Tyler Cowen Goes to Lagos

MR’s Tyler Cowen (also Professor of Economics at George Mason) recently spent six days in Lagos. Here is what he has to say about Africa’s biggest and most economically dynamic city:

A trip is often defined by its surprises, so here are my biggest revelations from six days in Lagos, Nigeria.

Most of all, I found Lagos to be much safer than advertised. It is frequently described as one of the most dangerous cities on earth. Many people told me I was crazy to go there, and some Nigerian expats warned me I might not get out of the airport alive.

The reality is that I walked around freely and in many parts of town. I didn’t try to go everywhere or at all hours, and I may have been lucky. Yet not once did I feel threatened, and I strongly suspect that a trip to Lagos is safer than a trip to Rio de Janeiro, a major tourist destination. (In my first trip to Rio I was attacked by children with pointed sticks. In my second I found myself caught in a gunfight between drug lords). Many Lagos residents credit the advent of closed-circuit television cameras for their safety improvements.

So if you’re an experienced traveler, and tempted to visit Africa’s largest and arguably most dynamic city, don’t let safety concerns be a deal killer.

Read the whole thing here.

I have never been to Lagos, and look forward to fixing this in 2017. So far my experience of West African (commercial) capitals is limited to Dakar, Accra, Lome, Conakry, Nouakchott and Monrovia (I like them in that order). Dakar edges Accra only by a whisker, mostly on account of the seascape. I have spent way more time in Accra, and therefore my ranking might also be a function of my knowledge of Accra a little too well.

Accra beats all other cities on food. It has the most variety, and nearly all of the offerings beat the bland stuff that we East Africans consume. The grilled tilapia and banku is unbeatable.

Oh, and I must admit that I have a slight preference for Senegalese jollof. My wife insists that Ghanaian jollof is the best jollof (ahead of both the Nigerian and Senegalese variations). I look forward to sampling Naija jollof so we can finally settle this disagreement.

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The Anatomy of Tax Evasion in Africa

Africa Confidential has a great piece analyzing leaked documents from PwC, the professional services firm, showing the various arrangements that enable multinational companies to evade taxes in Africa. You can read the whole piece here (gated).

  • One of the measures PwC advised multinationals to take was to create a wholly-owned Luxembourg-based subsidiary which would hold the rights to intellectual property used by the rest of the group. The rest of the group would then pay licensing fees to the Luxembourg-based subsidiary which, by agreement with the authorities, would be granted tax relief of up to 80%……
  • A second tax avoidance mechanism simply involved the companies becoming incorporated in Luxembourg. In 2010, Luxembourg concluded an agreement with several companies of the Socfin (Société financière) agribusiness group, which was founded during the reign of Belgian King Leopold II by the late Belgian businessman Adrien Hallet. The companies chose Luxembourg as their base and made an agreement under which their dividends were subject to a modest 15% withholding tax, a lower figure than those in force where their farms are located (20% in Congo-K and Indonesia, 18% in Côte d’Ivoire).
transfer-pricing

The art of hiding profits

Altogether, Socfin subsidiaries in Africa [in Sierra Leone, Nigeria, Liberia, Cote d’Ivoire, and Cameroon] and Indonesia produced 123,660t. of rubber and 380,770t. of palm oil in 2012. The combined turnover of its main African subsidiaries reached €271 mn. in 2013. The list also includes the 100%-owned Plantations Socfinaf Ghana Ltd. (PSG) and Socfin-Brabanta (Congo-Kinshasa). Socfin also holds 88% of Agripalma in São Tomé e Príncipe and 5% of Red Lands Roses (Kenya).

  • A third mechanism involves cross-border lending within a group of companies. Companies registered in Luxembourg are exempt from tax on income from interest.

According to the Thabo Mbeki High Level Panel report between 1980 and 2009 between 1.2tr and 1.4tr left Africa in illicit flows. These figures are most likely an understatement. Multinationals, like the ones highlighted by Africa Confidential, accounted for 60% of these flows.

Alex Cobhan, of the Tax Justice Network, has a neat summary of the various components of illicit financial flows (IFFs) and how to measure them. He also proposes measures that could help limit IFFs, including: (i) eliminating anonymous ownership of companies, trusts, and foundations; (ii) ensuring that all bilateral trade and investment flows occur between jurisdictions which exchange tax information on an automatic basis; and (iii) making all multinational corporations publish data about their economic activity and taxation on a country-by-country basis.

Alex Cobham blogs here.

Happy Independence Day Ghana!

Ghana is 57 today, having gained independence from the UK on the 6th of March, 1957.

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Back then the independence of Ghana (named after the historic empire that existed in parts of present day Mali and Mauritania) had a lot of symbolic value given that it was the first majority black African country to gain independence.

Resource sector accountability in Africa: The supply side story

I was recently in Ghana for some preliminary work on an evaluation project that a few colleagues at IPRE Group and I will be working on later this year. On my trip I talked to people engaged in transparency initiatives targeting Ghana’s extractive sector. Most of you probably know that Ghana is the second biggest exporter of gold in the region, after South Africa. It also recently joined the club of African oil exporters. In the recent past Ghana has been touted as a model for transparency and accountability in the resource sector (I wrote about it here). EITI commended the country for going beyond the recommended minimum reporting threshold. That said, the country still has a long way to go, especially with regard to the gold sector (most of the publicized initiatives concentrate on the oil sector, forgetting the much older gold mining sector.)

My conversations with some of the CSOs working on various kinds of transparency initiatives revealed to me that the problem of government opaqueness in reference to resource sectors is not just because of lack of political will. It is also about governments’ lack of capacity to supply accountability. Take the example of oil drilling. In order to provide transparency to its citizens the government has to have a proper revenue management system (complete with accurate models of predicted production, prices, etc); well trained technical staff that can hold their own against the savvy experts (engineers, geologists, etc) of the oil companies; and the technical means of delivering information in a digestible form to the masses. As it is in most governments, Ghana included, ministries in charge of resources are often staffed by loyal political appointees, some whom lack the technical expertise to effectively carry out their jobs.

This is not to downplay the political economy aspects of resource sector accountability. Just to say that there is a difference between Obiang’ and Mahama. For the former, technical fixes may do little to increase transparency in Equatorial Guinea’s oil sector. But for the latter, the political situation necessitates the provision of set minimum levels of accountability. So to the extent that there is a failure to do so in the case of Ghana we should not be quick to scream politics but instead also consider ways of improving the state’s capacity to supply transparency and accountability.

Atta Mills, President of Ghana, is dead

The BBC reports:

Ghana’s President [John Atta Mills], who was suffering from throat cancer, has died in the capital, Accra.

A statement from his office said the 68-year-old died a few hours after being taken ill, but did not give details.

Vice President Dramani Mahama is due to be sworn in as the new president.

Ghana is scheduled to hold general elections later this year. With the passing of Mr. Mills it is unclear who will become the ruling party’s presidential candidate (more on this soon).

More on this here, here and here.