Category Archives: corporate blogging

Rethinking tax incentives in Kenya’s investment promotion efforts

A recent court ruling declaring the Kenya-Mauritius Double Taxation Avoidance Agreement (DTAA) void has sent Kenya back to the negotiating table with Mauritius. The court’s judgment is based on the fact that the DTAA was not properly ratified under Kenyan law. Kenya’s government argues that the treaty promotes investment and jobs; however, critics such as the Tax Justice Network Africa (TJNA), which filed this suit, argue that DTAAs rarely lead to any benefits for developing countries. TJNA argues that instead, they result in massive revenue leakage for African countries which outweighs incoming foreign direct investment (FDI).

Should countries, therefore, abandon the use of DTAAs? The answer more than likely lies in the middle: to bring real benefits to the economy and promote local market potential, countries should balance between the use DTAAs and other tax incentives such as special economic zones (SEZs).

Kenya’s DTAA with Mauritius was signed in 2014 with the hope of boosting foreign direct investment, but the benefits of the agreement were poorly defined from the outset. Similar to any policy, DTAAs must be rooted in clear and measurable objectives supported by equally clear policy levers to ensure that revenue generated from the resident country is not leaked through tax avoidance schemes like profit-shifting. Studies show that DTAAs signed between countries with asymmetric investment positions are less likely to lead to any benefits for developing countries. In the Netherlands, for example, DTAAs led to forgone revenue of at least USD 863 million for developing countries in 2011.

Given Kenya’s current budget deficit of USD 3.75 billion, it is critical that efforts to attract FDI such as DTAAs do not cannibalise local efforts to improve tax revenue. Numerous studies show that countries rarely achieve substantive FDI levels to make up for the revenue losses these DTAAs cause. The failed Kenya-Mauritius DTAA is not the first time a tax agreement with the island nation has been subject to controversy: in 2017, India reviewed its DTAA with Mauritius after reports showed that it had opened room for tax avoidance resulting in revenue leakage of about USD 600 million annually. In 2016 alone, Mauritian firms injected more than USD 50 million into the Kenyan economy, a 72 percent increase from 5 years prior. If the Dutch and Indian examples are any indication, Kenya could be losing far more. Lost corporate revenue is income that Kenya urgently needs to meet its development objectives. A shift to other tax incentives whose impact is more ascertainable may be more effective for many developing countries.

If the goal of DTAAs is to increase foreign investment in Kenya, they must be considered in conjunction with the broader ecosystem of policy instruments that can be used to increase tax revenues to achieve Kenya’s four priority pillars for economic growth. The government hopes to raise the manufacturing sector’s share of the GDP from 9% to 15%, and create 1.3 million jobs in this sector by 2022. To achieve this, governments should explore specific tax incentives that can provide direct benefits to these areas, such as special economic zones, which aim to maximise the “cluster effects” of activities through knowledge and supply chain integration, centralised access to critical infrastructure like roads and electricity, as well as enhanced support from local government.

Kenya, in making strides to use other tax incentives such as Special Economic Zones, should borrow lessons from its neighbours on reaping full benefits from SEZs. Rwanda, for example, has successfully leveraged SEZs to promote growth. In 2016, the Kigali Special Economic Zone (KSEZ) employed 2% of the country’s permanent employees, and accounted for 2.5% of all VAT reported sales. In Kenya, the government has already designated Mombasa, Kisumu, and Lamu as the future SEZs but to maximise their impact and avoid the development of enclaves, it is essential that firms in these SEZs interact with firms outside the zones and that the government ensures knowledge and best practices developed are shared across the economy.

Tax incentives alone will never be the sole factor attracting investors — to increase FDI, Kenya must continue to demonstrate strong market potential by providing business support and trade facilitation services. KPMG finds that Kenyan products are among the top four countries in Africa that score above the global average in terms of competitiveness on the international market; however, it still takes an average of 22 days to start a business — compared to 6.5 days in Egypt and 14 in Ghana — and poor availability of market data can complicate efforts at local expansion. To improve the country’s competitiveness, the Kenya Investment Authority should improve the availability of data for investors by working more closely with the Kenya Bureau of Statistics. Reducing business costs, for example, by bringing down the cost of imports for required goods or improving data quality to support manufacturing and value-added services will always outweigh lowering taxes.

The DTAA ruling prompts a careful re-examination of how to increase FDI without incurring unintended knock-on effects like tax avoidance. To do this, Kenya must enhance its capacity when negotiating bilateral agreements, and enact policies to support proper implementation of these agreements. In its use of tax incentives, it is critical that the scales are always tipped in Kenya’s favour. The impact of each incentive employed must be clear and measurable to ascertain that its benefits outweigh any associated costs.

A guest post by Bathsheba Asati and Faith Nyabuto of the Botho Emerging Markets Group. 

See also: The Kenyan Guide to Mauritius for business travelers.

Media Moment: Kenya Landscape Report

This morning a, joint report by TIFA Research and Reelforge Media Intelligence was released about the media landscape in Kenya.

Excerpts from the report

  • Advertising remains a key source of revenue of media. Also the media, while still powerful faces many challenges including global competition for advertisers (Facebook and Google), and for consumers from other digital platforms.
  • Audiences are fragmented, with people interacting with five radio and 3 TV stations every day. TIFA has tried to improve on the traditional data collecting methods for audience measurement by using an app in the phones of test subjects.
  • For brands, Facebook is the most effective – used by 71% of corporations to reach audiences, followed by Twitter 26%. Least used are podcasts, email and surprisingly WhatsApp – despite its prevalence (all below 2%).
  • Social media and content marketing are the most effective ways of reaching consumers, according to the report. The least effective methods are email campaigns, public relations and outdoors advertising (all below 8%).
  • Whatsapp and Facebook are the most popular platforms with internet audiences – used by over 80% of the respondents – and this is largely because they are free from Telecom providers.
  • The top media spender in 2019 is projected to be Safaricom with Kshs 9.7 billion. In 2018 it was gambling company Tatua which spent Kshs 5.3 billion. In 2017 it was the Government of Kenya which spent Kshs 8.6 billion in that was an election year. Spending by gambling companies has been on the rise with half of the top advertising companies now being betting firms.
  • Radio remains attractive because it is free for audiences access. It also had the has the highest advertising over the period – mainly by political parties during the  2017 Kenya elections.
  • Newspaper circulation continued to decline, and the authors estimated at circulation went down by 33% between 2013 and 2018.
  • Digital migration has increased the reach of TV. Today, Kenya has 173 radio stations, 68 TV stations and 9 newspapers. 

The report by TIFA and Reelforge is now available for download.

Why the Future is Kenya

Friday saw the launch of the Future is Kenya a film designed to lead the promotion of Kenya as a leading trade and investment hub. It is led by the Brand Kenya Chairman, Dr. Chris Kirubi, and draws on corporations and other private sector and government officials.

Through a campaign dubbed ‘WHY THE FUTURE IS KENYA’, business leaders drawn from the financial, technology, service and hospitality sectors celebrated Kenya’s status as an investment hub with the premiere of a specially-commissioned short film and campaign launch at Nairobi’s Coca-Cola Auditorium.

BAKE – Kenya Blog Awards 2017

The Bloggers Association of Kenya – BAKE Kenya Blog 2017 Awards are on again. The nominees,  in 22 different categories, were announced on April 3. Nominees include long time great reads and past winners like Moses Kemibaro, Owaahh, iHub, Mutua Matheka, Niaje, Wandia Njoya,  Mummy Tales, Mzalendo, and Graduate Farmer, with lots of interesting new blogs as well – such as Magunga, Otherwise Podcast,  Daniel Ominde, Penstrokes, and Kenyan Wall Street. The short-listed blogs came from 10,000 submissions, an increase from 4,800 the year before, and the winners will be announced on May 13 in Nairobi.

Voting runs up to May 9, and the 2017 awards are sponsored by, among others, Safaricom, The Bill & Melinda Gates Foundation, Ford, Xpose, EatOut, Vivienne Tea, and the Kenya Human Rights Commission. Please vote for Bankelele in the best business blog category.

NBK: Board PR vs. Blog

The month of March has seen quite a bit of online activity at National Bank of Kenya (NBK).

On one side has been the public relations for the bank, of which I get the releases. Yesterday (March 28) the bank sent one, full of caution, urging their customers to ignore, a blog. I wasn’t aware of any, so I searched and found this blog story (by  ) with the headline that the National Bank Board Sacks Munir Ahmed (the CEO of the bank).  

At the beginning of the month (March 1) , the bank had issued another press release with a warning, and a threat to sue a  blogger. The bank also said it had written to the  Central Bank of Kenya Governor and the Cabinet Secretary (a.k.a. Minister) in charge of Information, Communication and Technology (ICT) about defamation of banks emanating from unregulated blogging.

The Bank requests members of the public and media to disregard any malicious stories spread by ill-intentioned persons on social media or otherwise about the bank who will soon face the full wrath of the law. 

Immediately after that, the Bloggers Association of Kenya reacted strongly against blanket condemnation of bloggers. in a statement that noted that blogger are regulated by a code of ethics, and that (i)  bloggers could be international (i.e. beyond the jurisdiction of Kenya), and that (ii) NBK should consider charging the said blogger for defamation, which is legislated in law.

Today, the bank sent a press release that indeed, the Board of National Bank has announced that the Bank’s CEO  and five top managers have been sent on compulsory leave pending an internal audit process.   

The Central Bank of Kenya, then released its own statement, welcoming the decisions of the board.