Archive for the 'Business climate' Category

UK boosts African tax collection

“For every £1 spent on operating costs an additional £100 is returned in tax revenues” is the claim for results achieved on a programme to boost tax collecting in developing nations. The UK Government’ s Department for International Development (DFID) on 19 Feb announced plans to give £47 million ($61m) to boosting tax collection “aimed at helping end their reliance on aid”.

According to calculations by website Nurmara , using estimates by the Organisation for Economic Co-operation and Development (OECD), tax collection in Africa is 18% of GDP (15% in sub-Saharan Africa). OECD says tax revenues in developing countries are about 14% of GDP, far lower than the 35% average for developed countries.

Less tax revenue means less funding for public services. In a press release International Development Secretary (Minister) Penny Mordaunt said: “This new UK support will help countries collect more taxes and leave them less reliant on aid. It will turbo charge their development.

“Governments in the developing world want to move beyond aid and we want to help them get there faster. We are supporting their efforts to implement a fairer, more transparent tax system which is vital in helping our aid money go further.”

The UK Government’s £47m package is broken down:
• £10.3m to the OECD including support to Tax Inspectors Without Borders (TIWB), an initiative by OECD and United Nations Development Programme which assists developing countries to implement international tax standards by sending experts overseas.
• £7.4m to the World Bank’s Global Tax Programme to work with countries to build effective tax systems.
• £3.7m to support the Platform for Collaboration on Tax (PCT), launched in 2016 by the International Monetary Fund (IMF), the United Nations and the World Bank Group. It aims to boost cooperation on tax issues.
• £4.2m to the African Tax Administration Forum (ATAF), based in Pretoria. The website was updated last year on events and reports, but outlines strategic objectives to be achieved in 2013-2015. According to the UK Government, ATAF “provides leadership of the tax reform agenda on the African continent and represents the needs of developing countries in international forums.” HMRC (the UK tax authority) will provide up to 2 tax experts for 4 years to help ATAF’s member states build a sustainable and impactful organisation.”
• £2.25m to the Intergovernmental Forum for Mining, Minerals, Metals and Sustainable Development (IGF) to help developing countries tackle tax avoidance in mining and unlock opportunities to increase government revenues and economic activity in the sector.
• Around £1m to the IMF Tax Administration Diagnostic Assessment Tool (TADAT), designed to provide an objective assessment of the health of key components of a country’s system of tax administration.
• Around £13m to the IMF’s Africa Regional Technical Assistance Centres’ (AFRITACs), which support African countries to build capacity in tax administration, public financial management, economic and financial sector management, and national statistics. Around £2.6m will specifically support boosting tax revenue.
• Around £5m to Institute for Fiscal Studies to develop tax-policy analysis in 4 developing countries, to reduce poverty and inequality and a research fund to increase knowledge of tax collection in developing countries.

Tax collection statistics 2016 by the OECD.

Useful OECD statistics and overviews on tax collection in 21 African countries can be found via this website.

One marked difference between paying tax in UK and in some African countries is how friendly and supportive customer-facing tax officials can be in UK, projecting an image that they realize running a business is hard and competitive, and trying to make it as easy as possible for businesses to meet their obligations to pay tax.

Dealing with some African tax administrations makes you feel you are dealing with officials determined to trick or extort you into handing over more than you should. Appeal mechanisms based on “pay the demand first, query later” and it can take years to receive repayments. As tax authorities push up tax as a percentage of GDP they tend to hit companies that try to pay tax the hardest, because they are more transparent and give unscrupulous tax officials more to grab, compared to companies that seek to be as shady as possible. The result is far less transparency and tax collection. Tax putting businesses out of operation, losing future revenues including payroll tax, is not unknown when they could be doing all they can to nurture businesses into paying their tax.

By comparison, in several European countries I have been surprised to hear people say “I’m happy to pay my fair share of tax”. They feel they get value for their money such as health, education, infrastructure, and social welfare for the needy. They also see tax as a measure of their success in making money.

African tax administrations can improve skills at making tax collection easy and transparent for businesses.

African countries should start awards for taxpayer business of the year and business leaders should be proud to compete for it.

Egypt is Africa’s new #1 investment destination

The challenge for African economies is to adapt to commodity slowdown and sluggish production growth. Many countries have suffered stress in the past three years, and the latest report from a leading investment bank suggests the new winners – and who is lagging. Rand Merchant Bank’s (RMB) Where to Invest in Africa 2018 report shows changes in the top investment destinations in Africa.

South Africa is off the top spot, edged aside by Egypt, and Nigeria and Algeria have crashed out of the top 10. The theme is “money talks” and focuses on major sources of dollar revenues, important income-generators and investment opportunities.

But the report compares 191 global jurisdictions and measures African against country groupings. African countries are still at the lower end of the global-performance spectrum, which is still dominated by the US, UK, Australia and Germany.

In Africa, according to the RMB press release, there is a new pharaoh in town: “Egypt (#1) displaced South Africa (#2) largely because of its superior economic activity score and sluggish growth rates in South Africa, which have deteriorated markedly over the past seven years. South Africa also faces mounting concerns over issues of institutional strength and governance though in South Africa’s favour are its currency, equity and capital markets which are still a cut above the rest, with many other African nations facing liquidity constraints.

“Morocco (#3) retained its third position for a third consecutive year having benefitted from a greatly enhanced operating environment since the Arab Spring which began in 2010. Surprisingly, Ethiopia (#4), a country dogged by socio-political instability, displaced Ghana (#5) to take fourth spot mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom.

“Kenya (#6) holds firm in the top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth. A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania (#7) climb by two places to number seven. Rwanda (#8) re-entered the top 10 having spent two years on the periphery, helped by being one of the fastest reforming economies in the world, high real growth rates and its continuing attempt to diversify its economy.

“At number nine, Tunisia (#9) has made great strides in advancing political transition while an improved business climate has been achieved by structural reforms, greater security and social stability. Cote d’Ivoire (#10) slipped two places to take up the tenth position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country leading to a strong increase in foreign direct investment over the years resulting in one of the fastest growing economies in Africa.

“For the first time, Nigeria (#13) does not feature in the top 10, with its short-term investment appeal having been eroded by recessionary conditions. Uganda is steadily closing in on the top 10 though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates.

“Though Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the top 10 mostly because of the relatively small sizes of their markets – market size has been a key consideration in the report’s methodology.”

RMB Africa analysts spoke on economic trends:

Neville Mandimika: “The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives.”

Celeste Fauconnier: “Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues.”

Nema Ramkhelawan-Bhana: “Some countries have been more nimble and effective than others in managing shortfalls,” says and an author of the report. “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”

Where to Invest in Africa 2018 also includes 191 jurisdictions around the world, and measures Africa’s performance relative to other country groupings. The report is available via: