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Tax policies and developments affecting foreign portfolio investment in sub-Saharan Africa
Journal of Securities Operations & Custody,
13
(1),
88-96
(2020)
Abstract
Despite the increase in nonofficial cross-border capital flows to sub-Saharan Africa following the 2007/2008 global financial crisis, the region is still receiving a limited amount of foreign portfolio investment (FPI) compared to other developing markets. This paper seeks to explore the factors explaining sub-Saharan Africa’s lack of FPI and what measures could be implemented to encourage FPI in the region. The key takeaways of this paper are:
• Tax structures have been identified as one of the key impediments to FPI in Southern Africa. Although various sub-Saharan jurisdictions exempt capital gains on the disposal of listed shares from tax, significant withholding taxes are generally levied on dividend and interest payments to foreign investors.
• Mauritius, a popular hub for African investment, has recently been under the spotlight with a number of sub-Saharan African jurisdictions terminating or amending their tax treaties with the country or introducing domestic antiavoidance measures to combat perceived treaty shopping. This is expected to have a negative impact on investment flows through Mauritius. In addition, coronavirus disease-19 relief measures introduced by sub-Saharan authorities focus on safeguarding local businesses and foreign direct investment rather than FPI.
• The quality of governance is also a significant factor in attracting net portfolio inflows, and there is a clear need in sub-Saharan Africa for simple, efficient tax systems and appropriate tax incentives to support investor-friendly policies and encourage and stimulate FPI.
Keywords: COVID-19; domestic antiavoidance; foreign portfolio investment (FPI); governance; investment hub; sub-Saharan Africa; withholding tax
The full article is available to subscribers to the journal.
Author's Biography
Celia Becker is an Africa regulatory and business intelligence executive at ENSafrica (www.ensafrica.com), a law firm with more than 600 lawyers and offices in seven African jurisdictions providing tax and legal services across sub-Saharan Africa. She specialises in advising large multinationals expanding into the region on the tax efficient structuring of investments, country risk profiles and tax and regulatory compliance requirements of countries throughout the region. She travels extensively across the continent and has practical experience advising in respect of 26 African jurisdictions. Celia is a South African qualified chartered accountant with a master’s degree in International Tax. She started her career as an International Tax Adviser at a Big 4 accounting firm and spent six years at a multinational construction company as Country Risk Director. She is a member of the South African Institute of Chartered Accountants and is a regular contributor of African jurisdictional content to various publications. Celia spends her time between Johannesburg (South Africa) and Kigali (Rwanda).
