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Living the FATCA life in Africa: New U.S. tax regulations add to burden of compliance on financial institutions across Africa

Posted on 21 May 2013 by Eugene Skrynnyk

Eugene Skrynnyk

Eugene Skrynnyk (CIPM, MILE, BComm) is a senior manager and specialist for the asset management industry in the Africa Sub-Area at Ernst & Young in Cape Town, South Africa.

Eugene Skrynnyk is the Ernst & Young Senior Manager and specialist for the asset management industry in the Africa Sub-Area.

Eugene holds a Certificate in Investment Performance Measurement (CIPM), Master of International Law and Economics (MILE) and Bachelor of Commerce and Finance (B.Comm.).

 

When the U.S. Department of the Treasury (“Treasury”) and Internal Revenue Service (“IRS”) issued final Foreign Account Tax Compliance Act (“FATCA”) regulations in January of this year, there was a sigh of relief that the financial services industry in Africa could begin to digest FATCA’s obligations. However, achieving FATCA compliance remains a challenge for banks operating across Africa.

FATCA is already law in the U.S. but negotiations are under way to enshrine it in national law of countries around the world via intergovernmental agreements (“IGAs”) with the U.S. While a variety of African jurisdictions will each face unique obstacles with FATCA compliance, many in the industry share a general unease with FATCA’s scope, as well as scepticism that FATCA’s rewards (an estimated US$1 billion in additional tax revenue annually) justify its expenses. Generally, FATCA attempts to combat U.S. tax evasion by requiring that non-U.S. financial institutions report the identities of U.S. shareholders or customers, or otherwise face a 30% withholding tax on their U.S. source income. Overwhelmingly, FATCA compliance obligations apply even where there is very little risk of U.S. tax evasion and it impacts all payers, including foreign payers of “withholdable payments” made to any foreign entities affecting deposit accounts, custody and investments.

General issues in Africa

Concerns about privacy abound. FATCA requires financial institutions to report to the IRS certain information about U.S. persons. For this reason, IGAs are being put in place so that institutions could instead report information to their local tax authority rather than the IRS. In some jurisdictions, investment funds and insurance companies are permitted to disclose information with client consent. In other jurisdictions, such disclosure is prohibited without further changes to domestic law. The process to make necessary changes locally involves time and effort.

Cultural differences in Africa need to be considered. In certain situations FATCA requires that financial institutions ask a customer who was born in the United States to submit documents explaining why the customer abandoned U.S. citizenship or did not obtain it at birth. African financial institutions never pose such a delicate and private question to their customers. Even apparently straight-forward requirements may pose challenges; for example, FATCA requires that customers make representations about their identities “under penalty of perjury” in certain situations. Few countries have a custom of making legal oaths, so it would not be surprising if African customers will be reluctant to give them.

FATCA contains partial exemptions (i.e., “deemed compliance”) and also exceptions for certain financial institutions and products that are less likely to be used by U.S. tax evaders. It still has to be seen to what extent these exemptions have utility for financial institutions in Africa. For example, the regulations include an exemption for retirement funds and also partially exempt “restricted funds” — funds that prohibit investment by U.S. persons. Although many non-U.S. funds have long restricted investment by U.S. persons because of the U.S. federal securities laws, this exemption could be less useful than it first appears. It should be pointed out that the exemption also requires that funds be sold exclusively to limited categories of FATCA-compliant or exempt institutions and distributors. These categories are themselves difficult for African institutions to qualify for. For example, a restricted fund may sell to certain distributors who agree not to sell to U.S. persons (“restricted distributors”). But restricted distributors must operate solely in the country of their incorporation, a true obstacle in smaller markets where many distributors must operate regionally to attain scale.

Other permitted distribution channels for restricted funds are “local banks,” which are not allowed to have any operations outside of their jurisdiction of incorporation and may not advertise the availability of U.S. dollar denominated investments.

Challenges and lessons learned – the African perspective

Financial institutions will have to consider what steps to take to prepare for FATCA compliance and take into account other FATCA obligations, such as account due diligence and withholding against non-compliant U.S. accountholders and/or financial institutions.

The core of FATCA is the process of reviewing customer records to search for “U.S. indicia” — that is, evidence that a customer might be a U.S. taxpayer. Under certain circumstances, FATCA requires financial institutions to look through their customers and counterparties’ ownership to find “substantial U.S. owners” (generally, certain U.S. persons holding more than 10% of an entity). In many countries the existing anti-money laundering legislation generally requires that financial institutions look through entities only when there is a 20% or 25% owner, leaving a gap between information that may be needed for FATCA compliance and existing procedures. Even how to deal with non-FATCA compliant financial institutions and whether to completely disengage business ties with them, remains open.

The following is an outline of some of the lessons learned in approaching FATCA compliance and the considerations financial institutions should make:

Focus on reducing the problem

Reducing the problem through the analysis and filtering of legal entities, products, customer types, distribution channels and account values, which may be prudently de-scoped, can enable financial institutions to address their distinct challenges and to identify areas of significant impact across their businesses. This quickly scopes the problem areas and focuses the resource and budget effort to where it is most necessary.

Select the most optimal design solution

FATCA legislation is complex and comprehensive as it attempts to counter various potential approaches to evade taxes. Therefore, understanding the complexities of FATCA and distilling its key implications is crucial in formulating a well rounded, easily executable FATCA compliance programme in the limited time left.

Selecting an option for compliance is dependent on the nature of the business and the impact of FATCA on the financial institution. However, due to compliance time constraints and the number of changes required by financial institutions, the solution design may well require tactical solutions with minimal business impact and investment. This will allow financial institutions to achieve compliance by applying low cost ‘work arounds’ and process changes. Strategic and long-term solutions can be better planned and phased-in with less disruption to the financial institution thereafter.

Concentrate on critical activities for 2014

FATCA has phased timelines, which run from 2014 to 2017 and beyond. By focusing on the “must-do” activities, which require compliance as of 1 January 2014 – such as appointing a Responsible Officer, registering with the IRS, and addressing new client on-boarding processes and systems – financial institutions can dedicate the necessary resources more efficiently and effectively to meet immediate deadlines.

Clear ownership – both centrally and within local subsidiaries

FATCA is a strategic issue for the business, requiring significant and widespread change. Typically it starts as a ‘tax issue’ but execution has impacts across IT, AML/KYC, operations, sales, distribution and client relationship management. It is imperative to get the right stakeholders and support onboard to ensure that the operational changes are being coordinated, managed and implemented by the necessary multidisciplinary teams across the organization. These include business operations, IT, marketing, and legal and compliance, to name but a few. Early involvement and clear ownership is key from the start.

Understand your footprint in Africa

Many African financial institutions have operations in various African countries and even overseas, and have strategically chosen to make further investments throughout Africa. The degree to which these African countries have exposure to the FATCA regulations needs to be understood. It is best to quickly engage with appropriate stakeholders, understand how FATCA impacts these African countries and the financial institutions’ foreign subsidiaries, and find solutions that enable pragmatic compliance.

What next for financial institutions in Africa?

Negotiations with the U.S. are under way with over 60 countries to enshrine FATCA in national law of countries around the world via IGAs. Implementation of FATCA is approaching on 1 January 2014 and many local financial institutions have either not started or are just at the early stages of addressing the potential impact of FATCA. In South Africa, only few of the leading banks are completing impact assessments and already optimizing solutions. Other financial services groups and asset management institutions are in the process of tackling the impact assessment. Industry representative in Ghana, Kenya, Mauritius, Namibia, Nigeria and Zimbabwe have started engaging relevant government and industry stakeholders, but the awareness is seemingly oblivious to date. In the rest of Africa, FATCA is mainly unheard of.

Financial institutions choosing to comply with FATCA will first need to appoint a responsible officer for FATCA and register with the IRS, ensure proper new client on-boarding procedures are in place, then identify and categorize all customers, and eventually report U.S. persons to the IRS (or local tax authorities in IGA jurisdictions). Institutions will also need to consider implementing a host of other time-consuming operational tasks, including revamping certain electronic systems to capture applicable accountholder information and/or to accommodate the new reporting and withholding requirements, enhancing customer on-boarding processes, and educating both customers and staff on the new regulations. Where possible, institutions should seek to achieve these tasks through enhancing existing initiations so as to minimise the cost and disruption to the business.

Conclusion

Financial institutions in Africa face tight FATCA compliance timelines with limited budgets, resources, time, and expertise available. This is coupled with having to fulfil multiple other regulatory requirements. To add to the burden, FATCA has given stimulus to several countries in the European Union to start discussing a multilateral effort against tax evasion. The support of other countries in the IGA process indicates that some of these countries will follow with their own FATCA-equivalent legislation in an attempt to increase local tax revenues at a time when economies around the world are under unprecedented pressure. The best approach for African financial services industry groups is to engage their local governments in dialogue with the IRS and Treasury, while for African financial institutions to pro-actively assess their FATCA strategic and operational burdens as they inevitably prepare for compliance.

 

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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South Africa’s Professor Jonathan Jansen To Be Honored At Awards Gala In New York City, June 3, 2013

Posted on 18 May 2013 by Africa Business

NEW YORK /PRNewswire/ — Professor Jonathan Jansen , the Vice-Chancellor and Rector of the University of the Free State in South Africa who helped turn the university away from its apartheid legacy into an institution that is truly representative of what South Africa stands for, is set to receive the Education Africa Lifetime Achievement Award for Africa at a gala by the same name on Monday, June 3, 2013, at the Mandarin Oriental Hotel in New York City.

South Africa's Professor Jonathan Jansen To Be Honored At Awards Gala In New York City, June 3, 2013. (PRNewsFoto/Education Africa)

Jansen is being recognized for the great strides he has taken in ensuring integration at a university that once threatened to implode with racial tension and for his continued work towards the transformation of education in South Africa. In 2010, just two short years after Jansen joined the institution as its Vice-Chancellor, it was awarded the World Universities Forum Award for Best Practice in Higher Education for the racial integration and harmonisation of the student community.

Oprah Winfrey , who was awarded an honorary doctorate by the university in 2011, said at the time: “What has happened here at Free State in terms of racial reconciliation, of peace, of harmony, of one heart understanding and opening itself to another heart is nothing short of a miracle. It is truly what the new South Africa is all about.”

South Africa's Professor Jonathan Jansen To Be Honored At Awards Gala In New York City, June 3, 2013. (PRNewsFoto/Education Africa)

Grammy Award winning Roberta Flack , who is best known for a string of hits like Killing Me Softly With His Song; Set the Night to Music and The First Time Ever I Saw Your Face, inter alia, will give a special live performance at the event.

The awards are being hosted by Education Africa and Brand South Africa . Education Africa is a 501 (c) (3) non-profit tax exempt organization which is headquartered in Johannesburg, South Africa and has registered offices in the USA, Austria and the UK. Brand South Africa is a publicly funded trust with trustees appointed by South Africa’s president. It works with partners in and out of government to see that South Africa’s value proposition as a place to do business, invest in and visit – and from which to source products, ideas and inspiration – is fully appreciated.

For more information on this event and sponsorship opportunities, please visit:  http://www.educationafrica.org/documents/DIGITAL_INVITE_2013_June.pdf

SOURCE Education Africa

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ACT hosted visionary leadership

Posted on 18 May 2013 by Thandisizwe Mgudlwa

Thandisizwe Mgudlwa

“It is only through collaboration between education, innovation and business that we will be able to take our country forward and make Cape Town a global African city of inspiration and innovation.”

So said Chris Whelan, CEO of business think-tank Accelerate Cape Town, at Friday’s Accelerate Cape Town Member’s Meeting sponsored by Deloitte. Whelan, who heads up the business organisation that counts more than 45 of South Africa’s largest corporates among its members, added that it is critical that innovation is approached as a collaborative effort. “Whether we’re developing a new product or building a future society, the key to unlocking our success as a city and country is innovation and partnership.”

According to the AC, TWhelan was joined by Dr Vincent Maphai, a business leader  and former Chairman of BHP Billiton Southern Africa. Maphai who also acts as the Education Commissioner on the National Planning Commission, detailed the key requirements for growing talent in the country in terms of what inspired the thinking of the NPC.

Maphai said that in democracies, the government is a reflection of its society. “If we are unhappy about our government’s actions, we must remember that we as civil society elected them to their positions of power. For us to succeed as a nation and be able to become the shapers of our future, we need to step up and start taking our role in the country very seriously.”

He added that active citizenry should be combined with strong leadership in order to create a government that is able to take decisions that they can also implement. “Madiba is a perfect example. His views were not based on scoring political points or promoting his own interests, but rather on what is best for the country as a whole.” Challenge of job creation and lack of education.

Maphai said that the NPC is faced with a massive dual challenge of creating jobs while also overcoming the struggling education system. He stated that while he’s in favour of the current Outcome Based Education system, the country is in dire need of well-trained, committed teachers.

“We don’t have enough skilled workers in the country, and the skills that are available come with a hefty price tag. Until we attend to the mess in education, we can forget about dealing with the issues of inequality that the unions keep talking about.”

According to Maphai, there are ways in which to bring positive change to the country. “If you’re a major company like SAB, you are fortunate enough to have a strong supply chain that enables you to train people and empower them to come and work for you. This is one contribution to addressing the disaster we are facing of a shrinking tax base and growing social grants handouts. But we should also look at requiring the individuals who receive social grants to run the gardens and bake bread in schools and then utilise the money allocated to school feeding on more important items.

“In this country, we don’t need more money or resources, of which we have more than enough. Instead, we need greater resourcefulness, especially in the form of political and social innovation.”

Maphai was joined by Dr Julius Akinyemi, head of the MIT Media Laboratory and chief adjudicator of the Innovation Prize for Africa. Akinyemi said that the mission for schools is to educate students and create new capabilities, but added that most schools fail woefully on the latter aspect. “Innovation is the enabler for creating new capabilities, allowing you to make a social impact by improving efficiencies in the environment or the lives of individuals. This focus on innovation creates an entrepreneurial environment that is very nurturing and empowering to people, leading the creation of businesses, jobs and an environment that enables us to move forward.”

He said that, in terms of the state of innovation in Africa, the problem lies not with a lack of innovation but rather in creating a nurturing environment that allows innovators to be productive. “Businesses have an important role to play. Joint innovative development, for example, creates an opportunity for the research and development team to collaborate and work side by side with businesses, incubators and venture funds in a highly productive environment. A perfect example of this model in action is Workshop 17, the University of Cape Town Graduate School of Business innovation hub based at the V&A Waterfront.”

Akinyemi added that innovation should not stop after the first positive result has been achieved. “Through constant innovation you are able to find out more about your company – what works and what doesn’t. This re-innovation process creates jobs as well as a nurturing environment and better profitability.”

In conclusionACT and Whelan said that determining the strategy, plan and call to action around fostering a culture of innovation in Cape Town will be a key point on his organisation’s agenda going forward. “We need an active citizenry and a strong government and business sector driven by innovation and partnership to further progress this city and truly achieve our objective of making Cape Town a world class destination for talented people to work and live in.”

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GSMA Establishes Office In Nairobi To Support Burgeoning African Telecoms Market

Posted on 15 May 2013 by Africa Business

Mobile Connections in Sub-Saharan Africa Increase 20 Per Cent to 500 Million in 2013 and Are Expected to Increase by an Additional 50 Per Cent by 2018

iHub is Nairobi‘s Innovation Hub for the technology community, which is an open space for the technologists, investors, tech companies and hackers in the area. This space is a tech community facility with a focus on young entrepreneurs, web and mobile phone programmers, designers and researchers. It is part open community workspace (co-working), part vector for investors and VCs and part incubator. More information can be found here: http://www.ihub.co.ke/about

About the GSMA
The GSMA represents the interests of mobile operators worldwide. Spanning more than 220 countries, the GSMA unites nearly 800 of the world’s mobile operators with more than 230 companies in the broader mobile ecosystem, including handset makers, software companies, equipment providers and Internet companies, as well as organisations in industry sectors such as financial services, healthcare, media, transport and utilities. The GSMA also produces industry-leading events such as the Mobile World Congress and Mobile Asia Expo.


NAIROBI, Kenya, May 15, 2013 /PRNewswire/ – The GSMA today announced that it has opened a permanent office in Nairobi, Kenya. The office will be based in the heart of Nairobi‘s Innovation Hub (iHub) for the technology community and will enable the GSMA to work even more closely with its members and other industry stakeholders to extend the reach and socio-economic benefits of mobile throughout Africa.

“It is an exciting time to launch our new office in Africa, as the region is an increasingly vibrant and critical market for the mobile industry, representing over 10 per cent of the global market,” said Anne Bouverot , Director General, GSMA. “The rapid pace of mobile adoption has delivered an explosion of innovation and huge economic benefits in the region, directly contributing US$ 32 billion to the Sub-Saharan African economy, or 4.4 per cent of GDP. With necessary spectrum allocations and transparent regulation, the mobile industry could also fuel the creation of 14.9 million new jobs in the region between 2015 and 2020.”

According to the latest GSMA’s Wireless Intelligence data, total mobile connections in Sub-Saharan Africa passed the 500 million mark in Q1 2013, increasing by about 20 per cent year-on-year. Connections are expected to grow by a further 50 per cent, or 250 million connections, over the next five years which requires greater regulatory certainty to foster investment and release of additional harmonised spectrum for mobile.

The region currently accounts for about two-thirds of connections in Africa but the amount of spectrum allocated to mobile services in Africa is among the lowest worldwide. Governments in Sub-Saharan Africa risk undermining their broadband and development goals unless more spectrum is made available. In particular, the release of the Digital Dividend spectrum – which has the ideal characteristics for delivering mobile broadband, particularly to rural populations – should be a priority.

The region also has some of the highest levels of mobile internet usage globally. In Zimbabwe and Nigeria, mobile accounts for over half of all web traffic at 58.1 per cent and 57.9 per cent respectively, compared to a 10 per cent global average. 3G penetration levels are forecast to reach a quarter of the population in Sub-Saharan Africa by 2017 (from six per cent in 2012) as the use of mobile-specific services develops.

However, despite the high number of connections, rapid growth and mobile internet usage, mobile penetration among individuals remains relatively low. Fewer than 250 million people had subscribed to a mobile service in the region, putting unique subscriber penetration at 30 per cent, meaning that more than two-thirds of the population have yet to acquire their first mobile phone. Clearly, there is an important opportunity for the mobile industry to bring connectivity, access to information and services to the people in this region.

The mobile industry contributes approximately 3.5 million full-time jobs in the region. This has also spurred a wave of technology and content innovation with more than 50 ‘innovation hubs’ created to develop local skills and content in the field of ICT services, including the Limbe Labs in Cameroon, the iHub in Kenya and Hive Colab in Uganda.

Of particular note is the role of Kenya as the global leader in mobile money transfer services via M-PESA, a service launched by the country’s largest mobile operator Safaricom in 2007. What started as a simple way to extend banking services to the unbanked citizens of Kenya has now evolved into a mobile payment system based on accounts held by the operator, with transactions authorised and recorded in real time using secure SMS. Since its launch, M-PESA has grown to reach 15 million registered users and contributes 18 per cent of Safaricom’s total revenue.

To support this huge increase in innovation, the mobile industry has invested around US$ 16.5 billion over the past five years (US$ 2.8 billion in 2011 alone) across the five key countries in the region, mainly directed towards the expansion of network capacity. At the same time, given the exponential growth, Sub-Saharan Africa faces a looming ‘capacity and coverage crunch’ in terms of available mobile spectrum and the GSMA is working with operators and governments to address this critical issue.

GSMA research has found that by releasing the Digital Dividend and 2.6GHz spectrum by 2015, the governments of Sub-Saharan Africa could increase annual GDP by US$82 billion by 2025 and annual government tax revenues by US$18 billion and add up to 27 million jobs by 2025. In many Sub-Saharan African countries, mobile broadband is the only possible route to deliver the Internet to citizens and the current spectrum allocations across the region generally lag behind those of other countries.

“A positive and supportive regulatory environment and sufficient spectrum allocation is critical to the further growth of mobile in Africa,” continued Ms. Bouverot. “I am confident that now that we have a physical presence in Africa, we will be able to work together with our members to put the conditions in place that will facilitate the expansion of mobile, bringing important connectivity and services to all in the region.”

For more information, please visit the GSMA corporate website at www.gsma.com or Mobile World Live, the online portal for the mobile communications industry, at www.mobileworldlive.com.

SOURCE GSMA

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IMF SAYS GAMBIA’S VAT IS KILLING THE ECONOMY, BUSINESSES

Posted on 13 May 2013 by Amat JENG

The International Monetary Fund (IMF) says Gambia’s newly introduced Tax collection system — the Value Added Tax (VAT)- is killing the country’s ailing economy and businesses. “The outlook for the economy is generally favorable for 2013, but there are risks. Real GDP growth is expected to accelerate, if the recovery in crop production is sustained.

Also, by accessing new markets, the potential for growth in tourism looks good. Inflation, however, has picked up, partly due to side effects from the introduction of the value-added tax (VAT) at the beginning of the year. For example, although the VAT is applied to firms with a turnover of at least one million dalasis, we understand that many smaller businesses also raised their prices opportunistically. During the first quarter of 2013, government spending once again exceeded planned allocations, contributing to an uptick in Treasury-bill yields. Correspondingly high bank lending rates are discouraging private sector borrowing,” a report issued by an IMF delegation who just concluded discussions with the Gambian authorities on the first review of the ECF arrangement.

The IMF delegation led by David Dunn is also not impressed by Gambia’s recent economic performance. Inflation is on the rise while government spending is jumping the roof.

“The Gambian economy is still recovering from the severe drought of 2011. Real gross domestic product (GDP) grew by an estimated 4 percent in 2012, led by a partial rebound in crop production and strength in the tourism sector. Inflation remained under control, ending the year at just under 5 percent, despite the depreciation of the Gambian dalasi during the second half of the year. A substantial overrun in government spending late in the year resulted in higher-than-budgeted domestic borrowing (3½ percent of GDP),” Mr. Dunn said.

Mr. Amadou Colley, Governor of Gambia’s Central Bank earlier this week tried to mislead the press and the nation by depicting a wrong picture of the economy. Colley failed to share the IMF team’s fact finding mission’s report. He instead furnished the press with a different picture of the realities on the ground. His sources are questionable—given the fact that this administration’s reputation of trying to monopolize the truth is evident on their modus operandi.

CBG's governor Amadou Kolley

“The Gambia Bureau of Statistics (GBoS), the Gambia economy is estimated to have grown by 6.3 percent in 2012 following a contraction of 4.6 percent in 2011; agriculture valued-added increased by 7.5 percent, industry (6.6 percent) and services (5.8 percent). Money supply grew by 8.8 percent in the year to end-March 2013, lower than the 14.9 percent in 2012. Both narrow money and quasi money grew by 16.3 percent and 2.7 percent compared to 7.8 percent and 9.3 percent respectively a year earlier,” Mr. Colley claimed.

“While reserve money grew by 3.4 percent, lower than the 8.7 percent in March 2012 and the target of 4.8 percent, he said the provisional data on government fiscal operations in the first quarter of 2013 indicate that revenue and grants amounted to D1.5 billion (4.6 percent of GDP) compared to D1.9 billion (5.9 percent of GDP) in the same period in 2012. “Domestic revenue totaled D1.4 billion (4.2 percent of GDP), higher than the D1.2 billion (3.7 percent of GDP) recorded in the corresponding period of 2012.”

Mr. Colley admitted that Gambia’s inflation is going out of hand. As such, Colley said, prices for basic commodities, utilities, and energy are going up.

“While consumer food inflation rose from 4.8 percent in March 2012 to 6.4 percent in March 2013 driven mainly by price developments in bread cereals, the consumer non-food inflation also rose to 4.1 percent in March 2013 from 2.7 percent in March 2012 partly reflecting the increase in the cost of energy. Core inflation, which includes the prices to utilities, energy and volatile food items, increased to 5.3 percent from 4.0 percent a year earlier,” Mr. Colley told the local press here.

But IMF’S David Dunn is not optimistic about the country’s Gross Domestic Product (GDP). The country’s past crop failure is impacting negatively on the economy. He said VAT is killing the private sector. Businesses are being overtaxed.

IMF’S David Dunn

“The outlook for the economy is generally favorable for 2013, but there are risks. Real GDP growth is expected to accelerate, if the recovery in crop production is sustained. Also, by accessing new markets, the potential for growth in tourism looks good. Inflation, however, has picked up, partly due to side effects from the introduction of the value-added tax (VAT) at the beginning of the year. For example, although the VAT is applied to firms with a turnover of at least one million dalasis, we understand that many smaller businesses also raised their prices opportunistically. During the first quarter of 2013, government spending once again exceeded planned allocations, contributing to an uptick in Treasury-bill yields,” Mr. Dunn stated.

While Central Bank Governor Amadou Colley is bragging about the so called performance of the banking sector, Mr. Dunn had a complete different view about Gambia’s banking industry.

“Correspondingly high bank lending rates are discouraging private sector borrowing,” Dunn said.

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Branding Africa and debunking the myths about its potential

Posted on 13 May 2013 by Africa Business

CAPE-TOWN, South-Africa, May 13, 2013/African Press Organization (APO)/ Africa cannot continue to be marketed as a country, when it is a continent of 54 countries, which, by 2040 will have the largest workforce in the world. The statement was made by the Economic Commission for Africa’s Executive Secretary, Mr. Carlos Lopes at the World Economic Forum on Africa this week during a session aptly titled:Myth Busting; investing in Africa.

Mr. Lopes underscored that by 2040, Africa will be more urbanized‚ connected and educated. “It will be a very different picture from what is now,” he said.

Discussions underscored that perceptions on risks and uncertainties with respect to investing in Africa have been made to look like reality. “While some issues may be real, there are many advancements that bust perceptions of corruption, lack of growth and lack of capacity, among others.

The session underscored that Africa has a growing middle class. With increased incomes, the emerging picture shows a continent where two-thirds of its growth comes from consumption; as a result, Lagos has a much bigger purchasing power than Mumbai.

“Africa has twice as much per capita than India, more cell phones than India, less poor people than India, and we can go on and on! The mega trends are in favor of Africa,” stressed Lopes

But for the Continent to reap the demographic dividends, it must address the question of infrastructure, which is necessary for industrialization and for bringing the Continent’s rural areas to the global market. In this regard, a significant amount of money is needed to realize the Programme for Infrastructure Development in Africa (PIDA) and since markets do not invest in these kinds of projects, the session underscored the need for alternative sources of funding.

“The good news is that money exists in Africa – but a shift in mindset is needed to tap into the half a trillion dollars sitting in African Central Banks as reserves,” stressed the panelists. PIDA projects, participants noted, could be broken into ‘short-range projects’, all aimed at a long-term goal.

The session also addressed the perception that Africa is lacking in skilled personnel and underscored that Africa has been on the cutting edge of innovations. However, branding and marketing of these innovations fails beyond the borders.

“Many African economies are run by informal sector, where banks do not come to the party and so the entrepreneurs in these informal sectors do not grow,” said a participant, stressing that the myth that must be busted is that these informal entrepreneurs cannot grow into big business with appropriate financing. The session acknowledged, however, that the lack of depth in the capital markets is real and it limits the possibilities for innovations to grow.

On the question of “corrupt African leaders”, the session acknowledged that the weakness lies in the capacity to investigate and get convictions, as well as lack of consistency and leadership.

Participants highlighted that the lack of a strategic vision makes corruption lead the narrative and countries like Malaysia, Indonesia are able to project their narratives on their strategic visions and less on corruption.

The need for consistency in regulatory frameworks and policy was stressed, “as it reduces the meddling of government in areas where the private sector is meant to play.”

In addition, it was felt that consistency across administrations is also important to ensure that investors play fairly. “Investors do not always like regulations,” said a participant, highlighting that the commodity boom super cycle led to an increase in profits by mining companies “by at least 200 per cent, yet tax revenues in the affected countries increasing by only 30 per cent.”

Further, the perception that ’54 countries constitute one country where there are no positive stories to be told’ could be attributed to failure by the media and the lack of attention to marketing by African governments.

A key issue that emerged is the persistence of information gaps, created by lack of country assessments. In addition, participants wondered whether those doing business in Africa might be contributing to the myths. Doing so, they said, creates entry barriers for potential competitors, and keeps resident players laughing all the way to the bank with premium returns.

“It is important to be here in Africa to understand the context; one has to understand where to invest and why one is investing,” stressed an investor.

 

SOURCE

Economic Commission for Africa (UNECA)

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Hope for financing Africa’s Development through private equity

Posted on 09 May 2013 by Africa Business

CAPE-TOWN, South-Africa, May 9, 2013/African Press Organization (APO)/ A high-level roundtable on Building Private Equity and Private Capital Markets in Africa, met on 8 May, to explore the promise and obstacles facing private capital investments in Africa. The roundtable of investors and policy makers met under the auspices of the Economic Commission for Africa (ECA) and the World Economic Forum on Africa to navigate the complex world of private equity, which in recent years has shown increased interest. According to the participants, this could be Africa’s next development financing frontier and could mark an end to an aid dependency.

However, the bane of negative perceptions, which portray Africa as “a risky continent in which to do business”, must be tackled. According to Mr. Carlos Lopes, Executive Secretary of the ECA, these perceptions hinder the growth of the sector.

“No one mentions the Saba insurgency in Malaysia or the Mindanao problem in the Philippines, which affect the investment climate for these countries; investors must understand that the Continent is not any riskier than other regions. There are far more people affected by conflict and insecurity in Asia than in Africa,” he stresses.

Issues that concern many industry players here at the World Economic Forum on Africa include working with the high cost of raising capital in Africa; the mix of regulatory systems; and low levels of skills in the area of private equity.

There are positive indications, however. The investors and policy makers here underscore that harmonizing regulatory systems and deepening regional integration as a means to develop capital markets across boundaries, could bring about long-term investments that could bolster the Continent’s development aspirations.

This view is backed by some good news sprouting across the landscape. After a decade of macro-economic reform, the financial sector in a country like Rwanda for instance, has grown at 20 per cent, which is more than double the average of 8 per cent growth rate in the overall economy over the last decade. Thus, African countries have the basis for developing capital markets that can finance the Continent’s development.

But entrenched views on doing development are being unhinged; and according to ECA officials, Vision 2063, currently under preparation in partnership with the African Union and the African Development Bank, will help to change mindsets.

“In this visionary document, we contend that the discourse on financing Africa’s development must shift; it must move out of the aid syndrome,” says Lopes. Furthermore, the ECA forthcoming study on domestic resource mobilization for Africa aims to demonstrate that the Continent can harness enough resources to finance development by tapping into reserves held by African Central Banks and in remittances.

A number of proposals are being mooted for further analysis, such as establishing minimum standards that governments could sign on to for attracting more private capital, particularly in areas where governments may not be able to invest.

With opportunities presented in many developments, such as Africa’s rapid urbanization and a growing middle-class, investors agree that entrepreneurship and growth is encouraging; the need for infrastructure is enormous and there is a need for pooled funds that could also help attract additional capital. In addition, these opportunities mean that the growth of Africa’s private equity ought to be based on a model that benefits local people.

More studies, however, are needed on private equity scalability and getting African markets to work together as a means of building liquidity. Industry players and policy makers here think that the regional integration experience can offer useful lessons in this regard. For instance, the expansion of the banking sector across the continent shows that it is possible to overcome national sovereignty concerns.

Given that Africa is in the early stages of developing its financial sector, there may be a need to create frameworks and institutions that will allow for leveraging existing capital. In addition, policymakers warn that leveraged buyouts are not in the interest of developing countries due to tax erosion. Countries may also need to balance short-term returns with long-term sustainability and promote related financing options, such as venture capital.

The message from policy makers and development finance experts is that while private equity investors have seen tremendous returns in Africa, thus fueling the idea of Africa as the new El Dorado, new investment may need to contend with Africa’s emerging priorities and tap into sectors that can use and develop local skills as well as benefit the Continent.

ECA intends to sponsor the establishment of a high-level task force that will analyze these issues in depth and present a proposal, as well as recommendations, for follow-up at the next World Economic Forum on Africa.

 

SOURCE

Economic Commission for Africa (UNECA)

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Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth -

Posted on 30 April 2013 by Africa Business

The Government of Tunisia, the African Development Bank and the United States Government have released a report

 

TUNIS, Tunisia, April 30, 2013/African Press Organization (APO)/ The Government of Tunisia, the African Development Bank (http://www.afdb.org) and the United States Government have released the report entitled “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth”. The report, aims at identifying the most binding constraints to growth in Tunisia in order to identify areas where policy reforms are most needed. The study attempts to identify these constraints, both as they were manifested in the years leading up to the revolution and today. The methodology starts from the widely accepted proposition that private sector investment and entrepreneurship are ultimately the keys to sustained economic growth and follows the Growth Diagnostics approach proposed by Ricardo Hausmann, Dani Rodrik and Andrès Velasco.

The application of the methodological framework has revealed two broad categories of binding constraints to economic growth in Tunisia:

First, a lack of effective institutions to ensure public sector accountability, the rule of law, and checks and balances on power in Tunisia results in weak protection of property rights and barriers to entry. Property rights and investment freedoms are fundamental to the development of entrepreneurship and to investment, innovation and risk-taking, and therefore to achieving growth in productivity and the higher wages and living standards that accompany it.

Establishing a sound framework of economic governance including institutions that provide investors with a clear and transparent set of rules and assurance that they will be able to reap the fruits of their investments will require a sustained effort.

Second, although social security programs and labour protections are intended to enhance the pay, benefits and economic security of workers, many measures currently in place in Tunisia have been counterproductive in achieving these aims for all but the most fortunate Tunisian workers. Rather than enhancing the provision of acceptable jobs, they result in reduced investment, greater informality, lower worker pay, higher unemployment, and increased economic insecurity. Firms remain small and use a variety of means to circumvent the formal requirements of employing workers, including informality or under-declaration of employees.

Their inability to adjust employment according to market conditions discourages them from growing to attain economies of scale and from investing in worker training. These responses in turn reduce innovation and productivity growth and make Tunisian firms less competitive internationally. Tunisia’s slow growth in labour productivity relative to other middle-income countries reinforces the pressure to reduce private sector wages. Alternatives for designing social security systems and labour market protections should be considered with the aim of protecting people rather than specific jobs.

These binding constraints operate on a national level and therefore have negative consequences both in faster growing and lagging regions. While a lack of investment in infrastructure and poor school quality are widely believed to reduce investment and employment opportunities in lagging regions, the lack of demand for the products and workers emanating from those regions is primarily driven by national and international markets. Indeed, the constraints identified in this diagnostic may be even more binding on the growth of lagging regions.

The identified constraints affect exporting firms and foreign-owned firms to a somewhat lesser extent than firms primarily serving domestic markets. Exporters enjoy exoneration of social charges and other taxes for several years and, given their larger scale and higher productivity, are better able to adhere to formal labor requirements. They also appear to have been less subject to infringement of property rights under the prior regime. However, the identified constraints are still likely to dampen investment and employment creation by exporting firms as well. Meanwhile, the constraints present a tremendous barrier for Tunisian firms serving the domestic market – some of which would otherwise supply exporting firms or export directly but under current circumstances cannot expand or innovate to the degree needed to compete internationally. Although Tunisia has relied upon an industrial policy and various tax breaks to promote innovation and competitiveness, without removing these fundamental obstacles further government efforts to directly subsidize or promote innovation are not likely to succeed in transforming the economy.

In addition to the two binding constraints identified above, risks have emerged since the revolution that could become binding constraints if not effectively addressed. First is the risk that social unrest becomes persistent and pervasive, in which case it would deter investment in the coming years. Related to this is the risk of macroeconomic instability that could emerge if internal social and economic pressures override the government’s commitment to fiscal sustainability. In addition to this risk, the analysis highlights the problematic nature of the financial sector; the low quality of primary and secondary education, particularly in lagging regions; the need for improved water resource management; and the limits of Tunisia’s current seaport capacity and management. Although not currently binding constraints, these problems could become more important constraints in the future.

Based on the outcomes of this analysis, the African Development Bank and its partners will support Tunisia in overcoming these constraints to achieve a stronger and sustainable broad-based growth.

 

SOURCE

African Development Bank (AfDB)

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U.S. Ranks First In ‘KPMG Green Tax Index,’ Tops Countries Using Tax Code To Shape Sustainable Corporate Activity

Posted on 29 April 2013 by Africa Business

About the KPMG Green Tax Index

The KPMG Green Tax Index focuses on 21 major economies around the world that KPMG International believes represent a major share of global corporate investment activity. A high ranking in the Index does not necessarily mean that a country is “greener” than others. It means that the government is more active than others in using the tax system as a tool to influence corporate behavior and achieve green policy goals.

A lower ranking does not mean that a government has no green tax or incentive instruments in place. Every nation listed on the KPMG Green Tax Index uses green taxes and incentives to an extent worthy of investigation by corporate tax and sustainability professionals. Countries in which the government does not use green taxes or incentives at all, or does so only minimally, have not been included in the sample of countries selected for review in the Index.

Scoring has required some discretion and judgment to be used and so scores should be taken as indicative, not absolute, in providing a view of those governments with the most active and developed green tax and incentive systems in place. Full details of the scoring methodology can be found at www.kpmg.com/greentax.

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

 

NEW YORK /PRNewswire/ – The United States ranked first among 21 countries most actively using the tax code to influence sustainable corporate activity, according to the inaugural edition of the KPMG Green Tax Index, reflecting the country’s extensive and long-established program of federal tax incentives for energy generally, including specific incentives for energy efficiency, renewable energy and green buildings.

Japan, the United Kingdom, France, South Korea and China were also among the leading countries using tax as a tool to drive sustainable corporate behavior, according to the index. Key policy areas explored in the index include energy efficiency, water efficiency, carbon emissions, green innovations and green buildings.

“The KPMG Green Tax Index provides important directional insight for corporate sustainability decision makers, CFOs and board members into how countries are using taxes to influence corporate behavior,” said John Gimigliano , principal-in-charge of sustainability tax in the Washington National Tax practice of KPMG LLP. “Japan, for example, tops the rankings in its promotion of tax incentives for green vehicle production, while the United States favors a comprehensive system of renewable energy tax incentives. As a result, we’re seeing more green cars coming out of Japan and dramatic growth in the U.S. renewable sector.”

“These activity-based rankings can be of value to corporate sustainability decision-makers as they allocate budgets and evaluate investments around the world,” said John Hickox , advisory partner and U.S. practice leader for Climate Change & Sustainability Services at KPMG LLP.

The KPMG index identified over 200 individual tax incentives and penalties of relevance to corporate sustainability. At least 30 of these have been introduced since January 2011, reflecting the quickening pace of green investment globally.

The KPMG Green Tax Index – Overall Country Rankings

U.S.

1

Netherlands

8

Finland

15=

Japan

2

Belgium

9

Germany

U.K.

3

India

10

Australia

17

France

4

Spain

11=

Brazil

18

South Korea

5

Canada

Argentina

19

China

6

South Africa

13

Mexico

20

Ireland

7

Singapore

14

Russia

21

*Scoring: The KPMG Green Tax Index attributes scores to green tax incentives and penalties according to arguable value and potential to influence corporate behavior. Scores should be taken as indicative, not absolute, in providing a view of governments with the most active and developed green tax systems in place.

U.S. Ranking
The United States tops the KPMG Green Tax Index ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy and green buildings.

According to the KPMG Green Tax Index, the U.S. tax code provides a range of tax credits, including a production tax credit on renewable energy and tax incentives construction of efficient buildings.

The United States uses green penalties less than other Western developed nations apart from Canada. When green tax penalties alone are considered, the United States drops to 14th.

“The KPMG Green Tax Index demonstrates how important it is for corporations to make sure their head of sustainability and their head of tax are talking,” said KPMG’s Gimigliano. “At many companies these functions may have never met. One critical lesson from the Green Tax Index is that for companies to enhance the return from its green spend, the tax and sustainability functions should collaborate before the investment decision is made.”

“Green investment continues to gain momentum globally and the KPMG Green Tax Index provides a greater understanding of the entire financial picture of green investments, pre- and post-tax,” added KPMG’s Hickox.

Ranking of Additional Global Economies

Japan is ranked 2nd overall but, in contrast to the United States, scores higher on green tax penalties than it does on incentives. Japan also leads the ranking for tax measures to promote the use and manufacture of green vehicles.
The United Kingdom ranks 3rd and has a green tax approach balanced between penalties and incentives. The United Kingdom scores most highly in the area of carbon and climate change.
France occupies 4th place in the overall ranking with a green tax policy more heavily weighted toward penalties than incentives.
South Korea ranks 5th, and like the United States, has a green tax system weighted toward incentives rather than penalties. South Korea leads the ranking for “green innovation” which suggests that South Korea is especially active in using its tax code to encourage green research and development.
China ranks 6th with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials) and green buildings.

“The very investments that can drive change and secure competitive advantage may never be made if green tax systems are not fully understood and used,” said KPMG’s Gimigliano. “Investments that struggle to make a case on a pre-tax basis can flourish after green tax analysis. Companies should not underestimate the potential of green tax incentives to deliver efficiency and productivity benefits, drive innovation and contribute to the bottom line.”

SOURCE KPMG LLP

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Stanbic IBTC declares N12bn profit on gross earnings of N92bn

Posted on 25 April 2013 by Africa Business

Stanbic IBTC Holdings, a member of Standard Bank Group, has declared a profit before tax of N11.7 billion for 2012, an increase of 16 percent above the N10.1 billion recorded in the corresponding period of 2011, according to its audited results for the financial year ended December 31, 2012. Similarly, profit after tax rose to N10.2 billion, translating to an increase of 53 percent over the prior year’s N6.6 billion.

The Stanbic IBTC group also made significant gains in other parameters during the period, as indicated in the results made available at The Nigerian Stock Exchange on Friday, April 19, 2013. Gross earnings, which stood at N63.4 billion in December 2011, increased to N91.9 billion in 2012, signifying a gain of 45 percent. The total assets increased to N676.8 billion last year, a 22 percent increase compared to the N554.5 billion recorded in December 2011.

The strong performance, despite the challenging operating conditions, is indicative of the soundness of the group’s decision to adopt a holding company structure, in line with its strategy to provide end-to-end financial services and build a franchise capable of generating sustainable and respectable returns to its stakeholders.

“This performance is a testament of the credibility of our strategy to realise our objective of being the leading end-to-end financial solutions provider in Nigeria. We continue to assess our risk assets through our robust and systematic risk management practices, whilst ensuring that adequate provisions are made for unforeseen shocks in line with the operating environment,” stated Mrs. Sola David-Borha, Chief Executive Officer, Stanbic IBTC Holdings PLC.

She said the group continued to expand its business on the back of growth in transactional volumes and activities, money and capital market activities and loan book. “Deposits from customers increased by 24 percent, while our loan book grew by 5 percent despite the sell down of existing large performing exposures to enable us comply with the post restructuring single obligor limit.”

During the period under review, total operating income increased by 22 percent to N67.4 billion, from N55.2 billion in December 2011. Gross loans and advances to customers went up 5 percent to N279.5 billion, compared to N266.6 billion in December 2011. Customer deposits went up 24 percent to N355.4 billion from N287.2 billion in the corresponding period of 2011, while non-performing loans at N14.3 billion decreased by 13 percent from N16.5 billion in December 2011.

The group will continue to seek opportunities in strategic sectors of the economy in order to grow its business in line with its future growth strategy, said David-Borha. “Our expanded branch network, excellent customer service, diversified business model and access to an extensive pool of experience within the group have put us in a desirable position to generate growing value for shareholders in 2013.”

Following its adoption of the holding company structure, the operating subsidiaries of Stanbic IBTC Holdings PLC are Stanbic IBTC Bank (including Stanbic Nominees Nigeria Limited), Stanbic IBTC Pension Managers Limited, Stanbic IBTC Asset Management Limited, Stanbic IBTC Stockbrokers Limited, Stanbic IBTC Trustees Limited, Stanbic IBTC Ventures Limited, Stanbic IBTC Capital Limited and Stanbic IBTC Investments Limited. Stanbic IBTC Capital Limited and Stanbic IBTC Investments Limited are newly incorporated companies.

Some of the recent milestones recorded by the group include surpassing the 800,000 clients mark in the first year of the launch of the Stanbic IBTC Bank’s *909# mobile money solution and attainment of over one million retirement saving accounts by its pension business, Stanbic IBTC Pension Managers Limited.

 

Source: Standard Bank

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