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Kenya, Senegal join effort to fight tax evasion

28 February 2016 Comments (0) Africa, Business, Featured

Kenya signs the Convention on Mutual Administrative Assistance in Tax Matters

Twelve African countries sign multilateral agreement to counter tax abuse, which costs the continent an estimated $50 billion annually.

Kenya and Senegal have joined 10 other African countries in signing an international agreement designed to reduce tax evasion.

The multilateral convention enables cooperation among nations, including exchange of information about tax evaders and assistance in collecting taxes from them.

African nations lose an estimated $50 billion per year to illegal financial transfers, including tax avoidance, according to a 2015 report by the African Union and UN Economic Commission for Africa. In comparison, Africa received about $29 billion in foreign aid in 2013.

The tax evasion problem is particularly acute for poorer countries that do not have tools to fight sophisticated schemes by large multinational companies. The report and aid groups have noted that these billions of dollars might otherwise be used to develop services and infrastructure on the continent.

Multinational companies blamed

“Africa is hemorrhaging billions of dollars because multinational companies are cheating African governments out of vital revenues by not paying their fair share in taxes. If this tax revenue were invested in education and health care, societies and economies would further flourish,” said Winnie Byanyima, executive director of Oxfam International.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is one tool to fight large-scale tax evasions. It was developed by the Council of Europe and the Organization for Economic Cooperation and Development in 1988 and updated in 2010.

Parties to the agreement cooperate by providing financial information to other party countries on request, performing tax examinations and assisting with recovery of tax dollars.

Twelve African nations sign agreement

Kenya and Senegal signed the agreement in February. Other African parties to the convention are Morocco, Gabon, Cameroon, Mauritius, Uganda, Ghana, Nigeria, South Africa, Tunisia and Seychelles. Globally, a total of 94 countries have signed the convention.

Kenya also recently passed a law that prevents companies from using a common tax-avoidance practice called “transfer pricing” or “trade mispricing.”

Using this practice, companies allocate their costs to subsidiaries in high-tax jurisdictions in order to pay most of their taxes at the lower rate while moving their profits to jurisdictions where they pay little or no tax.

For example, the African Union study described a South African case in which a multinational corporation claimed that a large part of its business was located in the United Kingdom and Switzerland, with relatively low tax rates.

On investigation, South African officials found the European branches had only a few staff while the company conducted most of its business in South Africa. The scheme had enabled the company to avoid $2 billion in taxes, which the South African government reclaimed.

Invoices misstate value

Other practices are “under-invoicing” or declaring a low value on exports to minimize profits on paper and “over-invoicing” by declaring a high cost on imports.

For example, Mozambique records showed an export of 260,385 cubic meters of timber was exported to China in 2012 while records in China show 450,000 cubic meters were imported from Mozambique that year, according to the report.

Another study, by Global Financial Integrity (GFI), found high rates of over and under-invoicing in Kenya, Ghana, Mozambique, Tanzania and Uganda in the decade leading up to 2011.

Kenya, Tanzania see high losses

GFI said Kenya had an estimated $10 billion and Uganda $813 million in under-invoicing. At the same time, Tanzania had $10 billion to over-invoicing. Ghana had more than $14 million for the decade in misstated invoices and Mozambique more than $5 million.

The African Union report said illicit financial outflows from Africa have more than doubled since 2001, from $20 billion to the current $50 billion. The report said African nations lost about $850 billion to illegal transfers between 1970 and 2008, including $218 billion from Nigeria, $105 billion from Egypt and $82 billion from South Africa.

The report said mispricing occurs in a number of sectors, including mineral production in the Democratic Republic of the Congo and South Africa, crude oil exports from Nigeria, and timber sales from Mozambique and Liberia.

Corporations, organized crime cited

Thabo Mbeki, the former president of South Africa who chaired that panel that produced the report said large corporations were the main tax abusers aided by corrupt officials and weak governance.

“The information available to us has convinced our panel that large commercial corporations are the biggest culprits of illicit outflows, followed by organized crime,” Mbeki said.

African and non-African governments as well as oil, mining, banking, legal and accounting firms were involved in tax avoidance schemes, according to the study.

It found that 38 percent of the outflows from the continent originated in West African and 28 percent in North Africa. Southern, Central and East Africa each accounted for about 10 percent.

While significant to the continent, Africa’s losses are a small share of the illicit outflows globally, about six percent of an estimated $1 trillion between 2007 and 2009.

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Kenya’s Mumias Sugar sees better second half, losses widens in H1

23 February 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s Mumias Sugar expected to perform better in the second half after posting a wider pretax loss for the six months ended Dec. 31, the company said on Tuesday, adding falling prices due to illegal imports could pose a challenge.

The heavily-indebted firm has been struggling with cash flow problems in recent years, forcing the government to step in with bailout funds and has hired a new chief executive, Errol Johnston, to drive its turnaround.

Mumias said losses widened to 2.26 billion shillings ($22.23 million) from a loss of 2.08 billion shillings in the year ago period, due to increased finance costs.

Finance costs nearly doubled to 732.6 million shillings from 378.7 million shillings in the six-month period ended Dec. 31, 2014, it said in a statement.

“During the six-month period, high interest rates coupled with a depreciated Kenya shilling adversely affected the company in terms of high cost of finance and foreign exchange losses,” it said.

“This coupled with high operating and administrative costs saw the company post a pretax loss … which is 9 percent higher than the … loss incurred during a similar period last year.”

The shilling hit lows last seen in October 2011 in late 2015, while interest rates peaked above 22 percent.

Mumias said net revenue for the period rose 11 percent from a year ago to 2.98 billion shillings, while administrative expenses shot up to 1 billion shillings from 820.9 million shillings.

Mumias – which also faced hurdles from raw material shortages and low sugar prices – said it was seeking an additional 2 billion shillings cash injection from the government.

Kenya has used high tariffs to protect its sugar farmers but the policy has encouraged smuggling of cheaper sugar imports.

It said loss per share widened to 1.04 shillings, from 0.95 shillings during the first half ending December 2014.

($1 = 101.6500 Kenyan shillings)

 

(Reporting by George Obulutsa; Editing by Biju Dwarakanath)

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Kenya replaces Mombasa port management amid smuggling probe

16 February 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya Ports Authority said on Monday it had replaced senior managers at Mombasa port in response to pressure to tackle drug and ivory smuggling at East Africa’s main trade gateway.

Masden Madoka, the port’s chairman, said managing director Gichiri Ndua and five other senior managers had been sent into early retirement and several others were likely to follow.

There are no suggestions any of the six were directly involved in smuggling, though Madoka said investigations into corruption were ongoing.

“There have been complaints levelled against the KPA (Kenyan Ports Authority) and it was time such drastic action was taken,” he told journalists.

Ndua could not be reached for comment, despite several attempts to contact him by telephone.

The Indian Ocean port is a vital artery for East African trade, handling fuel and other imports for landlocked neighbours including Uganda and South Sudan. The region’s main exports, tea and coffee, are also shipped out of Mombasa.

Western diplomats say it is also the main exit point for ivory poached in East Africa and smuggled to Asia, and has become a key entry point of Afghan heroin bound for Europe via East Africa.

Officials of the port and other government agencies there have faced frequent and widespread accusations of colluding with rogue importers and exporters, depriving Kenya of tax revenues.

While there have been no convictions, the port has become a focal point for a campaign by President Uhuru Kenyatta to boost economic growth by improving efficiency and fighting criminal cartels.

Madoka said Catherine Muturi, who was the port’s general manager for finance and administration, has been appointed acting managing director.

In another effort to curb smuggling, Madoka also said all transit cargo coming through Mombasa would be cleared within the port. At present, some containers bound for outside Kenya are cleared at privately run container freight stations located outside the port.

The government shut down two such stations last month.

 

(By Joseph Akwiri. Writing by Drazen Jorgic; editing by John Stonestreet)

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East African Breweries to make more cheap beer as taxes rise

29 January 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s East African Breweries Ltd (EABL) expects a hike in beer excise duty to hit demand in its home market in the coming months and will raise output of a lower-taxed cheap brand in an attempt to offset the impact, its CEO said on Friday.

Last month, Kenya lifted the excise tax by 43 percent to 100 shillings ($0.9785) per liter of beer, driving up retail prices by at least 20 shillings per bottle.

“Kenyan consumers are incredibly price sensitive so moving up by 20 shillings is a big deal,” said Charles Ireland, group CEO of EABL, which is controlled by Britain’s Diageo.

The hike in excise duty, designed to shore up government revenues, was the first one in four years.

“I would prefer that we saw a more regular increase which was smaller rather than an irregular increase, which is bigger, because I think the impact for consumers and the trade would be more manageable,” Ireland said.

EABL plans to boost the output of its cheaper Senator Keg beer, which is taxed at a rate of 10 shillings per litre, to offset the impact of the taxes on mainstream and premium beers.

Sales of Senator Keg, which is dispensed in mugs from barrels in bars, recovered during the company’s fiscal first half to December, after the government rowed back on a 2013 decision to tax it at the same rate as mainstream beers such as Tusker.

“We have got some additional capacity coming online so we will be able to sell more Senator into the market in the (fiscal) second half,” Ireland said.

Beer exports into South Sudan, which plummeted 74 percent in the first half due to civil conflict, were not expected to rebound soon, the chief executive said.

“The outlook is bleak. I don’t think that South Sudan will improve in the short-term,” he said.

EABL boosted its interim dividend by a third, as net debt fell and the company generated more cash, and Ireland said it would keep rewarding shareholders if profit growth was maintained.

First-half profit after tax from operations rose 16 percent as sales grew and net finance costs dropped by 38 percent.

“I hope it will continue, and if it does, we will be kind of looking to make sure our shareholders benefit from that performance,” Ireland said.

“We are getting into a decent shape from a balance sheet perspective.”

($1 = 102.2000 Kenyan shillings)

 

(By Duncan Miriri. Editing by Mark Potter)

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Kenya’s current account deficit to fall: central bank

21 January 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s current account deficit will fall in 2015 and 2016 and the country’s economy will be supported by macroeconomic stability and low oil prices, its central bank governor said on Thursday.

Patrick Njoroge said the current account deficit was forecast to fall to 8.5 percent of gross domestic product in 2015, from 10.4 percent the year before, and narrow further in 2016.

The currency of the East African country is expected to remain stable after losing 11 percent of its value against the dollar in 2015, he told a news conference.

“We are now closer to the fundamentals,” he said, citing the narrowing current account deficit.

The central bank kept its benchmark lending rate at 11.5 percent on Wednesday, saying its current stance was adequate to dampen inflation.

Njoroge said that high commercial bank lending rates, at above 17 percent in December, were “troubling” but that liquidity was now evenly distributed among banks after getting skewed following the collapse of one bank.

Njoroge said he was open to “real” dialogue with shareholders of Imperial Bank – under receivership since October – and reiterated the fate of the bank will be clearer in March.

 

(Reporting by Duncan Miriri; Writing by George Obulutsa; editing by Edith Honan and Toby Chopra)

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Kenya’s new car sales jump 12.86% in 2015:

18 January 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s new car sales increased by 12.86 percent last year to 19,524 units, the Kenya Motor Industry Association said on Monday.

Rita Kavashe, who chairs the association, told Reuters in November that growth was driven by demand for light trucks used to distribute goods and carry construction materials.

 

(Reporting by Duncan Miriri; Editing by Hugh Lawson)

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Kenya aims to cut external, fiscal deficits

14 January 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s economy is expected to grow 6.1 percent in 2016 and the government wants to trim ballooning budget and current account deficits to steady the economy, its finance minister said on Thursday.

Kenya, East Africa’s biggest economy, set a budget deficit target of 8.7 percent for the 2015/2016 fiscal year starting July, unnerving some investors who were also uneasy about Kenya’s current account deficit, which stood at above 8 percent.

The current account deficit was fuelled by a growth of imports like oil and consumer goods which was not matched by growth in exports. The budget deficit swelled due to increased spending on infrastructure projects and local government units created in 2013.

Officials and investors say the government has to deal with the deficits to boost investor confidence and stave off instability in the currency and borrowing rates. The shilling lost 11 percent against the dollar in 2015, but faired better than most African currencies.

Finance Minister Henry Rotich said the global slump in the price of crude oil had helped the country’s current account deficit to improve due to a lower import bill.

“With the measures we are taking to cut the fiscal deficit, the twin deficits will obviously go down,” he told Reuters by phone.

“We are aiming at around 6.5 percent (current account deficit) and also getting our fiscal deficit, including grants, coming down to about 4.5 percent.”

The Treasury wants to start attaining those targets from the next fiscal year and into the medium-term, Rotich added.

He said Kenya was reviewing all government ministries’ expenditure plans for this fiscal year with a view to cutting unnecessary items and reducing borrowing.

“By the end of this month we will have known what savings we are likely to achieve from the exercise,” he said, adding the measures will be contained in a supplementary budget to be taken to parliament for approval.

Growth was expected to be 6.1 percent this year, slightly up from last year’s projection of about 5.8 percent. Rotich said growth will be driven by public investments in infrastructure, a recovery in tourism and farming.

“We are still seeing infrastructure supporting the growth. Construction remains strong. We see recovery of tourism boosting that. With the favourable weather, we see agriculture will also be strong,” he said.

The government is investing in a Chinese-built 327 billion shilling ($3.2 billion) modern railway, tarmac roads and power plants. Tourists have started to return to the country’s beaches and game reserves after key Western markets like Britain lifted travel warnings.

The warnings had been put in place after a string of attacks by al Shabaab militants from neighbouring Somalia.

Rotich said the main risks to Kenya’s growth outlook were global developments including any slowdown in the Chinese economy, the direction of the oil price and U.S. interest rates.

“The risks continue to be external developments. It has become difficult to get a full feel of forecasts for global economic developments,” he said, adding the main risk at home was any adverse weather like poor rainfall.

 

(By Duncan Miriri. Editing by Drazen Jorgic)

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The central banker Kenyans trust with their cash

9 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s central bank governor has yet to complete six months in the job but he has done what few of his country’s officials ever achieve: he has made people feel their money is safe in his hands.

This is less because of Patrick Njoroge’s success in stabilising the plummeting shilling and more to do with his shunning the fleet of luxury cars and the plush villa that come with the post, the kind of perks widely seen as motivating most public servants.

In Africa, people are more used to “Big Men”, who are in office for personal gain. Kenyans use the term “eating” to describe how officials and their kin gorge from the trough of public funds, until they have to hand over to the next guy.

In a nation where many live in villages without mains electricity or proper roads, members of parliament are paid about $94,000 annually, dwarfing the average Kenyan’s $1,290 a year.

“The ‘Big Man’ syndrome – in which the only way to show who I am is by flaunting all the possessions that I have – is kind of dangerous,” said Njoroge, 54, a member of Opus Dei, a Catholic group that encourages those who join to live saintly lives in their everyday work.

For much of an interview with Reuters at the central bank on Tuesday, the Yale-educated banker who was appointed in June rattled off explanations of how monetary policy was anchoring inflation, steadying a currency that was “dropping like a stone” and laying the basis for sustained economic growth.

But he politely and carefully fielded questions about what he called his “simple life”, which has fascinated Kenyans more used to a daily diet of stories about corruption in high office.

“At least we can trust him because he is not there for personal gain,” said James Mwangi, 27, a car salesman, chatting over a beer in a Nairobi bar. “I believe our money is safe.”

When parliament grilled the former International Monetary Fund adviser for the job, questioners focused mostly on his celibacy – a commitment a fellow Opus Dei member says he made on joining the group – and other aspects of his lifestyle.

“The perception that he can’t be bought and, yes, turning down the perks was impressive to Kenyans,” said John Githongo, one of Kenya’s most prominent anti-corruption campaigners.

But Githongo said it was too early to judge his policies. “He’s ex-IMF, not an institution associated with success in Africa,” Githongo said, referring to the Washington-based body’s reputation among critics for pushing liberalising policies in Africa that they say hurt the poor the most.

 

PROMPT ACTION

Yet Njoroge has won praise from many in Kenya’s finance community. “The tone he has set has been remarkable,” said Aly Khan Satchu, a private investor and financial analyst.

As well as raising interest rates to curb inflation expectations and helping to stabilise the currency, he ordered the liquidation of a small bank and put another lender, mid-tier Imperial Bank, into receivership when massive fraud was uncovered. He did this less than four months into the job.

“Flexibility, being nimble is essential,” the governor said.

When tight monetary policies appeared to starve smaller banks of funds after the Imperial Bank case, the governor reversed course by providing the money markets with more funding, a move welcomed for its promptness.

“Policy makers here … tend not to adjust quickly enough,” said Satchu, alluding to Njoroge’s predecessor who was blamed in 2011 for failing to raise rates quickly enough as inflation rocketed to almost 20 percent and the shilling plunged.

Heavy rains sent food prices soaring and pushed Kenyan inflation to 7.32 percent in November, but it remains within the government’s preferred band. Njoroge said core inflation was slipping, which suggested the headline rate would fall.

“I wish I could say something about controlling the weather,” said the governor.

He joined thousands on a rainy day last month for Mass celebrated by Pope Francis on his first tour of Africa, which began in Nairobi. Njoroge enjoyed one privilege of office: he was in a tent with dignitaries, not under the open skies.

But he has shunned other benefits. Entitled to a Range Rover, Mercedes and VW Passat as governor, Njoroge turns up at events in the cheapest, the VW. “Why not stick to one car?” the governor said, without mentioning the model.

Instead of moving into the governor’s official residence in Nairobi’s smart Muthaiga district, he lives with other members of Opus Dei and donates a portion of his salary to charity, said Andrew Ritho, who works in Opus Dei’s communications office in Kenya.

“You live the way you want to live,” Njoroge said. “Whether the people see it or not, that is secondary.”

 

(By Edmund Blair and Duncan Miriri. Writing by Edmund Blair; Editing by Giles Elgood)

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Kenya’s private sector activity picks up in November

3 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenyan business activity expanded at a faster rate in November than the previous month, driven by a rise in domestic demand, a survey showed on Thursday.

The Markit and CFC Stanbic Kenya Purchasing Managers’ Index (PMI) rose to 53.7 last month from 51.7 in October, climbing further above the 50-point line that denotes growth in business activity.

The PMI is one of the indicators watched by the central bank’s Monetary Policy Committee.

“After a tough couple of months of growth, the private sector rebounded quite impressively in November, buoyed by a recovery mainly from output and employment,” said Jibran Qureishi, regional economist for East Africa at CFC Stanbic.

A steady exchange rate for the shilling, which has stabilised at about 102 to the dollar after weakening to near a record low around 106 in September, reduced the cost pressures facing firms.

“The encouraging aspect of this month’s PMI report is the indication of growth being driven largely by domestic demand as suggested by the rise in new business orders despite new export orders stagnating,” Qureishi said in the statement.

The CFC Stanbic Kenya PMI was started in January 2014.

 

 

(Reporting by Duncan Miriri; Editing by Edmund Blair and Hugh Lawson)

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Most depositors in Kenya’s Imperial Bank to get cash back

2 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s central bank said on Wednesday that almost 90 percent of depositors in Imperial Bank, which was taken into receivership in October because of fraud, would receive their full deposits back.

Governor Patrick Njoroge told a news conference the private shareholders had said they were “interested in recapitalising” the bank but had not presented a plan till now to allow it to re-open, so liquidation was still an option.

 

(Reporting by Drazen Jorgic; Writing by Edmund Blair; Editing by Duncan Miriri)

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