African nations urged to rethink incentives

African governments should embrace meaningful bilateral investments agreements to foster sustainable economic growth on the continent.

African governments should embrace meaningful bilateral investments agreements to foster sustainable economic growth on the continent.

The call follows a report by the UN Economic Commission for Africa (ECA) on investment policies and bilateral investment treaties by Africa, indicating a huge gap between most of signed treaties and their actual economic contribution to the continent’s economic growth.

 

The report, which was launched over the weekend on the sidelines of the African Development Week activities in Ethiopian capital Addis Ababa, revealed that the majority of treaties signed by African nations favour investors, and sometimes lead investment disputes when African states attempt to review them.

 

African countries, including Rwanda, have signed numerous bilateral investment treaties (BIT) and double taxation treaties (DTT) to attract investments and help improve their economies. The report indicates that over 3,000 bilateral investment treaties and double taxation treaties signed last year were from Africa. The survey suggests that these arrangements could have become standard practice by many economies seeking to attract investors.

 

“While investment plays a key role in promoting economic growth, sustainable development and financing development projects, experts say the high degree of ambiguity between investments and the signed agreements.

According to trade experts, such agreements should be well approached and crafted with provisions that seek to balance the rights and obligations of host countries and investors but also minimize costly arbitrations.

Fatima Haram Acyl, the African Union Commissioner for Trade and Industry, said that there is little conclusive evidence on the effect on Foreign Direct Investment and the signed agreements in most emerging economies on the continent.

“Many respondents for example indicated that investment treaties do not necessarily bring in much investment and instead pointed out those agreements are often politically motivated,” Acyl said.

Paul Jourdan, an independent mineral policy analyst, accused most African countries for rushing to sign bilateral investment agreements without scrutinizing the details.

“Investors should add value instead of depleting the country. We should insist on value addition investment. Let’s send a clear message that investors can’t come to Africa and take value,” he said.

This is critical for a country like Rwanda which provides one of the most conducive business environments for investors.

For example, a recent report by KPMG indicated, FDI inflows to Rwanda have increased from $251 million in 2010 to $268 million in 2014 reflecting a 7 per cent increase.

The value of announced Green field FDI projects in Rwanda equally increased by 14 per cent during 2014 to $496 million

Nobuya Haraguchi, Industrial Research Officer at the UNIDO Office of the Deputy to the Director General said many of the new investment agreements are coming to the stage where they can be renegotiated thus providing a window of opportunity for African countries to make the BITS more favourable for each country.

Commenting on creating maneuvering room for investors, Daniel Tanoe, Director of the African Trade Policy Center at UNECA urged that holding investors more responsible is critical for the sustainability of Africa’s economies.

“We must not forget we have regional integration as a pillar to create opportunities within the limited resources we have so that everyone can benefit,” said Stephen Karingi, the director for regional integration and trade division at UNECA. He argued that since our economies are small, African countries need to come together, and we can think of harmonised tax incentives, but we should not diminish the fact that such investment benefits the ordinary people. At the beginning of the year, the Inland Revenue. 

Authority of Singapore announced that tax treaties signed with Rwanda and Thailand were to commence as agreed. The agreement between Rwanda and Singapore provides for withholding tax rate of 7.5 per cent on dividends, as well as a 10 per cent rate on interest, royalties, and professional fees (but the withholding tax on a governmental institution is zero).

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