nep-afr New Economics Papers
on Africa
Issue of 2023‒05‒15
six papers chosen by
Sam Sarpong
Xiamen University Malaysia Campus

  1. Are Digital and Traditional Financial Services Taxed the Same? A Comprehensive Assessment of Tax Policies in Nine African Countries By Niesten, Hannelore
  2. Towards sustainability: The relationship between foreign direct investment, economic freedom and inclusive green growth By Isaac K. Ofori; Francesco Figari; Nathanael Ojong
  3. Diffusion of OECD Transfer Pricing Regulations in Eastern Africa: Agency and Compliance in Governing Profit-Shifting Behaviour By Vet, Cassandra
  4. Perpetual Motion: High-Frequency Human Mobility in Three African Countries By Paul Blanchard; Douglas Gollin; Martina Kirchberger
  5. From Drought to Distress: Examining the Mental Health Consequences of Water Scarcity in Ethiopia By Richard Freund
  6. Traceability, value, and trust in the coffee market: A natural experiment in Ethiopia By Ludovic Mbakop; Glenn Jenkins; Leonard Leung; Kamil Sertoglu

  1. By: Niesten, Hannelore
    Abstract: This background report looks at tax implications for those providing and using digital financial services (DFS), and gives general observations as to whether DFS in Africa are taxed the same as traditional financial services (TFS). There is no categorical answer to this question. It varies country by country, depending on the specific arrangements in their legal and tax framework. Therefore, a country-specific approach is necessary. This report analyses key legislative, tax and regulatory policy instruments to compare the tax framework in nine African countries – Burundi, Côte d’Ivoire, Ghana, Kenya, Rwanda, South Sudan, Tanzania, Uganda and Zimbabwe. The country studies illustrate the diverse experience across the nine African economies, and the tension between the need for greater mobilisation of domestic resources and the desire to see rapid roll-out of digital infrastructure and services. The cross-country assessment highlights areas where the tax situation is different for DFS providers and users, compared to traditional financial institutions and actors. We present a number of preliminary considerations and lessons learned. These can help to shape an optimal tax environment, reduce friction, enhance beneficial competition in the financial services market, and minimise any negative consequences for DFS providers and users that arise within the taxation framework in all countries studied.
    Keywords: Finance,
    Date: 2023
  2. By: Isaac K. Ofori (University of Insubria, Varese, Italy); Francesco Figari (University of Eastern Piedmont, Novara, Italy.); Nathanael Ojong (York University, Toronto, Canada)
    Abstract: This study contributes to the environmental and socioeconomic sustainability literature by examining three important issues. First, the study examines the effects of foreign direct investment (FDI) and economic freedom on inclusive green growth (IGG) in sub-Saharan Africa (SSA). Second, we investigate whether economic freedom interacts with FDI to promote IGG. Third, we identify minimum the thresholds required for economic freedom to cause FDI to foster IGG. The findings are based on macro data for 20 SSA countries. Evidence, based on instrumental variable regression, show that, unconditionally, FDI is not statistically significant for promoting IGG. Second, the study finds that SSA’s ‘Mostly unfree’ economic architecture conditions FDI to reduce IGG. Third, results from our threshold regression reveal that the minimum threshold required for economic freedom to cause FDI to foster IGG is 66.2% (Moderately free). The study sheds new light on investments necessary for SSA’s economic architecture to form relevant synergies with FDI to promote IGG.
    Keywords: Economic Freedom; FDI; Government Integrity; Inclusive Green Growth; Sustainable Development; sub-Saharan Africa
    JEL: F21 F6 H1 P1 O55 Q01 Q56
    Date: 2023–01
  3. By: Vet, Cassandra
    Abstract: Eastern African countries have codified transfer pricing regulations in their efforts to ring fence corporate tax revenue against profit shifting by multinational companies. Kenya (in 2006), Uganda (2011) and Rwanda (2020) used the dominant OECD transfer pricing guidelines as a template for reform. The wisdom of this approach for developing countries is contested in academic and civil society literature. According to this view, Western states largely dominate rule-setting procedures, and the costly enforcement of transfer pricing drains the scarce resources of revenue authorities. How can we reconcile the critical perspective in global debates with the roll-out of OECD type transfer pricing regimes on the ground? Case study evidence collected in these countries reveals that policymakers prefer anti-avoidance measures that are widespread and considered global practice. The widespread adoption of OECD transfer pricing norms worldwide gives them a unique compatibility advantage – this allows governments to adopt them as a way to raise public revenue, without compromising their attractiveness to investors. These network externalities are among the powerful lock-in effects that have cemented the position of the OECD guidelines in global tax governance. This study complements this narrative with a more bottom-up perspective. This highlights how domestic coalitions drive support for the OECD framework by mobilising both ideational and economic network effects. From this perspective the OECD rules are still an authoritative focal point for policymakers because interested social groups leverage concern about investor attractiveness. Ideational incentives shape bureaucratic policy advice to OECD standards. Civil society organisations, despite their critical stance towards the OECD guidelines at a global level, did not coalesce around a specific alternative – and instead raised the urgency of increasing public revenue.
    Keywords: Finance, Governance,
    Date: 2023
  4. By: Paul Blanchard (Trinity College Dublin); Douglas Gollin (University of Oxford); Martina Kirchberger (Trinity College Dublin)
    Abstract: This paper explores the within-country movements of people in three African countries. Although previous studies in other low-income settings have examined patterns of seasonal migration and daily commuting, much less is known about mobility at other temporal frequencies. This paper draws on a novel source of data from smartphone locations. These data allow us to observe the movements of a large set of individuals over a one-year period. We can characterize with considerable detail the locations that people visit and the frequency with which they make trips. The average smartphone user in our data ventures more than 10 km from home on 12-15% of the days when they are observed. On average, when we observe them away from home, our users are typically 35-50 km from home. We can characterize many of the specific locations that people visit when they are away from home. These include locations associated with shops and markets, government offices, and places offering a range of goods, services, and recreational venues. Big cities seem to be particularly important destinations, perhaps reflecting the range of amenities that they offer to visitors. We develop a conceptual framework that characterizes the role of visits for individuals and provides a number of testable predictions that are consistent with the movement patterns that we observe in the data. Although our sample of smartphone users is not representative of national populations, their mobility patterns offer useful insights into spatial frictions and the geographic patterns of economic activity.
    Date: 2023–04
  5. By: Richard Freund (University of Cape Town, School of Economics)
    Abstract: In 2021, Ethiopia experienced a prolonged drought after two consecutive failed rainy seasons. This paper investigates the effect of the drought on young adults’ experiences of anxiety and depression by applying a difference-in-differences strategy to this event, in a natural experiment. I construct a Standardised Precipitation Index using 40 years of satellite rainfall data to exogenously measure local drought intensity and combine with unique longitudinal data. I find that exposure to the drought increases the probability of young adults experiencing symptoms consistent with either mild or severe anxiety (depression) by nearly 12 (10) percentage points. This represents a 63% and 55% increase relative to the pre-drought sample averages, respectively. These results are robust across alternative model specifications and a variety of sensitivity checks. The impact on depression is driven by those who were severely exposed to the drought, while both mild and severe exposure affect anxiety. The drought has a greater impact on individuals in rural households, those working in agriculture, and on individuals born into the poorest households. According to the mediation model estimated, the increase in mental health issues may partly be explained by the drought’s impact on inflation, perceived household poverty, and physical illness.
    Date: 2023
  6. By: Ludovic Mbakop (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus via Mersin 10, Turkey); Glenn Jenkins (Queen's University); Leonard Leung (Asian Development Bank, Manilla, The Philippines); Kamil Sertoglu (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus via Mersin 10, Turkey)
    Abstract: This study measures the impact of traceability attributes on international buyers’ willingness to pay for coffee produced in Ethiopia and the impact of accurate information on the production location of the coffee on the pricing according to its type and grade. Two sets of regressions models were used to investigate the important determinant factors affecting the export prices of trader and producer coffee, one each for trader and producer coffee, to measure the impact of the ECX on the prices and to evaluate the effect of the coffee types and grades on the prices. The results show that after coffee was forced to be traded via the ECX, traceable coffee export prices increased more than the reported price of non-traceable coffee. We also found that after the introduction of the ECX, the reported export prices of coffee were much more closely aligned to the movements in the international prices of coffee than before the ECX. Furthermore, we also find evidence that exporters and overseas buyers do not trust the results of the inspection and grading of coffee by the ECX unless traceability is also present. This is the first study to evaluate foreign buyers’ willingness to pay for the attribute of traceability of Ethiopian coffee and to see how traceability has affected buyers’ trust in the grades given by the ECX for the coffee it graded.
    Keywords: Ethiopian commodity exchange, Ethiopian coffee, Coffee traceability, Commoditization
    JEL: D40 E23 Q17
    Date: 2023–04

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