Is A Tax Credit Going to Encourage US Investment in Africa?

Is the right next step for promoting American business investment in African markets a tax credit that encourage American companies to repatriate their investments on the continent? The Africa Report ran an interview in November with Rosa Whitaker, head of the Whitaker Group. She argues that this tax credit is the right investment response for US-Africa business policy. Initially, I thought this was a great idea, and then questions started coming up. I’ll lay them out here, will do my homework over the next few days and come back with another post and hopefully, a few answers.

The US’ international corporate tax law has gained increased attention with the likes of Burger King moving their headquarters to Canada in order to benefit from a more favorable corporate tax structure. Currently, multinationals pay taxes to the country in which they operate, and also pay taxes to the US. Companies like Apple go to great lengths to avoid paying these taxes while remaining within the law. President Obama took executive action to counter inversions like that implemented by Burger King, and has talked about ways to encourage companies like Apple to bring their profits back to the US. Ms. Whitaker’s argument for a tax credit for US company investments in African markets fits within this debate.

A tax credit could be an attractive investment incentive for American companies, but what could be the impact on African countries? A number of African countries with the support of the African Development Bank are working to improve their ability to negotiate deals with multinationals. Furthermore, African countries are under pressure to not become tax havens, though the appeal of multinationals parking hundreds of millions of dollars in the country is tough to say no to.

I would be interested to see available data on tax compliance among US companies operating in African countries. I wonder if Morten Jerven has any of that in his book on Africa’s data problem. During the U.S.-Africa Leaders Summit, Mo Ibrahim pointedly called out companies doing business on the continent for not paying their taxes. The rise of the big private equity firms – KKR, Blackstone, and Carlyle – has brought questions about how much of the returns from their investments will remain on the continent once an attractive exit opportunity presents itself.

What alternatives are there to a tax credit? Who are the smartest people on this topic? I look forward to working on these questions and getting my observations out in a post a little later on.

Three Things in African Markets You Needed to Know Last Week – October 9

Here’s the rundown on last week’s episode of New Rules Africa. Check out the video for our deep dive into Africa’s stock exchanges: Link

Marriott Plans to Build 50 Hotels in Nigeria, South Africa, and Egypt by 2020 – Link

Marriott is putting both feet in Africa, where it projects to have its highest revenue growth through 2020. The company plans to build 50 hotels in Nigeria, South Africa, and Egypt – 10,000 hotel rooms apiece.

That isn’t the end. Within the next 14 months, the company is opening nine hotels in Uganda, Ghana, Ethiopia, Uganda, and South Africa – 1,300 hotel rooms.

The company bought Protea Hospitality Holdings for $200M in April as part of its expansion across Africa. It is interesting that the company is taking both an organic and acquisition approach to growth on the continent.

IMF Forecasts Ghana’s Outlook in Wake of Recent Meetings – Link

Ghana concluded those meetings last week, and walked away with a pretty grim outlook on the country. It may see its lowest growth levels in the past decade, with GDP growth dropping to 4.5 percent from its 7.1 percent growth for 2014. Compare this to the country’s double digit growth levels in the few years following the discovery of the Jubilee Oil Fields. The struggle the country is facing includes:

  • Low revenue
  • High government employee wages on aggregate
  • Rising cost of paying off debt
  • Struggling currency – dropped 30 percent to the dollar this year
  • High inflation – average of 15 percent for the year

It’s a tough situation and hopefully, the country will see it’s way out of this sooner rather than later. President Mahama spoke at a conference I attended a few weeks ago, and while he spoke relatively frankly about the country’s challenges, and the runway for improvement being a potentially long one, he remained hopeful in his comments. The two sides continue talks this week during the IMF/World Bank Annual Meetings.

Mo Ibrahim Foundation Releases 2014 Governance Index – Link

Mo Ibrahim, since 2006, has taken on the task of ensuring that Africa’s governments operate for the people, by the people. The mobile phone pioneer’s Mo Ibrahim Foundation released its latest annual index that ranks the continent’s governments based on a comprehensive set of criteria covering participation and human rights, human development, sustainable economic opportunity, and safety and rule of law.

Here are the highlights:

  • Governance improved on the aggregate slightly over the last five years;
  • The primary drivers of improvements were in participation and human rights, and human development categories. Economic opportunity and human development used to drive the improvement;
  • These countries improved in all four categories: Côte d’Ivoire, Guinea, Zimbabwe, Rwanda, São Tomé & Príncipe, Kenya, Sierra Leone, Lesotho, Liberia, Zambia, Congo, Chad and Gabon; and
  • Côte d’Ivoire, Guinea, Niger and Zimbabwe saw the biggest improvements.

What I’m Reading Today

Davidson profiled Muna Musiitwa on her work in Africa. Great nuggets on key questions for mapping the way forward on the continent – [http://buff.ly/1ojta8X]

Jason Njoku does some nice analysis on property values in Lagos in parallel with tech investments – [http://buff.ly/1ojtfsY]

Former New York Mayor Michael Bloomberg has paid a good bit of attention to Africa, including a $10M initiative to support the development of financial journalism – [http://buff.ly/1ojtkgt]

Ben Leo, Senior Fellow at the Center for Global Development, provides six key things the Millenium Challenge Corporation should focus on – [http://buff.ly/1n4f3Vb]

My Nigerian brother, Odini Nwakuche, is making waves with his clothing venture – [http://buff.ly/1n4f8Iv]