Contextualizing Financing for Development in Africa

In a bustling market square in Accra Ghana stands Marta Luttgrodt’s store, a modest structure where she sells alcoholic beverages sourced from Accra Breweries which is a few kilometers away. Marta like many of us today represents the backbone of Africa and is a candid example of the opportunities and challenges facing the continent’s success narrative.

Pic credit: business.dk

Pic credit: business.dk

Pic Credit: The Guardian

Entrepreneurship and innovation are today well known key drivers for increased wealth and growth in society. These drivers in order to be efficient and effective require the support of strong pillars such as political institutions which encapsulate democracy and good governance whereby citizens can exercise their voice and governments alike are accountable and responsive to their needs; economic institutions which include finance institutions that enable entrepreneurs and innovators to gain access to capital to actualize their innovations; strong intellectual property rights and strengthened labour markets . These pillars are critical to the growth story of Africa because only an inclusive political, economic and social system will see the continent progress collectively.

So what does this even mean and how is it related to Marta?

Let me begin by explaining a phrase that’s often verbalized in Kenya which has in fact become a nugget for comic relief. “Naomba Serikali” (I am asking/begging the Government) this is where Kenyans across the spectrum plead with the government to provide jobs for them, their daily subsidies, basic services such as security etc. Nonetheless as valid as it may be, Kenyans have pushed it a notch further by asking for the most absurd requests. On a serious note however, the Kenyan government is mandated to provide basic services but it like all other governments cannot be the ‘source of employment’ i.e. creating jobs in the public sector to absorb new university graduates entering the job market. It can within its mandate create an enabling environment through the pillars I highlighted above which ensures that the likes of Marta have flourishing businesses further increasing job and wealth creation.

Marta like many entrepreneurs in Africa earns a decent income $400 and pays her taxes in the hopes that the government will meet its end of the bargain by delivering quality public services. To highlight just a few; a good education for her children, health, security, good infrastructure to expand her business etc.

The worthwhile thing to note is most governments actually do envision delivering these services but for obvious reasons fall short of doing so. Public institutions muddled by corruption ensure that taxes collected from Marta never see the light of day. Majority of the budget deficits stem from poor domestic resource mobilization which can be attributed to poor tax legislation and lack of capacity in comprehensive tax revenue collection. It is for these reasons that we see governments in Africa depend extensively on foreign aid which we have painstakingly come to learn over the years as being unsustainable; this is not new news.

What is most appalling to note however is that Marta, a budding entrepreneur in Accra Ghana pays more in taxes than Accra Breweries a subsidiary of SAB Miller, the world’s second largest beer company which operates just a few kilometers away from her.

Action Aid conducted a report on SAB Miller which elucidates how multinationals such as SAB Miller owe poorer countries billions in tax.The flip side of the argument is that SAB Miller is a major direct investor, employer and taxpayer in Africa and the multinational is making substantial economic contributions to the continent.

Borrowing from the report on Illicit Financial Flows in Africa,   Africa loses approximately $50 to $148 billion annually in revenue from tax evasion most commonly through tax mispricing. The report further informs that between 1970 and 2008, Africa lost $854 billion to $1.8 trillion in illicit financial flows and revealed that commercial money such as tax evasion and trade and services mispricing through multinational companies, constitutes the largest component followed by proceeds from criminal activities and public sector corruption.

Here’s a 3 minute video that explains tax mispricing.

Angry tax justice advocates from within and outside Africa have called on the governments where these tax havens are located to cooperate in tackling this menace through enhanced transparency and accountability. The response most times has been, “Clean up your corruption mess before you can come and dictate to us what to do.”

You and I are reflections of Marta, we all have areas in which we have specialized in hoping to improve our wellbeing and that of others. To contextualize this even further, let me give an example of Nigeria today. More babies will be born in Nigeria this year than in the whole of Western Europe. So if one is in the nappy business where else would you be looking to expand your business? Idealistically, to conduct business in Nigeria one will require sufficient amounts of capital; an environment that enables ease of business-minimum amount of hours/ zero levels of corruption to open the enterprise-; a robust energy sector for your industries which would allow you to work round the clock without any interruption; and a strong infrastructural network that ensures sufficient access to markets to deliver these nappies.

According to the World Bank, the cost deficit in mitigating the infrastructural gap in Africa today stands at $75 Billion; an estimated $38 billion of investment per year and a further US$37 billion per year in operations and maintenance. Revert to the figures given on the sums of money that Africa is losing annually.

So the questions I wish to pose for reflection are: Africa currently gives the second best returns globally in investments, is it really rising when these very multinationals that are projected to contribute to Africa’s growth narrative are undermining our progress? How then can we make this work for us? How do we secure the rights of the Marta’s in this continent?

tax_us_if_you_can

A Word On Innovation From The World Economic Forum 2015

The movie ‘The Last Samurai’ comes to mind. The armies of the forefathers were far more equipped strategically to deal with matters of war and this certainly did not rest on the battalion numbers and equipment. One of the lessons from that movie. . .be careful who you think you can govern. Heritage takes precedence over everything.

Turn on CNN and you’ll find the news as it is….sometimes exaggerated; there’s very little good news at the moment. The current state of the world is at a point of strained cadence. Globally and geographically the world may have seemed flat, but economies are overwrought. This is accentuated by the fact that companies and governments alike seek sustainable solutions to “do more with less.” Certain natural resources are no longer plentiful for various reasons, food is simply scarce because most of it is wasted. Populations and urbanization continue to rise due to employment centralization and the snail’s pace of infrastructure development to accelerate economic activities in stagnant areas.This is a resident nuance in Africa.

Today however, the world is looking to emerging markets, particularly Africa. They have their eyes set on us. Let us remember that while CEO’s at the WEF 2015 stated that technology is great for learning in Africa, who of them reported this as part of their annual results linked to profit margins? Technology companies are profit driven and invest in profit driven growth.

Pic credit: afronline.org

In droves they come, setting up shop as multinational companies. Included in their suitcases are an array of experiences and skills that have been tried and tested in developed economies. Soon enough they realize that more challenges and risks exist rather than opportunities – if not managed well.

“Innovation for us is coming from emerging markets… All the great ideas are coming from the outside” – Coca cola CEO

If these investors do not have a ‘pack’ case full of effective methods and behavioral studies that satisfy the needs of local markets that liquesce into local communities, environments and cultures, they will not achieve success.

German engineer Karl Benz invented the first petroleum-powered automobile without knowing that he had not just created an engine with wheels but stirred a revolution of inventions. For generations to come, he set the chain-ring in motion for an industry that revolutionized the way in which society was structured, and it has evolved ever since. Similarly, English computer scientist Tim Berners-Lee had not just built the world’s first Web site, he became Alexander the Great because of what we now know today as the World Wide Web. As with many inventors they unselfishly and not through ignorance, ignored the impact of that which we enjoy today.

There are four critical elements to note that will guide us when it comes to innovation in Africa going forward.

The first is ethical compass: the world is riding a wave of super waves from economic growth in places such as Africa.

Frankly speaking,we still have a large uneducated population who seek the ability to “consumerise” and not make financial decisions that would impact sustainable livelihoods. This is the continued theme of the Africa Progress Panel; to slow and ultimately halt corruption being channeled through illicit outflows. We have the multinational CEO’s who use these opportunities to take advantage. This is how it plays out. Corruption is pointedly carried out in sovereign countries by their respective officials and it is then that money that is shifted to tax havens by multinationals. This subsequently stunts innovation. How? Through lack of investments in local economies and research for African solutions; Africa is losing out as a continent.

Innovation must have a moral compass. Innovation must initially rectify and advance life in Africa and then serve as an economic export. The CEO of Coca-Cola recognizes this, he reiterates that if it is African then Africa must reap the financial rewards and hold the intellectual property rights.

Secondly, sustainable innovation: according to the WEF 2015 report; Most consumers in emerging markets desire and prefer products which are cost effective and that enhance innovative functionalities. Therefore, finding the optimal balance between innovation and cost is one of the most significant elements of driving sustainable innovation.This is also an essential dynamic to gain customers and achieve sustainable growth in emerging markets.

Nonetheless, there is some level of disagreement here. Innovation functionality must solve a problem from the perspective of the African consumer. No longer based on the notion of limited resources, can we invest only in consumerism? Innovation resources must have a source. If this source is in Africa, what are the sustainable impacts given the lagging stages of development on the continent? We have to think much deeper.

Thirdly, speed to market via infrastructure: at an average growth rate of over 5 percent in most African countries, sustainability is an acute question. If we measure the cost to benefit ratio of a smartphone to the majority of consumers in Africa, cost will top actual productive use and household affordability.

“If we can extend [the internet] to more people, we increase voice… we increase economic opportunity… and we increase equality.” – Sheryl Sandberg, Chief Operating Officer and Member of the Board, Facebook, USA

If we investigate the number of internet users from the 400 million smartphone users, can we honestly say that there is an impact on improved quality of life? Again, this may be creating room for understanding or misunderstanding the playing field in new markets. Despite an increase in growth, there can be the possible dangerous misconception of linking investment and population poverty to economic mainstream conversion and migration alike.

In the current form, speed of delivery of innovation must meet speed of infrastructure innovation. Plug the annual $40 billion infrastructure funding gap and let’s get the ball rolling.

Fourth, Meet the Local Partner: ideally there should be qualified local partners who can meet the expectations of handling major investments. This is ideal to enable investors to integrate well into local geographies as well as provide the know-how on navigating local markets.

If we go back to the history of the industrial revolution, specifically the depictions of economic progress, we find that there existed many economic models that tested negative.

Thus, the stories being put forward on innovation in Africa are to some extent ignoring the fundamental narratives of the African people, history and status quo.

I have browsed most quotes on innovation from the the internet and from the WEF 2015, a body and gathering that I hold in high regard; I find that there is a deficit in research, particularly on Africa and emerging markets; the research is more steered to making innovation of European and US based technologies available to African consumers.

In a world where the US and Europe are lagging in growth and emerging markets continue to receive the bottom of the shoe coverage irrespective of the fact that their markets have the greatest growth and prospects for investment, one wonders who to listen to.

We need change and the Chair of the WEF ought to take cognizance that African CEO’s who have built billion dollar companies across the continent should be the ones steering thought leadership.Or maybe, just maybe, innovation should start with sufficient and quality media coverage which showcases African’s skills and talent; a people with a history of storytelling well.

Article originally posted on Ventures Africa

Story by Elton

(Edited here)

Addis Ideas

Addis Ideas is a revolutionary mobile application that allows Africans to improve the communities around them. Users can share their development ideas with the world, collaborate with others who share similar interests, and get the attention of potential sponsors — who could turn their project ideas into reality. The ultimate goal of Addis Ideas is to promote information sharing, enhance public participation in African development, and create a collaborative work space for everyday people who would like to see change in their communities… It’s a crowd sourcing solution for African development.

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