Kenya Economic Update: In search of fiscal space – who benefits from government spending and taxation? (World Bank)

The report builds on the options to enhance domestic revenue mobilization, as outlined in the 16th economic update, by examining the equity implications of government spending and taxation policy measures. In addition to exploring the impact of government expenditure on cash transfer programs, education and health, the KEU reviews revenue raising measures such as PAYE, VAT and excise taxes. The report finds that personal income tax is progressive with the poorest 40% of Kenya’s population contributing 14.3% of market income, but less than 1% of direct taxes. In contrast, 80% of the tax incidence is borne by the richest 10% of the population. This factor is largely driven by the progressive nature of Kenya’s tax system and the limited access to formal sector jobs among poor people. [Download: pdf Kenya Economic Update, October 2018 (1.83 MB) ]

Ghana: Scaling up value creation and local development in the mining sector (UNECA)

The economic contribution of the mining sector in Ghana cannot be overstated. Mining has no doubt brought in significant fiscal payments: total fiscal receipts attributed to the mining sector alone accounted for 22% of government revenue in 2016. The sector is also the largest source of investment inflows from the world’s biggest gold-producing countries and the leading export earner, with a total share of 45.5% in 2016, far ahead of the second and third main exporting sectors, namely, cocoa, which accounted for 22.3%, and crude oil, at 12.5% of total export earnings. Extract: One of the key recommendations contained in this report outlines the need to set up a national suppliers’ development programme. That proposal was endorsed by the Government and the initiative was formally launched at the ministerial level in Accra on 2 November 2017. In rolling out the programme, it goes without saying that it is critical to scale up domestic suppliers’ capacity, capabilities and competitiveness. It is innovative in its approach by also including a strategic pillar on innovation and technology to prepare Ghanaian firms to move up the value chain and improve their productivity now and in the future, as technological progress changes the face of the industry. [Download: pdf Scaling up value creation and local development in the mining sector in Ghana (4.63 MB) ]

Turkey-Africa Economic and Business Forum updates:

(i) Ethiopian president, Mulatu Teshome, yesterday praised Turkey’s opening policy towards Africa as it has helped both countries find mutual business opportunities with each other. The Ethiopian president noted that the total amount of investments by Turkish firms in Ethiopia was around $2.5bn. “As of end of 2017, the number of Turkish firms active in Ethiopia reached 150 and the employment opportunities created by these firms is approximately 30,000. Turkish firms employed the highest number of people in private sector from Ethiopia, Teshome said. Turkey’s exports to Ethiopia were over $440m while imports from the country was $36m in 2016.

(ii) Summary of the joint declaration. The declaration recommended the launch of a joint action plan to examine possibilities of removing tariffs and obstacles to trade while protecting “sensitive sectors” of African countries. Private sector’s activities in both sides should be supported in order to foster mutual investment and trade in each other’s countries, it said. Turkey and African Union decided to form a partnership in design, inspection, financing and management of projects to reduce energy costs and increase access to electricity, drop transport costs, boost intra-African trade, ensure water and food security and increase global connectivity. It added that participating countries will take necessary measures to encourage Turkish and African enterprises as well as financial institutions to expand investment and participate in infrastructure projects through various means, such as Public-Private Partnership and Build-Operate-Transfer.

Wealthy Kenyans hiding Sh15trn in foreign banks (Business Daily)

Kenya’s super-rich are holding more than Sh14.8 trillion in offshore tax havens across the world, a newly published report says. The individuals, who form the cream of Kenya’s wealthiest, mostly use the offshore accounts to hide ill-gotten trillions, evade taxes and steer clear of Kenyan laws, the report by American think tank National Bureau of Economic Research says. “Among the countries that created a lot of shell companies (relative to the size of their economy), one finds Jordan, Russia, Taiwan, the UAE, Venezuela, Zimbabwe and Kenya,” the report says, adding the list is made of countries with high offshore wealth to GDP ratios. At Sh14.8 trillion, the estimated amount of black money held by Kenyans abroad is nearly five times Kenya’s 2018-19 Sh3 trillion budget. About the NBER paper (pdf): “We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting, showing that the rise of the global corporate capital share is significantly underestimated.”

Kenya: Bill seeks to stop imports of goods produced locally (Standard)

A Bill aimed at locking out cheap imports has been introduced in Parliament. The Bill sponsored by Thika MP Patrick Wainaina seeks to charge a tax that is 10 times the market price of the imports that compete unfavourably against locally manufactured products. If it is approved by Parliament and gets the President’s nod, the SME Amendment Bill 2018 is likely to set the stage for a major trade war with Kenya’s leading importers, including China. “Currently, the country is importing goods worth Sh2 trillion annually and exporting goods worth only Sh500 billion. About 25% of all imports come from China while Kenya only exports 0.5% of total exports to China,” said Mr Wainaina. Speaking when he opened the Thika Business Trade Fair, the MP asked manufacturers and Kenyans to support the Bill when it comes up for public debate. “We should not be importing things like toothpicks, matchboxes, spoons, eggs, oranges, mangoes and pans which are produced locally. We need to protect the local manufacturers by discouraging these imports.”

Tanzania firm halts Kenya flour exports over tax changes (Business Daily)

Tanzania-based Bakhresa Group, which owns one of the largest flour mill in the country, has suspended exports to Kenya citing frequent changes in tax rules. The firm, a well-known family-owned business founded by tycoon Said Salim Awadh Bakhresa, says frequent changes in tax rules have slowed its exports to Kenya and led to losses running into millions of shillings. “The Kenya Revenue Authority has in recent months surprised us with sudden changes that end up increasing our tax liability six fold,” its export manager Yasini Billo said, claiming the changes usually aren’t communicated to importers until products get to the border. “We see the hidden hand of competition in all this since our products do not encounter similar restriction in the other EAC markets that we export to.”

Nigeria worries over Ghana’s continuous closure of shops (News Agency of Nigeria)

Nigeria has expressed concern over the continued closure of Nigerians shops in Ghana two weeks after President Koffi Nana-Akudo gave the order to reopen them. The Senior Special Assistant to the President on Foreign Affairs and Diaspora, Mrs Abike Dabiri-Erewa, said in Abuja when the National Association of Nigerian Traders led by its President, Ken Ukuoha, paid her a visit. Ukuoha had led the Nigerian and Ghanaian Chapters of the union to present a petition on the continuous closure of their shops to President Mohammadu Buhari through Dabiri Erewa’s office. Nigerian traders were shut-out of their business premises in pursuance of the eviction order dated 27th July 2018. The Ghanaian authority was demanding that traders must have one million dollars as minimum foreign investment capital to do business in Ghana as stipulated its Ministry of Trade and Industry GIPC Act, 2013. She expressed worry that in spite the assurance of President of Ghana to Buhari that the shops will be re-opened, and despite an instruction to reopen the shops on 27 September, the shops still remain closed.

Morocco’s ECOWAS bid to undergo legal examination (Morocco World News)

Morocco’s bid to join ECOWAS has been submitted to an independent committee of experts for legal review. The move is the final step of admissibility within the regional body. It comes a year after heads of governments in the Economic Community of West African States (ECOWAS) evaluated the political and economic aspects of Morocco’s prospective membership. The three-member review committee is composed of Ibrahima Fall, former minister of foreign affairs of Senegal; Beninese constitutional law and international expert Joel Aivo; and Ameze Guobadia, Nigerian public law professor at the University of Lagos.

Global economy updates

Debt vulnerabilities in developing countries: a new debt trap? (pdf, UNCTAD)

The two volumes of this publication gather a range of contributions on specific aspects of this important and large topic. Volume I brings together papers that analyse different regional aspects of evolving debt dynamics in the developing world, detailing many of the issues raised in this introduction in these specific contexts. It also introduces an additional, and often neglected, wider feature of these debt dynamics, namely the role of microdebt crises across the developing world and the bankruptcy of the microcredit model. Volume II turns to selected topics and policy options to mitigate developing country debt vulnerabilities in current circumstances, in which a ‘new global deal’ is unlikely to garner the required international political support. [The authors: Bruno Bonizzi, Jan Toporowski, Annina Kaltenbrunner, Yuefen Li]

The Managing Director’s Global Policy Agenda, Annual Meetings 2018: Rising risks – a call for policy cooperation (IMF)

Global debt is at an all-time high of $182 trillion or 224% of global GDP. About two thirds is nonfinancial private (households and corporates) debt, while the rest is public debt. Increasing public debt vulnerabilities in LICs is a particular concern, with about 40% at high risk of, or in, debt distress. This reflects rising borrowing, only to a limited degree for public investment, combined with adverse shocks. A key challenge stems from weak public debt transparency and coverage. As part of our work on debt transparency, we have developed, together with the World Bank, proposals to strengthen borrowers’ debt management capacity, enhance the collection and dissemination of debt data, and deepen debt sustainability analysis.

Launched yesterday in Bali, by the IMF: Sub-Saharan Africa Regional Economic Outlook – capital flows and the future of work. External risks threaten Sub-Saharan Africa’s steady recovery – six charts that tell the story

Launched yesterday in Bali, by the World Bank: Human Capital Index. Individual country briefs and data can be downloaded here.

The Bali Fintech Agenda: a blueprint for successfully harnessing fintech’s opportunities (IMF)

National authorities are keen to foster fintech’s potential benefits and to mitigate its possible risks. Many international and regional groupings are now examining various aspects of fintech, in line with their respective mandates. There have been calls for greater international cooperation and guidance about how to address emerging issues, with some also cautioning against premature policy responses. In response to these calls from member countries, the IMF and the World Bank staff have developed the Bali Fintech Agenda, summarized in Annex I of this paper. The Agenda brings together and advances key issues for policymakers and the international community to consider as individual countries formulate their policy approaches. It distills these considerations into 12 elements arising from the experiences of member countries. The Agenda offers a framework for the consideration of high-level issues by individual member countries, including in their own domestic policy discussions.

Foreign investment across the Belt and Road: patterns, determinants and effects (World Bank)

This paper examines the patterns and economic effects of foreign direct investment across the Belt and Road Initiative countries and assesses the potential role of the initiative in shaping the patterns and effects. Exploring cross-country bilateral transportation cost and foreign investment data, the analysis shows that, by reducing overall travel times and transportation costs, the proposed Belt and Road Initiative transportation network can pave the way for additional investments and increased growth in gross domestic product. But the magnitude of the effect varies significantly across source and destination countries. Aggregate foreign direct investment in Belt and Road Initiative countries is predicted to increase by around 5%, with regions such as Sub-Saharan Africa and East Asia and Pacific seeing greater potential gains. The increase in foreign direct investment can exert a positive effect on GDP, trade, and employment growth, especially for lower-income countries.