AIB

“Africa is open for business” A guide to tax / incentives in Africa

The future: a united African trade market

Africa too, is party to a growing number of bilateral and multi-lateral trade agreements, providing African exporters with an opportunity to claim preferential treatment. Africa’s answer to the above is the Tripartite Free Trade Area (TFTA), which covers 26 (out of 54) African countries and is aimed at creating the biggest free-trade area on the African continent. The African continent features 17 trade blocs and the TFTA will result in consolidating the three significant trade blocks: the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). The graph below is a good illustration of the impact that the TFTA could have:

TFTA

African Economic Blocs

As can be seen by the almost decade long time-frame for the TPP to be negotiated, getting a TFTA across Africa would also not be without its own challenges. Not only would African countries need to significantly expand its range and volume of goods manufactured and produced, but it would also need to focus on Africa-2-Africa supply chains and its means of production. From the survey conducted it is clear that many African countries specifically offer tax incentives to stimulate the manufacturing, agricultural, and industrial base in their respective countries, with some more advanced economies also offering incentives to localise financial services industries. A case in point is Kenya and Cameroon which provides tax breaks for companies that list on its stock exchange. We have noticed a recent trend in more African countries attempting to diversify their economies to shift away from an over-reliance on extractive industries and to branch into mainstream industries such as manufacturing and value-added services industries. African countries appear to be introducing new or revised incentives, seemingly to compete more favourably for both local and foreign direct investment. The success of South Africa in having a diversified economy appears to be rubbing off on its northern neighbours. For example:

  • Nigeria is currently striving to attract foreign direct investment to grow other sectors of the economy (such as the motor manufacturing industry) given the decline of revenue from the oil sector. This is evident in the various tax incentives and government grants that have been introduced;
  • Rwanda has recently published in the Official Gazette of the Republic of Rwanda, the new Regulating Investment Promotion and facilitation (Investment code), which contains a package of investment incentives to Foreign as well as local investors; and
  • Kenya has recently enacted a Special Economic Zone Act to extend incentives to other sectors including Services which are established in designated zones.
Lessons to learn

No trade deal provides any country with a guaranteed return of extra revenue, and every trade agreement is unique with complex negotiations on the details therein. Teamwork and commitment is required by African leaders to remedy common problems, such as regional power production, local supply chain beneficiation of mineral wealth and rolling out port, rail and road infrastructure. This, in itself, offers the opportunity for Africa to start doing business with itself, for itself, and will no doubt assist in better regional integration. The benefits to Africa of a Pan- African FTA (when this eventually is negotiated!), would be mainly accessible to those companies that are prepared to do the hard yards understanding the many regional agreements, building relationships with potential customers and developing the products that meet their requirements. In the interim, companies that are best at ‘sorting the chaff from the wheat’ will be able to take full advantage of the potential of such trade agreements.

PLEASE FOLLOW THE LINK TO DOWNLOAD A FREE COPY OF THE SURVEY: Africa Incentive Survey 2016

David Okwara

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