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East Africa Tops Continent’s Q3 Economic Growth, driven by remittance income

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Despite an economic slowdown, most African countries are reported to have a positive economic outlook. This is according to ICAEW’s (the institute of Chartered Accountants in England and Wales) latest report. In Economic Insight: Africa Q3 2018, the accountancy body provides GDP growth forecasts for various regions including East Africa which is forecast at 6.3%, West and Central Africa as 2.9%, Franc Zone at 4.6%, Northern Africa at 1.8% and Southern Africa at 1.5%. The report highlights remittances as a key economic driver for most African countries.

The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the region’s economic performance. The regions include; East Africa, West and Central Africa, Franc Zone, Northern Africa, Southern Africa.

According to the report, East Africa continues to be the continent’s best performing region with a GDP forecast at 6.3%. This positive outlook is due to the region’s economic diversification and investment-driven growth. Last year, diaspora remittances were Kenya’s highest foreign exchange earner, overtaking tea, coffee and tourism. Remittances contribute to financial services expansion and drive the growth of financial inclusion. The recent entry of global payment and remittance firms into the East African market has eliminated significant barriers that have hindered consumers and businesses in the region from taking full advantage of remittances. Ethiopia remains the region’s powerhouse, with growth forecast at 8.1%, thanks to the recent reforms under new prime minister Abiy Ahmed.

In Central and West Africa, growth is forecast at 2.9%. The constrained growth in the region is due to subdued non-oil economic activity by Nigeria – the region’s powerhouse. Ghana by contrast is the best performing country in the region with a forecast growth of 6.5%.

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Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia said: “Despite the recent growth slump; all regions in Africa are projected to report a positive economic outlook, with remittance income expected to be a key economic booster in the coming months.”

Growth in the franc zone is forecast at 4.6%, largely driven by a boost of 7.4% in the region’s biggest economy, Ivory Coast, where investment is driving rapid expansion.

North Africa’s Egypt is forecast at 5.3%, as a result of structural and policy reforms, which have boosted manufacturing and investment. The county’s tourism sector has also continued to recover. Likewise, Libya is expected to record a growth of 16.5%, owing to posted improvements in oil production after the civil conflict.

Southern Africa has been affected by continued slow growth by the regional heavyweight South Africa, forecast at 1.5%. Angola, the region’s other economic leader, has the same forecast of 1.5%. Strong growth in both Botswana and Zambia is said to have little effect on the region’s overall performance.

Remittance income was emphasized in the report as a major economic factor for most African countries. Nigeria was the biggest receiver of remittances on the continent. The West African economic powerhouse received 29% ($ 22bn) of total remittances flowing to the continent in 2017, mostly from the gulf, the US and United Kingdom.

Egypt was the second biggest receiver of remittances on the continent with $20 billion of remittances. One of the countries highlighted where remittance flows continues to play an important role in terms of external accounts is Ghana. According to the world bank, remittance inflows amounted to $2.5bn in 2014: equal to roughly 18.6% of total exports that year. However, in 2017 the remittance inflows subsequently declined to $2.2bn equivalent to 15.8% of exports.

Uganda’s economic growth was reported to have recovered markedly last year. The country is expected to post a surplus of about 5.6% of GDP this year, supported by project aid and remittances inflows.

The report notes that despite remittances playing an important role in African economies, policies should focus on reducing the cost of remitting funds.

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Lights, camera, action! Artistes brighten economy

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Covid-19 had negatively impacted entertainment revenues.

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KRA must ease tax filing to boost revenues

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Nikhil Hira Independent tax consultant and Director Bowmans Coulson Harney (law firm). [Courtesy]

Anyone who has been following Kenya’s budgets over the last few years will recall headlines each year saying that the country has set its largest-ever budget. 

The upcoming 2021/22 fiscal year is no exception, with Treasury Cabinet Secretary Ukur Yatani announcing a budget of Sh3.6 trillion – yes, the biggest ever! A little over Sh2 trillion will come from government revenues, with approximately Sh1.8 trillion of this from tax revenues. 

The balance will be borrowed – another common feature of the last few years. 

This year’s budget comes amidst an economic crisis brought on by the Covid-19 pandemic, with the inherent assumption that the pandemic will come to an end before the start of the next financial year. 

Given surges in infections that are being seen globally, and indeed in Kenya, this assumption may well be the deal-breaker. 

The Ministry of Health has already said that Kenya may see another wave of infections in July, fuelled by the Indian variant. This could result in more lockdowns with the associated impact on the economy and indeed revenue collections. The lack of vaccines is an issue that the government must address as a matter of great urgency if the country is to get through the pandemic without further economic woes. 

While deficits in government budgets are not uncommon, Kenya seems to be annually widening the gap between expenditure and revenues. 

If one applies this model to their household budget, the upshot will almost certainly be bankruptcy. 

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What is actually required is curtailing recurring government expenditures, which is something that the government has acknowledged in the past with proposed austerity measures. 

The reality is that Kenya has not succeeded in doing this, and the pressure on revenue collection is exacerbated. 

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When you add to the high level of wastage and corruption we are witnessing, the deficit will almost certainly continue to widen. 

The responsibility for tax collection and enforcement lies with the Kenya Revenue Authority better (KRA). 

There is no doubt that the authority has improved significantly in this task since it was set up in 1995. 

The taxman estimates that 4.4 million tax returns were filed by June 30 last year, up from 3.6 million in the previous year.  While this is a significant improvement, when compared to the country’s population, this number of returns seems unusually low. 

The increase in the number of tax returns, is to a large extent, due to the online reporting system, iTax, and a major push by KRA through taxpayer education.

There is no doubt that the online system has made filing tax returns significantly easier and gone are the large queues of people witnessed at Times Tower on deadline day. 

That said, there is still much to be done to make filing returns a seamless and painless exercise. 

System downtime during filing periods is something that all of us will have experienced, although, in typical Kenyan fashion, we inevitably wait until the last day to file our returns as we do with most things! 

The spreadsheet that one uses to file a return is by no means the simplest to use.  One key issue seems to be that taxpayers are not alerted to changes in the model until they try to upload a return. 

The spreadsheet does not allow one to make it more relevant to their sources of income – in essence, it is too rigid and inflexible. KRA should be able to rectify this without too much effort.

Last year was unusual in that different rates of tax were applicable in the first quarter as compared to the rest of the year.  This followed the Covid-19 relief measures that were introduced in April 2020. 

There was much debate about whether the changes were meant to apply for the whole year or whether some form of apportionment was needed. 

In the end, the decision was made for apportionment. One can argue about what the correct treatment should be, but the issue was how long it took for the decision to be made and, indeed, to amend the iTax system. 

The age-old notion has always been that the more complex and difficult it is to file a tax return, the more likely it will be that taxpayers simply won’t file their returns. While the issue with the system has been resolved, there is an inherent administrative issue here that must be addressed. 

KRA has to be significantly more proactive in dealing with changes in rates and law to ensure the least inconvenience to taxpayers. 

The writer, Nikhil Hira, is the Director of Bowmans Kenya.

The views expressed in this article are the author’s and not necessarily those of Bowmans Kenya  

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The age of gentrification is truly upon our country

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Never mind the businessmen outside Nairobi could be richer. Rural folks aspire to one day moved to a new county (city).

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