Governments all over the world lose billions in revenue from corporate tax evasion every year. In many instances, citizens in a country pay a proportionally higher rate of tax than multibillion dollar companies.
Despite this being a global pandemic, Africa suffers more than most.
While delivering his Nelson Mandela lecture in Johannesburg, Sudanese-British mobile communications entrepreneur and billionaire, Mo Ibrahim, said more money is lost from multinationals not paying tax, through what he calls fancy accounting, than gained from aid.
“Physics and numbers don’t lie, but people do,” he says.
The continent is blessed with resources: Oil in Nigeria; gas and mineral reserves in Botswana; Angola, Ghana, and South Africa; the Democratic Republic of Congo has diamonds and cobalt; Mozambique has natural gas. These resources alone could lift millions of Africans out of poverty.
Former United Nations secretary general, Kofi Annan, wrote that the continent loses a huge amount of money from the use of shell corporations, offshore companies and tax havens by multinationals which often divert their profits.
But Dylan Buttrick, an associate at Norton Rose Fulbright South Africa begs to differ—slightly.
“It is important to understand the distinction between aggressive structures that facilitate tax evasion, and corporations that have tax efficient structures as a result of tax planning. In a world of increased globalization and multinationals, offshore structuring and tax planning is to be expected and remains legitimate,” says Buttrick.
The lack of infrastructure and resources makes it difficult for tax authorities to track payments. Revenue authorities would benefit from more sophisticated collection systems and processes that would help these authorities in enforcing compliance.
According to The Elders, an independent group of global leaders, transfer pricing—the practise of shifting profits to lower tax jurisdictions—cost Africa $38.4 billion every year, a number which Buttrick says is difficult, if not impossible, to quantify.
He says in recent years, African authorities have increased their focus on compliance with transfer pricing.
Buttrick further says the practise in the market is to ensure that transfer pricing policies comply with the South African tax laws, this despite significant chances in recent times, leading to a perceived uncertainty in some circles.
“Most multinationals do not indulge in invasion, i.e. fraudulent reduction of their tax, but may reduce their taxes in a particular jurisdiction through the use of legitimate tax planning tools, but beyond what certain politicians or even the public may deem appropriate,” says Buttrick.
Buttrick says from an exchange control perspective, South Africa’s banking and reporting system is fairly sophisticated and cross-border payments are easily monitored. The inflow and outflow of capital from the country will need to comply with exchange control regulations.
The G20 plans to fight international tax evasion by multinational companies. They will exchange tax information and support the Organisation for Economic Cooperation and Development (OECD) in its plans to prevent multinational companies from avoiding tax by moving profits across borders. The new rules would force companies to pay tax in the countries where they make their money, instead of where the tax rate is the lowest.
Companies like Google, Apple, Amazon and Starbucks are reported to have perfected the art of using loopholes within tax regulations. MercoPress reports that these firms argue that they are doing nothing illegal and have a duty to shareholders to minimize tax payments to maximize profits.
The OECD says that some of the existing tax rules, created in the 1920s, were designed to avoid double taxation of companies operating in more than one country. But this is haunting the industry nearly a century later as these same rules are being used to create double non-taxation.
The G20 leaders agreed to an unprecedented deal to share information on individual taxpayers. They plan to start exchanging information on tax matters among G20 members by the end of 2015.
David Cameron, the British prime minister, says the new tax rules state that only advanced nations will sign on the deal, but it’s important that developing countries participate in sharing tax regulations.
Reforming the outdated global tax framework needs to occur, with governments across the globe working together. Regardless, one question still bothers me: should multinationals be taxed on the basis of where they are doing business or on the strength or weakness of their lawyers?

“Numbers Don’t Lie But People Do”

The world descended on Africa’s political capital, Addis Ababa, Ethiopia on May 9.  The queues were long and winding at Bole International Airport as global airlines landed one after the other, offloading hundreds of delegates bound for Africa’s most exclusive economic event.
Throughout the World Economic Forum on Africa, the streets were abuzz with vehicles and people going about their daily routine, oblivious to the occupation of their capital. This humming capital is the epitome of Ethiopia’s remarkable economic achievements in recent years.
Ethiopia is the second most-populous nation in sub-Saharan Africa with a population of more than 80 million people. It is also one of the fastest growing economies on the continent. The International Monetary Fund (IMF) expects growth at 5.0% and 5.5% in 2012 and 2013 respectively. This is a far cry from growth prospects in Europe and the rest of the developed world. Most Eurozone economies are either in recession or teetering on the brink.
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The skyline over Addis Ababa is full of swinging construction cranes. A delegate, who had worked in Addis Ababa since the late nineties, told of his surprise at the building and economic progress since he was last in the country.
Rain and dark clouds hung over the capital for most of the conference, but this didn’t dampen the enthusiasm as delegates exchanged business cards in the hope of new business opportunities. Almost every conversation talked of how the fast growing continent of Africa was the place to be.
“‘It is a tremendous time for Africa where Africa is coming to the world, and the world to Africa,” says Josette Sheeran, vice-chairman and member of the Managing Board, World Economic Forum, speaking to CNBC Africa on the eve of the forum.
Sheeran, in her remarks at the opening plenary session, said Africa was in an era of the hand shake with people banding together to galvanize the continent’s transformation.
The discussions were wide and varied, ranging from innovation and technology, to social and gender issues. Several themes were pervasive throughout the three days—among them infrastructural development, regional trade, leadership and governance.
Infrastructure development was identified as the biggest impediment, bar none, to growth in Africa.  Donald Kaberuka, president of the African Development Bank, talked of a recent trip to an African capital. To his dismay, this particular city of a million people had water infrastructure to cater for a mere 17,000 people.
This story brings to light Africa’s gaping infrastructure hole. Delegates at the forum were unanimous. Africa needs to invest heavily in roads, ports, railway lines and power stations to remove bottlenecks and promote efficiency in the economy. Sufficient infrastructure will reduce the cost of doing business on the continent dramatically, which will in turn spur investment.
Many African governments have taken heed. Governments across the continent are spending billions of dollars on infrastructure. In February, South Africa, Africa’s biggest economy and by far the most advanced in terms of infrastructure, announced a $100 billion capital expenditure program over the next three years.
The forum also heard Africa’s global and regional trade was at risk through uncertainty created by the Eurozone sovereign debt crisis. Delegates were concerned about low intra-Africa trade.  Intra-Africa trade is only about 10% compared to 70% in the Eurozone; 52% in Asia; 50% in North America and 26% in South America.
Low intra-regional trade is a missed opportunity for growth and development for the continent.  Pascal Lamy, director general of the World Trade Organisation, blamed this low intra-regional trade on poor infrastructure, inefficient border procedures, regulatory discrepancies and insufficient trade finance.
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“The issue of boosting intra-African trade is not so much the diagnosis on what needs to be done, but on how to do it.” He added that “we know that the necessary initiatives have to happen at the regional level. Regional organizations have to address these problems one by one. The key to removing these bottlenecks lies in the political energy of regional leaders to do it,” says Lamy.
Over the last decade, six of the 10 fastest growing economies in the world were African.  Part of Africa’s stellar growth during this period has been partly attributed to good leadership and governance. Kofi Annan, chairman of the Africa Progress Panel, praised the continent’s leadership and governance standards.  He was confident that over the next decade Africa’s progress will continue.
Annan stressed the need for public policy debate which, he rued, was practically non-existent across the continent.  He lamented that as much as there is democracy there is no engagement between governments and their citizenry. As such there is no policy consensus in nations which means that at each change of government, every five or 10 years, there is a change in policy. He said that lack of policy debate not only promotes myopic policies but also policy discontinuity. This limits consensus and nation building on the continent, ultimately putting a cap on economic growth and development.
Gao Xiqing, president and vice chairman of China Investment Corporation, hit the nail on the head when he referred to a quote by Chairman Mao referring to China’s poverty.
“This may seem a bad thing, but in reality it is a good thing. Poverty gives rise to the desire for changes the desire for action and the desire for revolution. On a blank sheet of paper free from any mark, the freshest and most beautiful characters can be written; the freshest and most beautiful pictures can be painted,” he says.
Africa, like China then, is also fortunate enough to have ‘a blank sheet free from any mark’. It is Africa’s opportunity given its many desires to rise and produce a unique, beautiful and heavenly masterpiece in the form of inclusive, strong and sustainable economic growth to lift Africans from poverty.

Build And We Will Grow

Africa has experienced stellar growth over the last decade. This growth has been supported by improved political stability, prudent macroeconomic policies, robust commodity demand and a growing consumer base. These factors are set to continue propelling African growth in years.
In the next couple of years, Africa is expected to be a key driver of global growth. The International Monetary Fund (IMF) expects sub-Saharan Africa to grow by an average of 5.4% between 2012 and 2013, compared to average growth of 1.6% in advanced nations over the same period.
Africa’s contribution to global growth is not going unnoticed. Cash-laden investors, benefitting from developed economies’ loose monetary policies, are looking towards the continent for investment opportunities as markets in developed economies offer less attractive returns.
Many reckon that Africa can capitalize on the economic and fiscal woes of the developed world to claim a bigger share of global growth. This argument is highly plausible. Europe, given its fiscal austerity measures which will constrain growth, is expected to remain in the doldrums for the next decade.
<div id="attachment_617" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-617" class="wp-image-617 size-medium" src="/wp-content/uploads/2017/04/Kofi-Anan-300x182.jpg" alt="" width="300" height="182" />CAPE TOWN SOUTH AFRICA, 05MAY11 &#8211; Kofi Annan, Secretary-General, United Nations (1997 &#8211; 2006)</div>
The opportunity is undeniable for Africa, but with opportunity comes responsibility. As such, WEF’s theme this year could not be more appropriate. Africa is on the brink of major transformation and how this transformation is handled will shape the future of millions of hopeful Africans.
To attain the aspirations of the continent will require out-of-the-box thinking; generating creative ideas that can propel Africa to greater heights. However, ideas, no matter how grand, will remain just ideas if not coupled with bold and visionary leadership. There is no better time than the present for Africans to become doers as opposed to merely talkers.
With the flood of ideas, it is up to African leadership to come to the fore—only when African leaders realize this fact and accept the honor and responsibility of leadership, will these ideas translate into tangible results on the ground.
Unfortunately, Africa leaves a lot to be desired in the leadership category. Political developments in some parts of the continent are evidence of this. This mentality could change with the memories of the Arab Spring still fresh. Recently, the masses in Mauritania protested against President Abdelaziz and his government’s ‘anti-democratic policies’. There is a real risk for unrest in sub-Saharan Africa as people grow increasingly frustrated with poor leadership, which perpetuates underdevelopment and poverty.
Strong leadership is the foundation of Africa’s transformation. Africa needs to invest heavily in both social and economic infrastructure. In terms of social infrastructure, Africa needs to direct significant resources towards health and education. Growth and development will only occur in conjunction with a healthy and skilled population.
According to the World Bank the number of people living in extreme poverty halved in 2010. But more needs to be done, especially in Africa where the challenges are greatest. Robust investment in health and education will go a long way to achieving the United Nations Millennium Development Goals (MDGs).
Equally important to social investment is investment in capital infrastructure. Africa needs to direct enormous resources towards infrastructure development to ensure economic growth in years to come.
Regional economic integration has also been highlighted as key to the growth of the continent. According to a 2010 McKinsey &amp; Co. report, intra-African trade accounts for just 12% of the continent’s total exports. By comparison, regional trade in Western Europe accounts for 61% of exports. African leaders need to take the opportunity to boost economic ties between their counterparts and work towards enhancing trade networks to take advantage of the continent’s growing consumer market, thought to be worth at least $860 billion.
African governments have already taken heed. Almost each and every country on the continent has earmarked significant resources in their budget for infrastructure development. South Africa, the continent’s biggest economy, has budgeted R845bn ($108 billion) over the next three years for capital expenditure.
Infrastructure development will be wasted if not accompanied by regulatory enhancements that improve the ease of doing business on the continent. Africa lags behind the rest of the world in terms of the ease of doing business and governments need to eliminate red tape to ensure that their economies are conducive for business. This will ensure that business invests in that economy, which will translate into job creation, in turn denting the continent’s worryingly high youth unemployment.
The fact that 2012’s WEF on Africa being held in Addis Ababa, Ethiopia, is in itself significant. Ethiopia is the second most populous country in sub-Saharan and a prime example of Africa’s fastest growing economies—according to Ernst &amp; Young, Ethiopia is set to grow an average of 7% over the next decade; well above the average growth of 5% predicted for the rest of the continent. WEF Africa will attract global and pan-African leaders who will help shape Africa’s transformation to ensure that the continent takes its rightful place in the global economy.

Tag: Kofi Annan

FORBES AFRICA SOCIAL MEDIA

“Numbers Don’t Lie But People Do”

Build And We Will Grow

The Time For Africa To Cash In Is Now