FEBRUARY 01, 2020

They can no longer rely on aid or natural resources

WHAT IS IT like being a taxman in Africa? “A lot of sleepless nights,” says Yankuba Darboe, the Gambia’s top revenue official, describing the pressure to meet targets. Politicians across Africa are asking ever more of their tax collectors, with good reason. The biggest hole in public coffers is not money squandered or stolen, but that which is never collected in the first place.

Government revenues average about 17% of GDP in sub-Saharan Africa, according to the IMF. Nigeria has more than 300 times as many people as Luxembourg, but collects less tax. If Ethiopia shared out its tax revenues equally, each citizen would get around $80 a year. The government of the Democratic Republic of Congo is so penurious that its annual health spending per person could not buy a copy of this newspaper.

Governments once turned to aid and natural resources to stay afloat. Historically “we relied on oil,” says Babatunde Fowler, until last month the head of Nigeria’s Federal Inland Revenue Service. “Nobody took taxation seriously.” Lower oil prices are now forcing a rethink, he explains. So too are shifts in foreign aid. As a proportion of Africa’s income, aid flows have halved since the 1990s. Measured as dollars per person, they peaked in 2011 and then fell. Public debt has risen sharply.

Since the 1980s governments have followed an IMF-inspired recipe: slashing trade taxes, reducing top rates on personal and corporate income, and embracing value-added tax. Data from the OECD for 26 African countries show that over half of their tax revenues come from taxes on goods and services. Only a quarter comes from personal income tax and social-security contributions (about the same as in Latin America, but much less than in the rich world). From 2008 to 2017 the ratio of tax receipts to GDP rose by 1.5 percentage points, but in many countries this was offset by falls in non-tax revenues, such as fines, rents and royalties from resource extraction.

Large firms grumble that they are footing the bill. Just 6% of tax-paying firms generate 78% of receipts, according to the African Tax Administration Forum (ATAF), a club of taxmen. But that statistic gives only a partial picture. Analysis of corporate tax returns in Ethiopia by Giulia Mascagni of the International Centre for Tax and Development and Andualem Mengistu of the Ethiopian Development Research Institute reveals that small firms pay the highest effective rate, perhaps because they lack accountants to find gaps in the tax code. In many countries firms which are considered “informal”—because they are not registered, or do not pay income tax—still cough up for licence fees and market dues.

Ordinary Africans complain the system is rigged. Some 56% of those surveyed by Afrobarometer, a pollster, considered it “very likely” that a rich person could pay a bribe or use personal connections to dodge taxes. They are probably right. When Ugandan tax collectors examined records for 71 government officials in 2013/14, they found that just one had paid any personal income tax. Only 5% of directors at leading companies were paying income tax themselves.

Authorities try to manage such tax-dodging through dedicated units that focus on, say, wealthy individuals or large corporations. In Uganda officials built on their earlier research by drawing up a list of 117 rich folk, then meeting them personally. At the time only 13% were filing tax returns; a year later 78% were. One pastor on the list even started preaching about paying taxes. The taxmen also chased government agencies. “It’s a tax morale issue if you ask people to pay their tax and then the government is not paying its taxes,” says Doris Akol, the country’s top revenue official.

Technocratic tax talk often centres on such administrative reforms, which also include things like strengthening IT systems or adopting taxpayer identification numbers. Yet this package only goes so far. “It says build a good tax register, go to electronic filing, and so on,” says Logan Wort, the executive secretary of ATAF. “Those are all right. But you know what the problem in Africa is? It has signed away its tax base.”

One example is bilateral tax treaties. Originally intended to eliminate double taxation, and later to attract investment, their practical effect is to limit taxation of cross-border income, such as royalties or service fees. The IMF estimates that signing treaties with so-called “investment hubs”, like Mauritius, costs African countries an average of 15% of their corporate tax revenue without increasing investment. Some governments, such as Rwanda’s, have wisely renegotiated terms.

Governments also erode the tax base by dishing out generous exemptions. Estimates of “tax expenditures”, or deviations from usual tax rates, put the cost at up to 40% of revenues that African governments collect. Those figures include some sensible allowances, like tax relief on medicines, as well as questionable ones, such as tax holidays for investors. Most businesses say that tax breaks do not affect their decision to invest; in surveys, they tend to put greater weight on things like stability and roads, which a little extra tax might fund.

How much more could African governments collect? The best estimates are that they lose revenues worth 2% of GDP through corporate-tax avoidance, of all kinds, and perhaps another 1-2% through individual wealth stashed offshore. The revenue forgone through tax expenditures is roughly 5% of GDP. It is neither feasible nor desirable to close all those gaps, so the realistic gains are smaller. Other measures, such as increasing compliance or expanding property taxes, could also add a few percentage points.

The IMF models the “tax capacity” of a country using variables such as average incomes, trade openness, and governance. On that basis it thinks that African governments could increase their revenues by 3-5% of GDP, which is more than they receive in aid (see chart). But in the past few years “there has been little progress,” says Papa N’Diaye of the IMF. The challenge is not starting tax reform, he adds, but sustaining it. Africa’s taxmen are in for a few more sleepless nights.

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By Leke Baiyewu

The Governor of the Central Bank of Nigeria, Godwin Emefiele, will not appear before the House of Representatives on Thursday, the apex bank has said.

Emefiele will be represented by the Deputy Governor, Financial System Stability, CBN, Aisha Ahmad.

In the latest letter the House received from the Deputy Governor, Corporate Services, CBN, Edward Adamu, Emefiele was said to be ill and would not appear before the lawmakers in person.

For the second time, Emefiele failed to appear before the House on Tuesday.

Amidst protests and condemnation, the lawmakers rescheduled his appearance for Thursday, insisting on suspension of the cash withdrawal limits set by the apex bank.

The House had summoned Emefiele to explain the latest policy by the CBN which, among others, set limits to cash withdrawals at the Deposit Money Banks and other financial institutions.

After Gbajabiamila read out Amadu’s letter to members in the middle of Wednesday’s plenary, the lawmakers resolved to accept Emefiele’s representation.

OCTOBER 18, 2022

BY  Ruth Olurounbi, Bloomberg News

A customer counts out payment from a bundle of Naira banknotes inside a market in Lagos, Nigeria, on Friday, April 22, 2022. Choked supply chains, partly due to Russia’s invasion of Ukraine, and an almost 100% increase in gasoline prices this year, are placing upward price pressures on Africa’s largest economy. Photographer: Damilola Onafuwa/Bloomberg , Bloomberg

(Bloomberg) -- Nigeria’s local currency unit is set to weaken further next year as its current exchange rate to the dollar is well above fair value, according to Bank of America. 

Three indicators -- the widely-used black-market rate, the central bank’s real effective exchange rate, and “our own currency fair value analysis” -- shows the naira is 20% overvalued, economist Tatonga Rusike said in a note to clients on Tuesday. “We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD,” Rusike said.

While the naira will come under increasing pressure “due to limited government external borrowing,” devaluation is unlikely to happen until after the February 2023 presidential elections, the bank said. 

Africa’s largest economy operates a multiple exchange regime dominated by a tightly controlled official exchange rate and a parallel market where the currency is freely traded. The naira exchanged at 440.95 to the dollar in the official spot market as of 12.15 pm and about 731.46 in the parallel market, according to @naira_rates, a Twitter account that tracks the black market. 

The official rate has depreciated by less than 10% since December 2021 even as the parallel rate is down by nearly a third within the same period, widening the gap to almost 70%, BofA analysis show. “The greater the disparity with the official market, the higher the likelihood of increasing excess demand for foreign currency on the parallel market,” the bank said.

AUGUST 25, 2022

The Food Beverage and Tobacco Senior Staff Association (FOBTOB) has lamented that employers in the sector are finding it difficult to import raw materials for production due to unavailability of foreign exchange (forex).

President of FOBTOB, Jimoh Oyibo, who said this during the union’s 44th anniversary, recently, urged the Federal Government to save the sector from total collapse.

He lamented that the issue of forex scarcity has affected the industry so much that it is affecting and slowing down production.

He gave instances of some big employers in the sector, like Ragolis Water, located in Ikorodu that has shut down operations due to forex unavailability.

According to him, “Our members have automatically lost their jobs.”

The FOBTOB president said that it was painful that manufacturers, who sustain the economy could not get forex, but the dollar is in the hands of individuals, mostly politicians, who use it at their conventions and other political activities.

He noted that sourcing forex from black market, which most of the companies are now doing for survival, having been left with no other choice is not sustainable.

“It is unfortunate that such things are playing out. Yet, we have a government. Sourcing from black market reduces the profit margin of the manufacturers and what that means is that they will not be able to meet up with their overheads,” he said.

Oyibo said the government should live up to its responsibility and ensure that forex is made available to manufacturers and not party jamborees.

On the introduction of excise duty on carbonated drinks, despite, the plea by the unions, the labour leader said the present administration has failed not only workers but Nigerians as the effects of the increase cut across several stakeholders.

“The duty affects our members who are now producing at a loss, but despite this, our employers have been magnanimous as we didn’t witness any redundancy.

“What we did was to advise our employers in those companies to push up the volume to make up, but our fear now is the technology being employed,” he said.

He reasoned that the workers could not afford to lose jobs now with the current inflation that has eroded even the present earnings of the workers: “This government has failed us from day one.

At the beginning we felt help had come. All of us should rise up to bring a government with human face.

“The fact that there’s no consequence for corrupt practices is what led us to this level. The leadership will need to change, so that at the end of the day things will be ok for our industry and our country,” he said.

MARCH 11, 2022

Nigerian naira traded at N581 per dollar on Friday at the parallel section of the foreign exchange market.

The figure is lower by N3 or 0.5 percent from the N578 it traded last week.

Bureaux De Change operators (BDCs), popularly known as “abokis”, who spoke to TheCable in Lagos, said one dollar exchanged for N581 at the street market.

The traders put the buying price of the dollar at N575 and the selling price at N581, leaving a N6 profit margin.

Since the  suspension of trading information by abokiFX — citizens have resorted to street traders for the current parallel market rates of the local currency.

A parallel market (street market) is characterised by noncompliant behaviour with an institutional set of rules.

But the Central Bank of Nigeria (CBN) has consistently maintained that the parallel market represents less than one percent of foreign exchange (FX) transactions and should never be used to determine Nigeria’s naira/dollar exchange.

Meanwhile, the naira appreciated by 0.04 percent at the official market to close at N416.50 on Thursday, according to details on FMDQ OTC Securities Exchange — a platform that oversees official foreign-exchange trading in Nigeria.

Further checks by TheCable showed that the euro has weakened against the naira amid low demand for the currency as worries increased over the impact of the escalating Russia-Ukraine war.

The euro is the official currency of 19 of the 27 member states of the European Union (EU).

Street traders across forex markets in Lagos who spoke to TheCable quoted the rate at N600/€1, depreciating by N20 or 3.2 percent from the N620/€1 it traded last week.

A BDC trader told TheCable that no one is buying euro for now since the start of Russia’s invasion of Ukraine.

On the apex bank’s website, the local currency closed at N459.6/€1 at the official market on Thursday.

NOVEMBER 10, 2020

By Sonali Paul, Seng Li Peng

MELBOURNE/SINGAPORE (Reuters) - Oil prices rose on Tuesday as high hopes that a COVID-19 vaccine could be on the horizon were enough to cancel out fears that fuel demand is set to weaken in the near term in coronavirus-hit countries in Europe and the United States.

U.S. West Texas Intermediate (WTI) crude CLc1 futures edged up 16 cents, or 0.4%, to $40.45 a barrel by 0805 GMT, while Brent crude LCOc1 futures rose 9 cents, or 0.2%, to $42.49.

Both benchmark contracts jumped 8% on Monday, in their biggest daily gains in more than five months, after drugmakers Pfizer PFE.N and BioNTech 22UAy.F said an experimental COVID-19 treatment was more than 90% effective based on initial trial results. Mass rollouts, however, are likely months away and subject to regulatory approvals.

“A viable vaccine is unequivocally game-changing for oil - a market where half of demand comes from moving people and things around,” JP Morgan said in a note

“But as we have written previously, oil is a spot asset that must first clear current supply and demand imbalances before one-to-two-year out prices can rise.”

Rystad Energy said lockdowns in Europe could result in the loss of a further 1 million barrels per day of oil demand by the end of this year.

“The fast-tracking of multiple vaccines doesn’t mitigate the risk that many U.S. states will have to return to some form of lockdown this autumn/winter,” Rystad Energy’s head of oil markets Bjornar Tonhaugen said.

U.S. oil inventory numbers are due on Tuesday from the American Petroleum Institute, and on Wednesday from the Energy Information Administration.

Five analysts polled by Reuters estimated, on average, that U.S. crude stockpiles fell by 1.3 million barrels in the week to Nov. 6.

Tuesday’s oil price decline was tempered by comments from Saudi Arabia’s energy minister, who said on Monday the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, could tweak their supply cut pact if demand slumps before the vaccine is available.

OPEC+ agreed to cut supply by 7.7 million barrels per day from August through December and then ease the cut to 5.7 million bpd from January.

“If the oil market continues to rally between now and the OPEC+ meeting at the end of the month, it could prove self-defeating, as some members may grow more reluctant to roll over current cuts into next year, leaving the market vulnerable over the first quarter of next year,” ING economists said in a note.

Reporting by Sonali Paul and Seng Li Peng; Editing by Kenneth Maxwell and Kim Coghill

AUGUST 04, 2020

LONDON (Reuters) - Sterling advanced on Tuesday thanks to a deepening dollar rout though concerns of a second wave of virus infections and a central bank policy meeting later this week capped gains.

The pound has reversed nearly all the losses sustained against the dollar in the wake of the pandemic-fueled selloff in March and April and was rising on Tuesday towards a five-month high hit last week versus the greenback.

Sterling’s recovery has been impressive in recent weeks. It registered its biggest monthly rise in more than a decade in July even though prospects of a breakthrough in Brexit negotiations with Europe before a December deadline remain elusive.

“I think it’s more a case of the dollar giving back some of the gains we’ve seen over the last couple of trading sessions,” said Lee Hardman, a currency strategist at MUFG in London.

“That downward pressure on the dollar is resuming partly because of the (Federal Reserve Bank’s) response to the coronavirus.”

On Tuesday, the pound rose 0.05% to $1.3085 against the dollar and strengthened 0.12% against the European Union’s common currency to 90.09 pence.

Signs that dollar weakness have been the major driver of pound gains can be seen from the performance of the British currency versus the euro and the Japanese yen.

While it has strengthened nearly 15% versus the greenback since the March lows, it has risen less than 6% against the euro and less than 12% versus the yen in the same period.

The pound also faces headwinds from domestic factors as well as global forces.

British Prime Minister Boris Johnson said last week he would postpone the next stage of lockdown easing for at least two weeks due to a pick-up in COVID-19 infection rates.

In the United States, Democrats in the U.S. Congress and White House negotiators are in talks on a new coronavirus relief bill after a deadline was missed on Friday to extend enhanced unemployment payments during the pandemic.

Any delay in unveiling more stimulus measures would fuel another round of selling in risky assets and drag the pound lower.

Investors are also awaiting the Bank of England’s policy meeting on Thursday where money markets are already pricing in the prospects of negative interest rates by early next year.

Reporting by Maiya Keidan and Saikat Chatterjee. Editing by Carmel Crimmins