Category Archives: economic sanctions

Mauritius and the EU Blacklist

This week, the East Africa Venture Capital Association (EAVCA) organized a talk about Mauritius that’s facing a European Union financial transactions blacklist.  

Some excerpts:

  • Mauritius has set itself up as a financial hub that attracts and deploys investments across Africa. It has become the place of choice to operate through and 90% of investments into East Africa are done through Mauritius (60% are from the EU). The significance of this is that one panelist said that the Mauritius ban was worse than COVID.
  • Mauritius has complied with 35 of the 40 clauses (including the big 6 important ones), and 53 of the 58 recommended actions on Anti-Money Laundering (AML). There’s high-level commitment to correct the remaining ones, led by the Prime Minister, and the nation has a timetable to address the outstanding issues in 2021. 
  • The blacklist prohibits European investments in new funds in Mauritius, with the ban also affecting all European Investment Bank (EIB), funding, investments, lending and operations. The ban is not retroactive, so they have agreed on a grandfather period, till 31 December 2021, during which funds can continue to operate and by which time they hope the country will be removed from the list. But from October 1 2020, European funds can’t make new invests in funds structured in Mauritius. They have two options – focus on funds not established in Mauritius or invest through parallel structures (institutions that are set-up to co-invest along with funds in Mauritius) 
  •  No African country will benefit from Mauritius troubles as there are few alternatives to that country. Malta and Ghana have also been listed – so likely bases are now Dubai, or within the EU (Netherlands, Ireland, Luxembourg, France) itself.  
  • Kenya and Mauritius have been working on a taxation treaty for 8 years. Kenya has signed 14 tax treaties (including with Canada, France, Germany, India, Norway, UK, Zambia and South Africa), most before 1987, but none had raised as much attention as the proposed Mauritius DTA, as it is which is a low-tax country. Uganda and Rwanda already have Mauritius DTA’s. Kenya’s Parliament opened public participation on a new Kenya-Mauritius treaty for the avoidance of double-taxation in terms of cross-border transactions (property, profits, royalties, dividends, technical fees etc.) and the deadline for comments is October 5 202. But the treaty does not apply to most Kenyan investment firms as a 2014 KRA law change requires 50% of ownership to be in another state to qualify.  

KPMG on Kenya Taxes in 2020

Last month, Kenya’s President announced proposals to cushion residents from impacts of the Coronavirus that has affected many industries and companies by disrupting supply chains and reducing consumer spending. He cited measures such as reduction of income taxes, and Value-Added Tax (VAT goes down from 16% to 14%), that have now taken root in April 2020.

But the details of the proposal are now clear with the publication of the tax laws amendments. They are contained in a 97-page bill that is to be tabled at and debated at a special session of Kenya’s National Assembly (Parliament) on Wednesday, April 8, for their approval.

KPMG East Africa has nicely summarized some of the proposals in the bill, picking through the details. Some notable items are:

  • VAT: Items that were previously exempt including bread, milk cream, vaccines, and medicaments, move from the zero list to the VAT exempt list, and this may push up their costs.
  • Items that previously did not incur VAT but which will now be charged 14% include agricultural pest control products, tourism park fees, LPG, helicopters, mosquito nets, equipment for solar & wind energy, museum exhibits & specimens, tractors, clean cookstoves, insurance services, and helicopter leasing which previously did not attract VAT.
  • For investors: VAT is now charged on the transfer of a business as a going concern, as well as on assets transfers to real estate investment trusts (REIT’s) and asset-backed securities.
  • Income tax: Is reduced across different bands with those earning below Kshs 24,000 per month exempted from paying income tax, while the tax rate for top earners goes down from 30% to 25%.
  • Non-residents will pay 15% withholding tax on dividends they receive, an increase from the current 10%.
  • Corporate tax: This reduces from 30% to 25%.
  • Businesses earning between Kshs 500,000 to Kshs 50 million a year are to pay turnover tax, which will now be reduced from 3% to 1% of income, monthly. The previous upper limit was Kshs 5 million.
    It is now mandatory for businesses to keep records of all their transaction for 5 years
  • Anti-industry moves?: An electricity rebate for manufacturers has been ended, VAT has been introduced on goods used to build large industrial parks, and there will also be reductions of building investment allowances.
  • Kenya Revenue Authority: When KRA appoints banks as revenue collection agents, they are to remit collections to the Central Bank of Kenya within two days.
  • Removes a requirement that KRA publishes tax rulings in newspapers.
  • KRA may pay rewards of up to Kshs 500,000 for people who give information leading to tax law enforcement (i.e whistleblowers). 

The National Assembly will also consider regulations of a new Covid-19 Emergency Response Fund that the President announced on March 30. They will also dispense with appointments to the CDF board and the Teachers Service Commission, and consider any bills from the Senate.

So while Parliament debates this under the rush of emergency provisions, most of the clauses are financial items unrelated to Coronavirus.

The End of Social Conventions?

For weeks, investors and the business community have been rattled by massive  disruptions to global supply chains, as factories shut down in China. Everyone from BMW and Mercedes to Apple is feeling the squeeze on account of the coronavirus.

But economies and businesses are not the only ones dealing with disruption. 

Social conventions are adjusting in unprecedented ways.

Yesterday, Italy shut down ALL schools and contemplated banning kissing in an attempt to thwart the spread of the coronavirus pandemic.  The kissing ban may not be necessary. Italians are already voting with their feet and keeping their cheeks at a very safe distance from friends, family members and others.

But Italy is not alone.

In France, where “La bise” is an age-old ritual, kissing friends has always been a rather complicated affair, especially for uninitiated foreigners. Rather than shaking hands, waving hello or hugging, you simply  lean forward, touch cheeks and kiss the air while making a sound with your lips. 

Friends in France tell me that ‘La bise’ could soon go the way of the dodo if the virus known as “COVID19” remains unrelenting.

Here in Abidjan in Côte d’Ivoire, as in many other parts of the world, social conventions are rapidly changing. Unlike the French double blise, Ivorienes, conduct a rapid triple kiss. But they too have become extremely economical with their cheek and air kisses. 

At the African Development Bank, where we have rapidly put a coronavirus contingency plan in place, kisses and handshakes are quickly giving way to fist and elbow bumps, or to no contact at all. Many understandably  prefer an adoring “keep your hands to yourself” stance.

Across town, it is not uncommon to see men and women now tap their feet rather than touch cheeks or shake hands. What first started out a few weeks ago as a  comedic viral video in Asia, has since mushroomed into a full-blown practice in some communities. 

I’ve already been offered the foot of friendship’ several times, so I can testify.

Last night, I was having dinner with a colleague at Indian By Nature, a lovely restaurant off of Boulevard de Marseille in the Marcory district that is a favourite hangout for many in the expatriate community.

Three things struck me. 

One, very visible neon yellow alcoholic hand sanitizers were on full display all around the restaurant. You couldn’t miss them.

Second, everyone … waiters, chefs, and owners kept their hands and cheeks to themselves. 

And third, it would seem that the hand-clasped Hindi ‘Namaste’ greeting could soon become a globally preferred and much safer social norm, in a world battling with a pandemic that has already spooked the media and business world for good reason.

Social conventions have always been arcane arbitrary rules and norms that govern behaviours from kissing, hugging, shaking hands, to bowing. In the age of increasing pandemics, it would seem that old conventions are quickly giving way to the new and the not so new.

For now, stay safe and Namaste!

Dr. Victor Oladokun, is the Director of Communication and External Relations, African Development Bank.

Ghosn Press Conference

Former Nissan and Renault CEO, Carlos Ghosn staged an escape from home-arrest in Japan and flew to Lebanon on December 31, where he re-emerged this week and gave a press conference to justify his decision to flee. 

In the session, broadcast live from Lebanon, he spoke of the decline in Nissan’s performance that started after he left as CEO to focus on bringing Mitsubishi into the Alliance. He had been CEO for 17 years and left Nissan in 2016 with $20 billion cash, profitable, growing, respected, having taken it from nowhere in 1999 to a top (no 60) brand in the world. But performance dived after he left, in 2017 and 2018. 

He traced his troubles to a shareholder vote in France to give Nissan which owned 15% of Renault voting powers there, similar to what Renault had at Nissan in Japan with its 15%. But the vote did not attain the threshold required and the Japan government was upset and blamed him for that – and saw removing him as the only way that Nissan would get autonomy.  

He was surprised (like Pearl Harbor) when he was arrested at an airport terminal in Japan in November 2018 and told he was being charged with understating his compensation – an amount which was not fixed, approved or paid. He wanted to call Nissan to get a lawyer and (at the time) he did not know it was stage-managed. They were trumped-up charges which, while Nissan pled guilty to in Japan and paid a fine to its government, in Tennessee (USA) they had denied the same charges.

The job of the CEO is to create value, and that of the board is to protect shareholders – but, he said, today there is no alliance – I worry as a shareholder we lost 35% of value while the entire auto industry is up 12%. Today the Nissan-Renault alliance, which was the number one auto group in the world in 2017, does not work – They wanted to turn the Ghosn page and they have – growth has disappeared, profits are down, there is no strategic direction and innovation. 

What they have today is a masquerade of an alliance that is going nowhere – and they missed out on bringing Fiat Chrysler into the Alliance which he had been negotiating – and who instead chose to join the PSA (the Peugeot, Citroën) group.

The presumption of guilt prevailed and he was pressured to confess in a country where the conviction rate is 99%. He spent 130 days in isolation, underwent endless interrogations, spoke to his wife twice in nine months (in the presence of a lawyer) – and when I left Japan, I did not have a court date for the first charge – and my lawyers said it would be five years before I got a judgment – which he led him to conclude that he would die in Japan if he did not get out.  

 Another theme of his defence was that he was not greedy. He had served the company for a long time and in 2009, amid the US auto crisis, he was asked to become the CEO of General Motors and engineer a similar turnaround there. He now says, he made a mistake and should have accepted that offer. 

He was determined to fight back against a smear campaign that was part of a €200 million investigation. I was a hostage in a country I had served for 17 years, I revived a company – I was a case study and role model in Japan with 20 books written about me, then instantly I became a cold greedy dictator.

The reason for the collapse of the Zimbabwe Economy

Anonymous guest post. 

Land redistribution (or seizures) didn’t sink the Zimbabwe economy. In fact a 2011 independent study, quoted at the time in the New York Times (it’s unlikely to get more sceptical than that) declared that the redistribution programme had actually worked – that Zimbabwe was not just more productive; its food security had also rebounded to pre-redistribution levels.

But many (especially Western) analysts politicize the economic crisis without properly comprehending it. They link the collapse of the currency with the collapse of settler production, which in turn is caused by misrule. Misrule is then metaphorised as a trust problem, which is then looped back into the economic crisis, this time as its very basis.

The land redistribution-economic collapse analysis was deliberately trotted out in the early 2000’s by both the British and the white settlers. It’s a myth, as carefully and boldly planned and executed as anything Goebbels ever put out. It’s the Big Lie Theory stunningly executed. The Big Lie worked on a very plausible assumption: given that the white settler control of agro-industry was the heartbeat of the Zim economy, it followed that dismantling it would trigger the disintegration of the economy. This was only true to the extent that the land seizures disrupted productivity so severely as to halt it altogether.

Herein lies the Big Lie: it was easy to assume that a change in land ownership would mean a collapse in agricultural production. This evidently (as the statistics demonstrate) was a manifestly racist assumption. For one, it failed to account for ongoing smallholder production. More to the point, a decade after land redistribution, agricultural production was at the same levels, if not higher than what they were prior to redistribution.

So: what accounts for the collapse of the Zim dollar? The simple answer is sanctions. In 2002, and at the height of the land redistribution programme, (then President) Mugabe refused to sign onto the second phase of the IMF ESAF programme.

In response, Zimbabwe was suspended from the Fund. At the same time, and in solidarity with the white farmers, Bill Clinton (presidency ended in 2001) and the US Congress instituted sanctions against Zimbabwe. The result: Zimbabwe lost ALL its major export markets. And as a follow-on, its hard currency reserves began to tank.

Those sanctions have still not been lifted. This makes Zimbabwe, after perhaps Cuba, Iran and North Korea, the biggest pariah country on earth. Attempts to lift sanctions and the IMF suspension over the past two decades have all been unsuccessful.

One last thing, which I think is at the core of the sanctions question: why haven’t they been lifted? I was at a press briefing in 2010 or thereabouts with (then Prime Minister) Morgan Tsvangirai and his deputy, Arthur Mutambara. These were clearly individuals who had been brought into Uncle Bob’s cabinet (at the instigation of Mbeki and the grand coalition peace deal) precisely on the calculation that they were acceptable faces to the West.

And the question they were asking was: why have the sanctions not been lifted now after the peace deal? Almost a decade later, the whole determination of the Emmerson Mnangagwa government to conduct a credible poll turned on the assumption that, following such a credible poll, sanctions would be lifted.

In fact one could argue that the current design of the post-election Commission of Inquiry is itself an attempt to convince Bretton Woods and Washington that Zimbabwe now has a ‘credible govt’. But still, there are no clear indications that even if the poll had been deemed credible, that sanctions would be lifted.

So one is now driven very close to the conclusion that Zimbabwe is being turned into the new Haiti i.e. that its punishment for daring to stand up to Western capital and threaten the very idea of white supremacy is going to be punished for generations to come.

Also, read the Guide to Harare, the work of the late Professor Sam Moyo.