While the economies of Europe simmer in stagnant – in some cases even negative – growth, many businesses are starting to look to Africa as a source of new opportunity. And rightfully so: Africa’s economies and politics are rapidly stabilizing, populations are growing and – slowly but surely – an affluent middle class is emerging.
There are also many misconceptions about Africa that loom large in the minds of foreign business leaders. Western media tends to tar the continent with a single brush, portraying Africa as a region riven with corruption, instability and poverty. But the reality is that – with a few exceptions – Africa is emerging as a strong growth market with rapidly maturing tax regulations and increasingly predictable application of the rule of law.
Indeed, according to David Gutierrez, the specter of corruption in some African countries is not much different from the levels currently experienced in parts of Europe and Asia. And, if properly managed by foreign enterprises, corruption should not be an inhibitor to growth.
Panelists Berlin Msiska and Seyi Bickersteth all noted, Africa has yet to pursue any real integration of tax policies and, as a result, investors into Africa will find it necessary to work with revenue authorities on an individual country level. The panel – which also included Richard Parry – did, however, point to recent important initiatives in administration aimed at sharing best practices between national tax authorities and implementing common technology such as EDP and cross-referencing.
Regardless, the wide difference in tax policy will require tax directors to develop a network of local tax experts who not only understand the local dynamics and trends, but can also leverage relationships with national tax authorities to reduce uncertainty and negotiate terms where necessary.
And while rule of law has certainly increased across the continent, the panel noted that there is often little recourse available to companies who feel unfairly treated by local governments or tax authorities. Negotiation and relationships are therefore critical to tax certainty in this emerging continent.
The panel also provided a few recommendations for African tax authorities: focus on offering attractive tax rates to foreign companies in order to secure much-needed investment. But at the same time, strive to deliver greater certainty and predictability in how tax is managed over the long-term. Authorities must also increase their focus on enforcement and collection, while simultaneously ensuring that tax calculations are sufficiently dynamic and transparent for payers in order to build trust and confidence in their local markets.