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New Global Tax Rules to Address Imbalances in Africa’s Tax Revenue

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Africa's Tax Revenue

By Denny Da Silva

One hundred and thirty-six of the 140 members of the OECD G20 Inclusive Framework, including South Africa, have agreed on a new set of global tax rules that will reform the world’s tax system.

Notably, two African countries that are members of the Inclusive Framework have not yet joined the agreement – Kenya and Nigeria.

The two-pillar system will be presented to the G20 Leaders’ Summit at the end of October 2021. It will result in a reallocation of taxing rights from resident to source countries of certain multinational enterprises (MNEs), if thresholds are met, in addition to a 15 per cent global minimum tax rate for certain organizations, implemented from 2023. The agreement aims to redress global tax revenue imbalances and is set to benefit developing economies in Africa.

According to African policymakers, a multilateral approach to tax collection has numerous benefits for the continent. Smaller economies like those in Africa are more reliant on business income tax than larger economies.

The African Tax Administration Forum (ATAF) previously noted that 16 per cent of total tax revenue in African countries is from corporate tax, compared to 9 per cent in OECD countries.

African countries have increased their revenue collection methods and have implemented punitive measures to clamp down on tax avoidance measures because the revenue collected is of the utmost importance to the stability of their economies. But current tax rules have meant that African countries could not collect tax revenue from multinationals, even if they were operating profitably in their countries.

The OECD’s Pillar One changes enable market jurisdictions to charge income tax on a portion of the profits of large multinational companies operating within their borders. It will reallocate taxing rights from their resident countries to markets where they conduct business and generate profits, regardless of their physical presence in that country.

Pillar One will apply to MNEs with sales over €20 billion and that generate a net profit above 10 per cent (profit before tax/turnover). Amount A has been confirmed at 25 per cent of an MNE’s residual profit (i.e. profit in excess of 10 per cent of revenue) and will be allocated to market jurisdictions with sufficient nexus using a revenue-based allocation key – being a revenue of at least €1 million from that jurisdiction (or at least €250,000 for jurisdictions with a GDP of less than €40 billion).

No agreement has yet been reached on the implementation and design of Amount B, which intends to simplify the arm’s length principle for baseline marketing and distribution activities, but the intention is for this to be completed in 2022.

Pillar Two proposes a new network of rules that will reallocate taxing rights according to a new global minimum tax regime of 15 per cent – aimed at ensuring a minimum effective net tax rate across all jurisdictions. It will apply to all enterprises generating revenue above €750 million. Model rules for bringing Pillar Two into domestic legislation will be introduced in 2022 and become effective in 2023.

On the African front, ATAF submitted proposals to the OECD on the new agreement and announced in October 2021 that many of its proposals were incorporated into Pillar One, including broadening the agreement to incorporate all sectors but excluding the extractives sector. ATAF stated that resource-rich African countries price their minerals on their “inherent characteristics” and not on “market intangibles”, and as such, taxing rights should go to the resource-producing country.

ATAF further noted that their request for greater simplification of some of the rules was also incorporated. Specifically, the nexus threshold was reduced to €1 million, down from €5 million, with a lower threshold of €250 000 for smaller jurisdictions with GDPs lower than €40 billion and no “plus factors.” ATAF also secured an elective binding dispute resolution mechanism, as opposed to the existing mandatory dispute resolution process, for eligible developing countries.

ATAF was also pleased that the Subject to Tax Rule (STTR) would be a minimum standard that developing countries can require to be included in bilateral tax treaties with Inclusive Framework members and that the STTR would cover interest, royalties, and a defined set of other payments.

However, there was disappointment that the agreement only allocates 25 per cent of the residual profit to market jurisdictions under Amount A – ATAF had advocated for this to be 35 per cent.

African countries now have until 2023 to implement the new tax rules, navigating difficulties with regard to tax implementation due to capacity challenges and issues with how the rules will impact countries that are not members of the Inclusive Framework.

However, the OECD has stated it will ensure the rules can be effectively and efficiently administered and that they will offer comprehensive capacity-building support to countries that need it.

Overall, the global tax changes are good news for the continent and are expected to result in increased tax revenue for African countries at a time when capital is direly needed for post-pandemic recovery.

Denny Da Silva is the Associate Director of Tax at Baker McKenzie, Johannesburg, South Africa

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5 Tips for Tackling Imposter Syndrome

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Aisha Pandor CEO SweepSouth Imposter Syndrome

By Aisha Pandor

Imposter syndrome is something that most of us have felt at one time or another. Even if you know you have all the right qualifications and experience to be in a position, it can be all too easy to feel like you don’t belong.

Whether it’s someone dismissing your work or even just casually telling you about something you’ve never heard of as if it’s common knowledge, it can be an incredibly difficult space to climb out of.

Imposter syndrome can be especially insidious among entrepreneurs, who already have to deal with ecstatic highs and crippling lows. In fact, a 2020 study found that 84% of entrepreneurs and small business owners experience imposter syndrome. Many also worry that they’ll be “found out” for their lack of knowledge and ability.

That chimes with my own experiences as an entrepreneur and investor. When Alen (my husband) and I first started SweepSouth back in 2013, I had no experience as an entrepreneur. I’d come from an academic background and everyone at the various startup events and pitching competitions we attended seemed so much calmer and more confident. I couldn’t help wondering what I was doing there and why I’d sacrificed a potentially comfortable life for something I was certain everyone else was doing better at.

While that feeling occasionally rears its head again, I’ve learned a number of strategies over the years to effectively tackle it. Here are five of them.

Remember that your journey is your own

For entrepreneurs especially, imposter syndrome can be fuelled by comparing yourself to others. It can strike when a business that started at the same time as you gets a batch of great write-ups in the press or when they raise a massive funding round. At times like that, it’s important to remember that you’re on your own business journey, no one else’s. By trying to match someone else’s success because it makes you feel inadequate, you’re setting yourself up for failure.

Remember, if you’re making progress, you’re doing the right thing. Many of the entrepreneurs who seemed so confident at the early events I went to have seen their businesses not perform as well as they’d hoped. The same is true of those who raised headline-grabbing early funding rounds. If I’d let comparisons to them cause me to waiver from my focus, SweepSouth would be in a very different place today.

Address your weaknesses

Sometimes the feelings associated with imposter syndrome come about because someone brings up a legitimate issue that your business needs to address. It might, for instance, be something that a potential investor brings up. The trick is not to take it as a sign that you don’t belong, but as something fixable that you can address. Every person and every business has weaknesses. That doesn’t mean they don’t belong or shouldn’t exist.

Remember your accomplishments

Write them down if you have to. Chances are you’ve had to overcome a lot of obstacles to get where you are. This is especially important if you don’t look like everyone else in the room. If you’re a woman, for instance, nothing about your male peers’ maleness makes them any more suited to their jobs or running a business.

Have a support network

Remember that stat from the beginning of the article about 84% of entrepreneurs suffering from imposter syndrome? That’s not an indictment on entrepreneurs but an opportunity. By joining a local, regional, or even international entrepreneurs’ organisation, you expose yourself to people who’ve been through the same things as you (including imposter syndrome) and who can guide you through any issues you might face.

Turn it on its head

Finally, remember that real imposters are unlikely to feel imposter syndrome. Being a successful imposter depends on outsized levels of confidence. So, if you’re feeling like an imposter, you can take it as a sign that you’re probably on the right track.

Aisha Pandor is the CEO of SweepSouth

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Reminiscing on the Loss of a Friend, Dreams Deferred, and Bold New Beginnings

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Chris Ihidero loss of a friend

By Chris Ihidero

One evening some eight years ago, my good friend Steve Babaeko walked into a mutual friend’s office looking a little less than his usual uber-confident self.

You won’t find many people who can claim to have seen Steve looking any less than assured: He consistently cuts the picture of a supremely confident man and his achievements are a testament to how that confidence has been well earned. But that evening in 2012, Steve had just put in his resignation as Creative Director of 141 Worldwide, the advertising agency he helped build from scratch and made a market leader. He would have to start all over again and the future held no guarantees. We broke out a bottle of cognac and toasted to new possibilities. As our mutual friend said that evening, “What’s the worst that can happen? You may fail, but at least you would have tried.”

When Amaka Igwe passed on in 2014 just as we were about to launch the TV channel we had been working on for about four years, it soon became clear to me that if I was going to have any shot at realizing the dream we shared, I would have to say goodbye to Amaka Igwe Studios. AIS was my home for eight years. I started out as an apprentice TV director and rose to become Chief Operating Officer. It was the place that built me. On the day I made the decision to leave, I stood in the building we had just furnished for the TV station, gazed at the transmission equipment we had installed and knew I was walking away to start all over again. Walking into a future with no guarantees.

Like Steve that evening, I was a lot less assured.

It’s been seven years since that decision and I have had an incredible run. It hasn’t been a sunset stroll in the park but I’m grateful for my contributions to the TV and film industry in Africa so far. While I worked for different TV networks, wrote, produced, directed and consulted on many film projects (and continue to do so), I started quietly building PinPoint Media. I knew what had to come next. I knew what I wanted to do with my life was to build a content delivery machinery that delivered excellence repeatedly.

In September 2019 we cranked on the content machinery we had been working on for a year and hit the set to deliver the first product off our production line, season one of Man Pikin, a family comedy series. Man Pikin is my nod to Fuji House of Commotion, Nigeria’s longest running and highly popular family comedy series I was privileged to direct for five years.

Man Pikin is the story of a man’s daily struggles with raising his kids after his wife’s passing. We shot 26 episodes for a first season and recently, IROKO TV acquired the rights for broadcast on their ROK Channels, as well as a french version for francophone Africa on NollywoodTV. It premieres on the 12th and 20th of December respectively.

In Q3 2021, we shot season two, another 26 episodes, and that’s not all we’re working on. But for COVID-19 actually, we would have rounded off the first year of our PinPoint Content Fund execution with 104 episodes of TV series in the bag. That target will now be met in 2022, starting with season three of Man Pikin and season one of a new series. Three feature films will also be shot in 2022, and we will also deliver a digital TV channel. Yeah, we have been very busy!

As I watched final edits of the episodes of Man Pikin before shipping off to our distributors in France recently, I reminisced on the loss of a friend and dreams deferred. This propels me forward as I focus on polishing and further knocking our content machinery into shape in order to deliver a five-year plan that culminates in the production of five thousand hours of content yearly from five production centres across Nigeria and Africa.

Scary, right? Well, that was the dream I once shared with an amazing woman and now I must trudge on scared, but confident that we will deliver the reference point for TV/film content excellence, whatever the challenges we will face, because, like the original soundtrack for Man Pikin says “Every day we keep moving forward ooh ooh ooh, ‘cos someday our dreams will come true ooh ohh ooh, man pikin go fall but will stand up ooh oooh ohhhh, for together we are strong and we’ll always have each other, ah ah.”

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Feature/OPED

Digital Agriculture as Panacea to Enhanced Food Production, Security

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Tolu Oyekan Inclusive Economic Recovery

By Tolu Oyekan

Recent studies on Africa’s agriculture market projects an estimated growth to $1 trillion by 2030.  This shows that the continent’s agriculture industry has huge potentials.  Informed suggestions have been made on how the full gains of this fast-emerging market will be achieved; one of which is through digital agriculture.

There is no doubt that modern farms and agricultural operations are carried out differently from how farming was done in the last 20 years.

This is mainly a result of advancements in technology. Like almost all spheres of life, technological advancements have made an in-road into agriculture to address such challenges as climate change – leading to increased temperatures, changes in rainfall patterns, frequent extreme weather events and reduction in water availability.

Digital agriculture or agricultural technology benefits both farmers and end consumers by reducing the use of traditional/archaic farming methods and generating higher crop productivity. Digitizing agriculture also saves resources such as water, fertilizers and pesticides; reduces the impact on natural ecosystems; reduces chemicals getting into rivers and streams and increases the safety of farmworkers.

It is for this reason that the digitalization of agriculture should be part of the larger agricultural transformation agenda in Africa.

Over the years, there have been numerous digital agricultural initiatives and startups which by leveraging technologies, have led to improving farmer productivity, incomes, strengthening food security and enhancing the resilience of food systems in the continent.

Sadly, the impact on smallholder farmer incomes is still poor. This is not unconnected to the fact that access to technology in developing countries is an enabler of accelerated agricultural innovation.

In Nigeria today, some digital firms are focusing on ensuring that smallholder farmers benefit from the new technology revolution in agriculture. Platforms like Babban Gona, Thrive Agric and Agro Rite were created to give smallholder farmers access to resources critical to their work and the growth of the agricultural sector. But these solutions are still available to a meagre percentage of the hundreds of thousands of smallholder farmers scattered across Nigeria; and these smallholder farmers still battle with the three-fold challenge of poor access to market, poor access to finance and inadequate knowledge of improved farming practices.

According to a recent report by BCG titled ‘The Digital Agriculture Revolution’, agricultural productivity will need more than innovation. Already, greater crop yields are required to feed Nigeria’s exploding population. The population of Nigeria has been forecasted to reach over 400 million people by 2050.

Estimations published in 2019 show that by that time, the consumption of farm produce such as eggs, milk, beef, cassava, maize, wheat and others will increase by almost 300 per cent! If not properly addressed, this scenario might lead to a full-blown food insecurity situation.

The truth is that lack of information and knowledge is most limiting to the growth of the sector. This presents a challenge to food security because access to the right information, education, and training enable farmers to make use of new farming knowledge and technologies.

This being the case, farmers’ knowledge and information must be constantly upgraded. Farmers must have access to information about sustainable farming practices to enable them to maintain natural resources to ensure that farmlands are productive for future generations. For Nigeria to have environmentally good food systems, farmers and other stakeholders need to have effective communication technologies coupled with relevant information.

Furthermore, the Nigerian agriculture sector must adopt climate-smart practices and technologies to increase productivity as food production demands increase. Presently, Nigeria like other countries in Africa still relies on rainfall to water farms.

With climate change and reduced rainfall as mentioned earlier, there is the need for intensified water management and alternative sources of rainwater to irrigate the farmlands.

In cities like Florida and California, USA and Beijing, China; farmers have used reclaimed water to irrigate their farms. Reclaimed water is wastewater that has been treated and transformed into a product that is clean, clear and odourless.

There is a need for stakeholders to keep investing in modern ways of farming. The emergence of integrated data sets combining satellite imagery, weather and soil data is a modern approach that can be leveraged by development partners. This will empower farmers with more affordable credit and insurance, better early warning of crop failures and improved farm management. Such practices will cushion the sector from the negative effects of climate change while adapting to sustainable food systems.

In addition to innovation, bridging capital, coupled with the right capabilities is pivotal in transforming the agricultural sector in the continent.

For farmers to benefit from a fully-functional market ecosystem, there is a need for players in the agricultural supply chain to prioritize efficient, transparent and innovative ways of connecting farmers to markets. This is where ICT enabled technologies comes into play. Mobile-phone-based services can ease farmers’ access to knowledge on extension services, market information, weather forecasts and agronomic advice.

Furthermore, they can offer price information services for inputs and outputs, enable demand, and supply aggregation, and facilitate e-marketplaces.

In fact, the Technical Centre of Agricultural and Rural Cooperation (CTA) estimates that market linkage solutions deliver, on average, a 73% improvement in farmer productivity (including through access to lower-cost seeds and fertilizer) versus just 23% for digital advisories. Our review of dozens of current market solutions revealed several successful alternatives, but no one-size-fits-all approach. This is a clear indication that agriculture is modernizing.

Unfortunately, domestic agriculture markets in many developing countries remain fragmented and inefficient, making it imperative for digital agricultural innovations to address such situations.

The beauty of digital agriculture is that it could help rural-urban migration and get young people to drive rural development because of the use of technology. The increased use of digital technology in farming and agricultural activities might actually attract and retain younger generations to live in rural communities.

For Nigerian farmers, the adoption of digital agriculture will wholly enable access to various information including information on inputs, weather and soil condition; processing and storage resources: markets and finance; and food monitoring and consumption requirements.

Hopefully, if Nigerian farmers and others in the food supply chain embrace this technology, digital agriculture could help to maximize production and reduce waste; reduce costs of production and increase yields; minimize environmental impact and maximize the quality of agriculture produce.

The cross-cutting nature of the digital solutions will continue to improve interconnectedness among stakeholders in the agricultural value and supply chains. This will improve efficiencies, productivity earnings in the sector while feeding the growing population sustainably and improving the livelihoods of Nigerian farmers.

It is important to note that to achieve the UN Sustainable Development Goals (SDGs) of a world with zero hunger by 2030, more productive, efficient, sustainable, inclusive, transparent and resilient food systems are required – and this can largely be achieved with digital technologies and innovations in agriculture.

Tolu Oyekan is a Partner, BCG Lagos

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