Mr Jean CASTELLINI, Minister of Economy and Finance, offers a review of 2021 and the first quarter of 2022, covering the COVID crisis, the Expo in Dubai and the conflict between Russia and Ukraine, among other things... Monaco’s financial sector is holding up and striving determinedly to be a responsible industry.
These are difficult times, with the pandemic followed by the conflict between Russia and Ukraine. How is Monaco’s economy holding up?
Well. We have seen a return to budget surplus in 2021, following the very unusual year in 2020, which saw a closing deficit of 103 million euros. The 2021 surplus of 8 million euros is evidence of a strong recovery, and a summer season that included a scattering of major business tourism events, including the Monaco Yacht Show. In 2022, the first quarter has gone extremely well. The reopening of Terminal 1 at Nice Airport is making it easier for business and private tourists to get here, there has been a high level of convention activity, and we have three motor sports grand prix events and a Monegasque driver in great form, which will certainly draw more people to the F1 Grand Prix.
The Government’s support for the Monegasque economy has had a positive impact...
The public authorities and government departments, working in consultation with the National Council, have developed a range of measures as part of a Recovery Plan. The most significant of these are the National Green Fund and its assistance for electric vehicle purchases, the Blue Fund and the public funding allocated by the Government to support the digital transition, and the Red and White Fund, specifically focused on traders, with the Carlo app which now has more than 400 users.
All that said, the conflict between Russia and Ukraine has injected some obvious uncertainty into the global economy, has it not?
We will need to keep a very close eye on inflation, as well as the fluctuating prices of some raw materials, which are becoming both scarcer and more expensive. We are paying particular attention to this due to the significance of the construction and building sector in Monaco, in terms of both private projects and public ones, such as the National Housing Plan for Monegasques. As far as possible, we want to ensure that deadlines will be met and costs kept under control, but there is no denying that there is some uncertainty as a result of the macroeconomic situation.
However, trade between the Principality and the Russian Federation is not at a level comparable to that of other major partners in the European Union, so even where this trade slows down or becomes impossible, it will not have a significant impact on our trade balance. Still, it will be important to remain vigilant regarding the restrictions on movement that may affect some Russian nationals who are not resident in Monaco. These could have an impact on tourism in the Principality.
On 13 November 2021, Monaco and the United Arab Emirates signed a bilateral tax agreement during Monaco’s national day at the Expo in Dubai. What is that all about?
International tax cooperation can take two forms and work in two ways: information exchange agreements and double tax agreements.
After demonstrating our cooperation on tax issues with the first type of agreement, we sometimes propose an agreement of the second type to expand trade.
Information exchange agreements establish a framework for sharing information historically “on demand”. The Principality has joined this international effort in the last four years, supplementing it with the use of automatic exchange of information.
In addition, the Principality has signed a significant number of multilateral agreements, treaties with the OECD and with the European Union, that help to facilitate trade: double tax agreements. A bilateral framework sometimes offers a more tailored way of regulating these agreements depending on the specific features of the signatory countries, and it was with this in mind that the agreement you mention was signed on 13 November 2021.
Is its value essentially economic?
We are keen to facilitate trade between some countries of the United Arab Emirates and the Principality. A double tax agreement should enable a company which is active in either or both of the two countries to be subject to a single tax system and not find themselves unduly penalised in its country of origin or country of destination. Our agreement complements the highly cultural aspect embodied by the Monaco Pavilion at the Expo in Dubai with a more economic and financial aspect to encourage Dubai investors to trade, do business or invest in Monaco.
Last October, the 3rd meeting of the Monaco Sustainable Finance working group, which you chair, was held at the Ministry of State. Could you give us an update on what this working group is doing?
There are two parts to this initiative: one for the public authorities, through management of the Constitutional Reserve Fund, and the other for the private sector, where the involvement and support of the Monaco Association for Financial Activities (AMAF) is clearly an essential criterion for success.
On the first, we have continued to strengthen the reserve fund’s sustainable investments. This is a natural and deliberate development, which we have supplemented with investments in the blue economy, an approach that is fully consistent with the work of the Prince Albert II Foundation. We are investing in research and innovation, with a focus on private equity funds, as we hope that we will one day benefit directly from these technologies.
In addition, the public and private sectors are cooperating and pursuing a number of objectives which are gradually being rolled out.
What are those?
First, the appointment within AMAF member organisations of an ESG (Economic, Social, and Governance) point of contact. This is a first essential step to ensure the credibility of the sustainable approach within Monaco’s banking and financial industry.
The next step is the development of a training plan. Following professional certification to validate technical expertise, training on confidentiality and certification to demonstrate compliance with anti-money laundering measures, we want to develop a type of ESG certification. Private banking clients, particularly younger contacts, have a good grasp of these issues, and the industry must be capable of meeting their expectations.
We are also working on defining ESG reporting criteria. Simple measurement tools that can provide concrete estimates of investment impact, which could be in tonnes of CO2, in thousands of litres of water saved, in tonnes of waste that are not produced... I am confident in the industry’s ability to implement these, not least since the parent companies of our Monegasque bankers are already using them.
Finally, we want to launch international conferences that include both an economic strand and substantial academic content on scientific research.
What conclusion would you draw?
Monaco Sustainable Finance affects financial institutions and investments, but this must be a much broader concern. Monegasque companies that have signed up to the National Energy Transition Pact should also be applying sustainable policies on an everyday basis.
