In this context, it is important for East African governments and industries to make a rapid shift in focus from global value chains to regional ones. Besides the pandemic-related complexities encountered by African countries, there are other substantive reasons to introduce a new strategic approach for regional value chains. This is because some of the existing supply chains are quite complex, even resulting in carbon emissions. Also, the East African markets have resilience compared to their global counterparts due to geographical proximity, thus helping regional industries to sail through the pandemic. So having advanced approaches will help to enhance regional trade on various levels.

On January 1, the African Union introduced the African Continental Free Trade Area, which explores two crucial elements: Tap into manufacturing to mitigate risks in global supply chains and leverage integral and global supply chains. Because the pandemic has stalled production and is reducing trade between several countries, local production capabilities have helped them to cope with the challenges. The report published by the World Economic Forum states that an increase in local production could help to strengthen supply chain resilience.

Technology and connectivity are identified as key enablers for the continent’s growth and innovation on this front. Their impact was portrayed through the African Medical Supplies Platform which is a collaboration between the African Union, foundations, corporations and several international organisations. By the numbers, intra-African trade has been around 15 percent over the past five years, which necessitates an increased economic integration on the continent.

In 2019, intra-African trade had reached $137.6 million, which was 4.6 percent less than in 2018. Of the recorded trade, only 16 percent of total African exports and 12 percent of African imports were transported to and from the continent during that year.

To understand the trade value chain in Africa well, International Finance interviewed with TradePort. Onyekachi Izukanne, co-founder and CEO at Tradeport discussed the trade value chain environment on the continent, identified problems and TradePort’s industry focus at large. Izukanne is a seasoned entrepreneur with 17 years of experience in technology and consultation. He co-founded C2G Consulting, a technology consulting practice that he bootstrapped to become the leading SAP Partner in West Africa by 2013.

What is the current state of Africa’s trade value chain and what is your outlook for the industry in the next five years?
Over the years, the trade value chain in Africa, similar to several other emerging economies, has been defined by a very high-level of fragmentation, a preponderance of informal players and multiple layers of middle-men, often resulting in an inefficient supply chain. To significantly improve this value chain, a lot of investment is needed in infrastructure, as well as in technology to digitise and organise the various operators and operations within the space.

There has been a sizable increase in the level of investment in this regard on the continent in recent years, but nowhere near the levels required to drive extensive transformation across this sector. Over the next few years, most of the world will be recovering from a global pandemic and Africa will be no different. Technology will play a huge role in revitalising the African business landscape, as a whole, and we anticipate more capital flowing into players offering digital solutions to make the market more fluid and address these fundamental challenges.

What are the identified distribution problems on the African continent?
At the core of the challenges, we face in the distribution in Africa is a lack of access to finance. While micro SMEs and other small businesses in the informal sector drive the bulk of distribution in Africa, these players are unable to obtain bank loans, have no access to affordable capital and very limited access to any capital at all, and have to rely on internal funds, or cash from friends and family, to launch and run their enterprises. The World Bank estimates an unmet financing need for micro-SMEs of $331 billion every year in sub-Saharan Africa alone. Coupled with poor infrastructure and significant fragmentation of the supply chain, this results in some of the highest distribution costs per dollar compared to other regions in the world. While the population is increasingly mobile-first, more needs to be done to leverage this access to digital platforms to provide data-driven financing solutions that unlock working capital to these millions of small and micro businesses in a bid to fill this funding gap

In 2018, Partech announced the first Partech Africa fund investment in your company. How has the fund investment added value to your offerings today and are there any prospects in the near future?
Partech led our series A round of fundraising which was pivotal in helping us find and prove our business model. On the back of this, we have built out a platform that facilitates distribution across the value chain, while enabling access to finance and new markets for retailers and distributors on our network. Building on this we have had additional high profile investors come on board to support our push to scale this across more markets in Africa while deepening our value proposition for our existing customer base. We are currently scaling at a very fast pace, and expect this hypergrowth to continue over the next several years.

Which African countries are evolving the most in the trade supply chain and why? Are those markets in TradeDepot’s focus?
There are many similar retail markets across Africa, in terms of size, retailer profiles, manufacturers and consumers. For example, we see an opportunity to replicate what we are doing in Nigeria across some of the main cities in South Africa and Ghana, alongside other similar markets in East Africa and French-speaking West Africa. Several of these countries benefit from favourable business environments and relatively stable economies, and we will continue to explore expansion on a city-by-city basis across these countries.

How is your company’s 360° solution well-integrating actors in the trade value chain, such as manufacturers, distributors and retailers?
Our platform aggregates data from the different players in the value chain, providing us with key insights to facilitate and accelerate trade. One key area in which we currently leverage this data to transform the value chain is in the provision of inventory financing to retailers on behalf of manufacturers and distributors with our Embedded Finance offering. We leverage purchase performance histories for these retail store owners to determine creditworthiness and on the back of this extend working capital in the form of short term loans in partnership with commercial lenders and other aligned credit investors.

These loans allow these retailers to order additional goods, repaying the loan once they’ve sold the stock, allowing them to sustain and scale their businesses. For the manufacturers, this availability of working capital to retailers makes it easier for them to get their products into the millions of small retail stores, allowing them to sell more at a lower cost-to-serve.

Why are retailers in some African countries subject to some of the highest product distribution costs globally?
The factors behind high distribution costs vary but some of the main issues include high costs of financing, inefficient supply chains, fluctuations in currency, infrastructure efficiencies and tariffs imposed by governments.

Last year, TradeDepot raised $10 million to expand its business in financial services and credit offerings for retailers. How have the proceeds from the investment contributed to developing supply chain services for its African SMB?
Small retailers often need fast and flexible loans but the existing mix of microfinance banks and co-operative societies are complicated, fragmented and time-consuming. It, therefore, made business sense to plug this credit gap in retail by offering solutions that enable the circular flow between manufacturers, retailers and consumers. Our ShopTopup embedded lending product enables retailers to buy larger quantities of stock when the need arises, which also benefits manufacturers and leads to a circular flow in the informal economy.

Who has the pandemic impacted Africa’s trade and value chains and how are they picking up pace as we move into 2021?
In some ways, the pandemic has sped up the digitisation of many of the processes in the retail supply chain. From a supply perspective, one of the biggest impacts we observed, at a high level, was the improved performance of fast-moving consumer goods. Consumer demand for food items significantly grew, as was the demand for home care items, electric appliances and home building supplies. Some restaurants that embraced home delivery also had a good year despite the pandemic. There’s nothing to suggest that 2021 will be remarkably different to 2020. We expect at least the first half of the year to be very similar in terms of pandemic behaviours, such as maintaining social distancing. Ecommerce is projected to see real growth and demand from small retailers for digital solutions in the supply chain should also be higher as the capacity to access wholesalers remains limited.

What is TradeDepot’s supply chain goal in the next five to 10 years and what are its planned efforts to become the supply partner for Africa’s retail stores?
We will continue to invest in expanding our footprint across Sub Saharan Africa, first in the number of states we serve in Nigeria as well as other countries across Africa. We will also focus on expanding our Embedded Finance business which kicked off mid-2020. Ultimately we are building the future of distribution in Africa, and by digitising these retail stores and providing them with access to financing we can execute our mission which is to create better everyday lives for retail store owners in emerging markets.

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Gazprom is currently occupied in building two new pipelines into Europe: Turkish Stream and Nord Stream II.

Exxon ranked fourth, with around $77bn in capex between now and 2025. They also have about 58 projects in the works. This is significantly less than their Russian counterpart.

Exxon was the only US company mentioned in the GlobalData report, released on Tuesday.

Gazprom is not only the overall spending leader but is the leader in midstream oil and gas development, too. They are expected to lead both in pipeline projects and in the natural gas processing segments. In the pipeline segment, Gazprom is estimated to spend $71 billion on 18 planned and announced pipelines over the next seven years.

Russia adds another $50bn on around 50 projects across the oil and gas value chain, when Russian oil firm Rosenoft is added to the mix.

In his meeting with Vladimir Putin last month, President Trump had called the Russians strong competitors in the energy markets—stating that  Gazprom’s gas pipelines were more cost-competitive overall.

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19th November 2013

The decision last week by the Swiss government to sign the OECD’s somewhat lengthily named Convention on Mutual Administrative Assistance in Tax Matters is the latest of a series of developments that have radically increased the amount and quality of tax information available to governments. For developing countries, being able to access and use that information to address tax avoidance could mean billions of dollars in increased revenue, particularly in the extractives sector. However, these countries are often not able to make full use of tax information sharing agreements. Within the existing treaty framework, wealthier countries can reserve the right not to share information with weak tax administrations in developing countries, citing concerns about confidentiality and data protection. So far, few developing countries have joined the OECD convention, which in November 2011 was opened to countries outside the OECD and the Council of Europe. In Sub-Saharan Africa, only Ghana has ratified it, with South Africa and Nigeria having signed but not yet ratified. If joining the convention, developing countries are unlikely to benefit unless they also strengthen tax administrations, gaining full access to information by assuaging concerns regarding data protection, and developing the capacity of large taxpayer units to efficiently exploit newly available tax information. To be credible participants in mutual information sharing agreements, developing countries must also be able to generate domestic tax data that is of interest to partner countries.

Staggering fiscal losses

Switzerland, whose financial sector manages $2.2 trillion of offshore assets according toBoston Consulting Group, happens to be one of the main global transaction hubs for the oil, gas and mining sector, which in many developing countries dominates production and exports. Companies in this sector, it has been claimed, frequently dodge billions of dollars in taxes payable to developing countries by shifting profits to low-tax jurisdictions.

Due to the complexity of tax instruments used to avoid taxes, and historical secrecy of transactions in the extractives sector, reliable numbers for tax avoidance are hard to come by. However, existing estimates provide staggering figures for fiscal losses incurred by developing countries. According to one widely cited estimate, African countries annually lose $38 billion to abusive transfer pricing, one of the main forms of profit shifting. To place that figure in context, it slightly exceeds the flow of development assistance to the continent. Other estimates suggest annual losses from corporate tax avoidance for developing countries range from $98bn to $160bn.

Starbucks driving the agenda on oil and mining tax transparency

The decision by Switzerland to share tax information, which still has to be ratified, is the latest addition to radically increased transparency of tax information over the last five years. This development, while principally affecting international transactions, has largely been driven by public outcry in national constituencies. In 2008, tax avoidance helped by secret bank accounts in Lichtenstein caused widespread indignation in Germany, generating pressure for increased openness. This year, prompted by public uproar over Starbucks’ and several other multinationals’ almost complete avoidance of UK taxes over several decades, the UK used its G8 presidency to bring tax avoidance to the top of the global policy agenda. In the extractives sector, additional progress on transparency has been made by the Extractive Industries Transparency Initiative (EITI), which requires governments and companies to publish data on taxes and royalties from oil, gas and mining operations. Many countries have also strengthened their extractives tax codes.

The mechanics of extractives tax avoidance

Companies have a number of tax planning opportunities available to artificially reduce profits, obscure ownership, or outright evade tax. Transfer pricing refers to the pricing of goods and services traded within the same company, or groups of related companies. As prices for intra-company trade are not set by the market, these prices can be artificially inflated to shift profits to low-tax jurisdictions. Profit shifting can involve the leasing of machinery and sale of services from shell companies in low-tax jurisdictions, or intra-company lending and insurance provision at artificially high interest rates or premiums. Increased transparency on bearer shares, the physical documents that confer ownership of companies, as well as more mandated information sharing, will help tax administrators sift through corporate networks frequently consisting of dozens, sometimes hundreds, of affiliates and related shell companies that trade between themselves.

Another common practice, known as “thin capitalization”, is for companies to rely on debt financing for their operations – using little own equity, thereby taking advantage of tax deductibility for interest payments as well as reducing their cost of capital. A third method, known as false re-invoicing, makes use of the secrecy of tax havens to change tax-relevant invoicing information. In many developing countries, these practices take place in a tax environment that is already heavily tilted towards the private sector, particularly in the form of large tax incentives for oil and mining multinationals.

To benefit from new opportunities, strengthening tax administrations is fundamental

While it may have been shocking for British citizens to discover tax avoidance on their daily Macchiato, large-scale tax avoidance can in developing countries mean lost opportunities for millions of individuals, as countries are being deprived of the means to finance development. However, efficiently taxing the complex global value chains of oil and mining multinationals, while maintaining a fertile investment climate, remains beyond the capacity of many developing country tax administrations. Hiring and retaining highly educated and skilled tax administrators may be near impossible in countries where the pool of skilled university graduates is small, and the hiring environment dominated by better-paying jobs in local affiliates of multinational oil and mining companies. IT systems may be rudimentary, and the skills to design and run automated tax information systems unavailable.

A critical need for expanded multilateral action

Against this backdrop, representatives from resource-rich developing countries, the OECD, the IMF, the EITI and the World Bank Group gathered earlier this month during the Annual Meetings of the World Bank Group and the International Monetary Fund, to debate measures to reduce tax avoidance in the extractive industries. For resource-rich developing countries to be able to efficiently address poverty and inequality, without accumulating unsustainable levels of debt, such debate must translate to radically expanded action. Aid organizations can and must provide sufficient funding and technical assistance for meaningful strengthening of administrative capacity, governance and oversight in relation to the extractives sector, while building on recent achievements on legal and regulatory frameworks. Political will to implement such changes needs to come from governments, as well as from companies that seek to level the playing field with respect to tax-avoiding competitors.

Source: WorldBank

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