Category Archives: housekeeping

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.

BA 2119: The Flight of the Future exhibition

A guest post by Elsie Kibue-Ngare.

I was fortunate enough to be invited/gifted a ticket to an interactive exhibition by British Airways in collaboration with students from the Royal College of Art (RCA) at the Saatchi Gallery as they showcased the future of flying in the next 100 years.

This year, British Airways is celebrating its 100th Anniversary as being part of a predecessor company AT&T (Air Transport & Travel Ltd) and this exhibition is a celebration of that long history by looking at aviation through history via FLY, an interactive, multisensory, virtual reality experience that turns you into a time traveller from being a bird, into Leonardo Da Vinci’s studio in Florence all the way to 100 years into the future to what aviation might look like with an aircraft that is guided to land by sight as one of the possibilities of air travel.

Together with FLY, eight other concepts were showcased at the exhibition. These included:

  • AVII (AVY), which I particularly liked as a concept to improve the experience of travellers using Artifical Intelligence (AI) in collaboration with cabin crew. The idea is to submit your needs as you book your flight, for example, if you have particular dietary needs and this information is fed back to the cabin crew who in return provide personalised service throughout your flight without even you asking.
  • Another concept, TASTENATION, uses data collected from DNA and body health to 3D print food for a new multi-sensory in-flight dining experience. This idea does away with food waste as meals are prepared from scratch onto edible cutlery and plates. Yet at the same time provide the necessary nutrients whilst on the air as it prepares the body to adjust to the cuisine of the traveller’s destination.
  • In line with reducing waste, THE FUTURE OF LUGGAGE is another concept that can also be realised. The vision where travellers would travel without any luggage as they will have to upload their clothes onto a digital wardrobe together with their measurements and depending on the weather, duration of their stay, etc. and the idea that you would arrive at your destination and find a set of clothes waiting for you at the airport lounge at your destination is pretty awesome. Clothes will be made from recycled materials that at the end of your trip, you drop them off at the airport where they are recycled.

There was so much to detailing to see at this exhibition from personalised wearable seats called AIRWEAR, to flying green with AERIUM, where the air we breathe and the water that we drink whilst flying is generated through bioavionics systems integrated as part of the plane. CURIO, a hypersonic modular aircraft with zero emissions and weird seating is one I did not get. And so did AER, a shape-changing smart luggage transportation concept.

Of the concepts, I saw at the exhibition, AVII(AVY), AERIUM, TASTENATION and THE FUTURE OF LUGGAGE looked like the ones that are likely to happen in the near future leading up to 2119 with the other concepts looking very unlikely, but I could be wrong and years beyond 2119, these other concepts could be a reality for many.

All in all, it was amazing to see how history and the advancement of technology inform us of the ideas and innovations of what is yet to come.

Spanish delivery company Glovo enters the Kenyan market.

Glovo is a four years old Spanish delivery company started by Oscar Pierre and Sacha Michaud. Its headquarters are in Barcelona, Spain and Glovo has been expanding globally, and just recently begun operations in Kenya five months ago, with Morocco and Nigeria being the other two African countries using the Glovo app services.

Glovo actually means balloon in Spanish to signify the way a balloon moves easily from one place to another. Kenya has seen some new delivery companies but is yet to experience one which can deliver even a personal item that you forgot at home. We are used to the traditional delivery of items by people we know but now this app will very well facilitate an easier way. The one challenge being how safe or how trustworthy Glovo delivery people are which, and the company has placed safeguards for this.

The Glovo app is found on Google play store for Android and App Store for IoS and it doesn’t take more than five minutes to start using the app. What makes them even more competitive is their pricing which is quite the saver.

Glovo performance is improving by the day. William Benthall, the General Manager for Kenya stated that the number of Glovo bikes he’s seen around town keeps increasing with time. Just like other delivery services, with Glovo, interested partners sign up their machines, for instance, bikes, to the app and can from there, connect with clients who need items delivered.

A guest post by @themkare 

Twitter Business Voices from every African Country

Compiling a list of African voices on @Twitter who write about business with a bias to residents who live in the countries and actively tweet or write about finance, economics, investments, technology and other similar business topics.

Diaspora (marked as ‘d’), and government (marked as ‘govt’) writers are included and marked accordingly, but this is not to de-emphasise their ability to create authentic unique local content. There is also a  bias for people who tweet in English, and for individuals, not media or financial organizations, but these are not criterions for selection or exclusion. Feel free to suggest other names in the comments, by country, and to complete the gaps.

  • Algeria @omarelmohri (d)
  • Angola @CaipLounge, @isabelaangola
  • Benin @yacinebtchane
  • Botswana @Emma_Wareus @SiyandaWrites @BogoloKenewendo (govt), @JacoBank
  • Burkina Faso @bachirismael (govt), @ocomar
  • Burundi @ThierryU(d), @mKabeya
  • Cabo Verde
  • Cameroon @mankangwafo @dibussi @Mimimefo237 @dibussi
  • Central African Republic /CAR
  • Chad
  • Comoros
  • The Democratic Republic of the Congo @congofriends (d), @Ley_Uwera @Noellacc @sindika_dokolo
  • Republic of the Congo
  • Cote d’Ivoire @nnenna? @nanaspio? @Laureenolsson @edithbrou @VictorOladokun @CandaceNkoth @kajenny @fayelle1 @ourmaninafrica
  • Djibouti @Ilyasdawaleh (govt)
  • Egypt @Gsquare86 @tchibota_fleur @G_Hammouda @Ibrahimsagna
  • Equatorial Guinea @GabrielObiang (govt), @Ameugn, @CesarAbogo(govt), @OscarBerniko
  • Eritrea @MesMehary(d), @MagdaBerheJ @tekerebanelim
  • Ethiopia @Zemedeneh @Kalkidafrique @deldeyoch @Mekmz @PreciseConsult @addisale @BethlehemAlemu @MuradAIssa @addis_fortune @GetachewSS ‏@EleniGabre @FlawlessinET
  • Gabon @Isdimak @caro_enilorac @prjeanping  @agueminia @mays_kinga @gloriamika
  • Gambia @fatimaj_j, @TheJamaJack @haddijatoujonga @Fatushow @maimuhyai
  • Ghana @MacJordaN, @ekbensah(d), @EFYA_Nokturnal @ethelcofie(d), @anasglobal
  • Guinea @diene_keita
  • Guinea-Bissau @raulcabr
  • Kenya @alykhansatchu @coldtusker @RookieKE @MainaT
  • Lesotho @mpolo_masenkane @BillyNtaote @charlesfogelman @Frank_Mothibe @Sthunya
  • Liberia @AxelAddy
  • Libya @MaryFitzger
  • Madagascar @lrakoto
  • Malawi @chiume
  • Mali @KamissaCamara (govt), @Si_Duchatelet
  • Mauritania @ahmed8687
  • Mauritius @mosesharding
  • Morocco @Startup_Morocco @MarieMarieNelly @helenranger
  • Mozambique @clubOmozambique @Casa_Barry @sandragaveta
  • Namibia @Dillish_lishy, @KalondoMonica
  • Niger @Aalyel @AmindehBlaise @SouleyMoutari
  • Nigeria @PaulWallace123 @NaijaFlyingDr @eggheader @toluogunlesi @tosinolaseinde @JasonNjoku @nonso2 @chikaoduah @elnathan_john @venerableladyB @OlufemiAwoyemi @BankyW @markessien @DrJoeAbah @LindaIkeji @toluogunlesi ‏@NuhuRibadu @eggheader @biolaa1 @rolakeakinkugbe @_yemia
  • Rwanda @LucyMbabazi @cakamanzi @DKarusisi @YolandeMakolo @RwandAnFlyer(d) @Fionambabazi1 @YvonneMakolo @Julio_Bizimungu @Contact_Makeda @mwasa @kayizarica  @TravelRwanda. Also President @PaulKagame, and in Rwanda, virtually all top government officials tweet as well.
  • Sao Tome and Principe
  • Senegal @AliouneSambGR(d), @gayeadama000, @babacarjdiop(d), @MameKharyDIENE1 @kadediha @YannLeBeux
  • Seychelles President @DannyFaure (govt), @ronny_jumeau @FinesseMf @SeychellesTrade @BarryFaure (govt), @SeyInvest
  • Sierra Leone @UmaruFofana @IamIshaSesay(d) @memuna @VickieRemoe @KYumkella
  • Somalia @Fatumaabdulahi, @DrBeileh (govt)
  • South Africa @MichaelJordaan @alechogg @RanjeniM ‏@TheSoloWandera @PhutiMahanyele @ThuliMadonsela3 @Sentletse @ElanaAfrika @christopherM @rafiq
  • South Sudan @siinchol
  • Sudan @NesrineMalik (d), @YousraElbagir (d), @MagnusGTaylor (d)
  • Swaziland / Eswatini
  • Tanzania @CRBarretto @joachimm3 @moodewji @Arden_Kitomari @zittokabwe @Makambas (d), @carolinekere, @iMashibe @AnnieTANZANIA @MsigwaGerson (govt), @JMakamba (govt) @MikocheniReport @aeyakuze
  • Togo @Farida_N, @cinalawson(govt), @CarlManlan
  • Tunisia @benyeoma? @Rana_J01 @benyeoma @nanaspio
  • Uganda @KigoziMaggie @UgInsomniac @whthome @echwalu @ssanyaug @tufre80 @whthome @RosebellK @jssozi @echwalu @Ruthaine
  • Zambia @Muloongo @MissZambia @mulumba @missbwalya @monicamusonda @GNdhlovu @ictjournalist @cholamukanga @Mweshi
  • Zimbabwe @TrevorNcube, @MthuliNcube (govt), @SirNige @VascoDaGappah @elishabuffet

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.