You are here: HomeWallOpinionsArticles2020 03 10Article 347656

Opinions of Tuesday, 10 March 2020

Columnist: Punchng

‘Tax holidays’ for foreign investors: Africa’s common headache

Ever heard the phrase; it takes money to make money? Imagine further that a Mr Joe Blogg, an American tycoon and a magnate, desirous of making even more money by investing in mineral resources at a location in Africa. The continent, of course, being home to not only exotic fruits, but crucially, also home to tons of crude oil, gas, diamonds, gold, platinum, uranium, you name it.

The abundant mineral resources are, paradoxically, complemented by a staggering degree of poverty and famishment that sees no sign of abating. So, Joe Blogg makes his approach, but instead of paying a levy for the privilege of exploring the resources, the host country offers him money in kind, in advance of his venture. It includes: No payment of corporate tax for the first three years of his venture; this can be extended for a further three years, and a further three years down the line,under certain conditions which his accountants and tax lawyers will oblige him; no duty on any imported equipment for use at his venture; all profits made can be repatriated to America unhindered by any laws; he can bring in any number of his own personnel from his base in America to work for him; he can relocate and close shop at will etc.

In business language, these are called “incentives”, “sweeteners” “business-friendly policies” or “tax holidays” in the current official jargon. This is the crude reality of international finance; strong capital, weak labour, the haves and the have nots. The have nots must give even more from the little they have, in order to get some life-saving crumbs from the owner of capital. It is international capitalism, where money talks. It is the international economic order, where the development of one creates and perpetuates the underdevelopment of the other.

The scenario painted above may appear crude and unvarnished, but it speaks to a deeper malaise about foreign direct investment in Africa and elsewhere. Was it not Julius Nyerere, the former Socialist President of Tanzania (1964-1985), who said wearily; “We employ Ministers of Finance, who quickly become Ministers for Begging”?Let us face it, such Ministers abound across the whole of Africa as you read.They are the “Almajiris” of modern international finance. Spare a thought, then, for Nigeria’s Minister of Finance, Budget and National Planning; Mrs Zainab Ahmed, and her economic team scrambling to find a way out of the morass. Speaking on a visit to the Nigerian Stock Exchange last week, she opined: “Going forward, we are committed to moving away from blunt and expensive fiscal incentives – like Import Duty Waivers or lengthy Tax Holidays – that reward investors merely for their intention to invest – rather, we will design, and implement a more efficient fiscal incentives that reward investors after they have kept their promises to invest, create jobs, deepen our capital markets and abide by applicable rules and regulations”.

I am sorry, but this is simply pie in the sky. It can be incredibly comforting to day-dream at times, but the reality is that there is no stampede of foreign investors on Nigeria’s doorstepfor the Minister to play around with. The Minister’s assertion was more of a political statement than it is a cool-headed economic calculus;a statement designed for domestic consumption than it is for foreign investors to bargain with. It takes no account of the logic of international capital whatsoever. Ever heard of beggars being choosers, Honourable Minister? Negotiating with owners of capital on one’s knees, will not yield the same result as doing so on one’s feet, Minister. Question: Is there any economy in Africa capable of negotiating with owners of capital standing up, eyeball to eyeball? I take no joy saying these things so bluntly, as they are hard to swallow for some people, I know. Nonetheless, truth they say, is bitter. It is what it is. Like it, or lump it.

Foreign investors are in a superior position to negotiate the right terms for their investment because, first, every African economy is short of, and is simultaneously in desperate need of foreign investment. The IMF, World Bank and all other international financial houses make it imperative for borrowers (i.e. African economies and the like) to tailor their fiscal policy specifically towards attracting (Nyerere would say begging) foreign investors. It is a standing order for any kind of reciprocal help from these institutions. Consequently, every African country is in a mad scramble to see who can offer the best juicy package to the same pool of foreign investors.

It is literally a race to the bottom in many instances. Any attempt by one poor country to dilute the negotiating strength of the owners of capital would be immediately met by another poor country trying to do the exact opposite in the hope of cornering the much-needed capital. Competition for capital is already stiff enough even with the preponderance of power with the foreign investors. Other countries are indeed praying that Mrs Ahmed make good on her thinly veiled threat to reverse the incentives offered to foreign investors in Nigeria. So, the vultures are circling, Minister. Having said that, China used to be in a similar quandary over heavy reliance on foreign investors, but the big difference is that China provided a well-trained, strong (and cheap) workforce, technical know-how (remember, China is a nuclear power) in addition to an equally strong central political administration. The country of over a billion people stood her ground vis-à-vis foreign investors, and insisted on “technology transfer” in exchange for access to its market.China is now poised to overtake the USA as the largest economy in the world. We have neither the economic strength, nor the political will (at the moment) to do likewise in Africa.

Africa as a continent, has less population (800 million) compared to China (1.3 billion). Africa, however, is negotiating with owners of capital as 53 disparate (sovereign) states, while China with a larger population did it as one united entity. Which one do you imagine would get a better result? What then is the lesson here readers? It is that Mrs Ahmed’s words would carry weight only if they were being uttered as a policy statement on behalf of Africa under one, united government. Africa is the wealthiest continent in the world in terms of natural resources per capita, yet, the poorest in terms of economic and human development indices.

The wealth on the continent is yet to be translated into economic benefit for its inhabitants. A united, common front would turn the table overnight, but is that too far-fetched? After all, the citizens inside Nigeria alone are still dubious about remaining as one entity. The nationality question continues to wreak havoc on its social cohesion. Can it champion the cause of African unity under the circumstance? If not, can South Africa with its “xenophobic” attacks on “foreigners” (i.e. brothers and sisters from other parts of Africa eking out a living in the ‘rainbow’ nation) step up to the plate on African unity?

Doubtful, you might say. So, if the two largest and most consequential economies are unable to drive African unity, then, who can? Mrs Ahmed and her future successors can protest about the inequity of foreign investors till the cows come home, but it will not make a blind bit of difference. That said, it is perhaps salutary for her to know that similar headaches afflict every other country elsewhere on the continent. We will either hang together, or hang separately.

Join our Newsletter