia is how the tax system and the attraction programs don't discriminate against foreigners, which I believe is essential. All those big investors came here for the skills, hence why these shouldnt be viewed as giveaways. But I also think that a stable predictable tax system is important. If you’re going to invest large sums of money, you would want a stable, transparent and predictable tax regime, and that’s important whether it be corporate income tax, individual income tax, or even excise taxes.
What are some examples of successful policy implementations across the world which helped to attract investments and what can Armenia learn from it?
Let’s take the example of Uzbekistan; up until 5 years ago, the punitive tax policies that led to tax ovation, rode in investments and budget bosses. They woke up to it and saw how amazing it was. During 2020, they cut rates during Covid-19, but their total revenues went up. They needed to have a competitive fiscal regime. I think tax policy is a country’s most important trade policy, and Armenia has woken up to that and these large investments are proof of that. Again, I had to go back and look at the Philip Morris investment several times, as it is an enormous amount for a non extractive sector. But as the stability, transparency and predictability of the tax regime allows an investor to put in place a stable and predictable capital investment and hiring programs, and to invest and train a workforce.
Looking ahead, what future trends do you foresee in the integration of big international players in developing regional high-tech ecosystems?
You've got to continue investing in high quality education systems; you've got to develop and retain the next generation of workers. And again, Tumo is brilliant, you start them young, you fund phd, research for the scientists and mathematicians. Through this, they get a good income and interesting work, if we are talking through the lens of labor. But if you're looking at it from the lens of future taxpayers, contribution to your national budget is important too. Again, I'd like to congratulate Armenia, yet you need to grow your pro-investment policies. It's a competitive world and it's an ongoing process because if you sit and stay still, your neighbors are going to eat your lunch.
You're competitive today, and you need to be competitive tomorrow. It’s not just giving away revenue, it's things like the Tumo center, it’s strengthening your universities, in the science and IT sectors and then partnering with the investor companies as they're not only here to make their products and do their research but also to have them be the partners in educating the advanced students for the future too. You've got to continue to chase your competitive position and never forget that it's a competitive tax regime; cut the government red tape and always protect the property rights. I firmly believe the solutions to getting us to 0 or making meaningful progress will involve a technology that doesnt exist today.
Join us on Telegram
