How the taxman slows the spread of technology in Africa

AFTER a stunning economic expansion, sub-Saharan Africa has run out of puff. Last year GDP growth fell to 1.4%, its slowest rate in more than two decades. That was probably half the rate of population growth—meaning that, on average, its people got poorer. This year will be a little better, but not much. The IMF reckons growth will pick up to about 2.6% for 2017, but even that will not be enough to keep pace with the number of babies being born.

Yet look beyond the downturn and one can see encouraging signs that a combination of new technologies promises to transform the region’s fortunes. Mobile phones, rooftop solar power and village Wi-Fi networks are helping to compensate for shoddy infrastructure. Corrupt governments are still terrible at building roads, and state-monopoly power utilities are still awful at providing electricity. But tech-savvy entrepreneurs are finding ways to connect people, electrify their homes and alleviate all manner of social problems (see our special report).

Technology is not a panacea, of course. Drones may be able to fly over trackless forests to deliver life-saving medical supplies to remote clinics. But they are no substitute for proper roads; people cannot commute to work hanging from an aerial drone, nor can heavy goods move to market that way. Smartphones may help activists monitor elections, but they cannot, by themselves, stop autocrats from rigging them.

Some technology may even pose a threat to Africa. Automation and industrial robots are taking away factory jobs in the rich world. Some economists fret that they will make it harder for Africa to grow the way Asian countries once did, by luring peasants out of fields and into factories. But others think that 3D printing and robotics may instead reduce the importance of scale in manufacturing, encouraging African firms to make things.

Overall, technology will probably make Africans wealthier, healthier and better educated by dramatically lowering the costs of development. Take power as an example. Getting electricity to the two-thirds of Africans without it in the old way—by building generating stations and an electricity grid—would cost some $63bn a year (compared with just $8bn being spent now) and still take until 2030. But the falling costs of solar cells and batteries, and innovative business models, mean that millions of Africans are now able to bypass the grid and get electricity from rooftop installations for a few dollars a week.

Unfortunately, instead of seizing such opportunities, many African governments are energetically discouraging the spread of technology. Many ban genetically modified crops, refusing even to accept them as food aid when their people are starving. Almost all invest far too little in science and research, and have byzantine visa systems that discourage skilled immigration. And they tax mobile phone and internet companies at punitive rates. In 2015 mobile-phone operators in 12 African countries paid taxes and other fees equivalent to 35% of their turnover, says the GSMA, an industry lobby. In the Democratic Republic of Congo, which has one of the lowest rates of phone penetration in the world, taxes on mobile operators made up 17% of government revenues.

African taxmen pick on phone companies because they make lots of money and keep excellent records in a continent where both these things are rare. There is no doubt that governments need the cash. Tax to GDP ratios in Africa are still very low—on average below 17%, compared with 35% in OECD countries—and public debt is rising rapidly. It is now above 50% of GDP in almost half of the region’s countries, and the cost of servicing it is onerous. Some people dismiss phone companies’ complaints about tax as mere whingeing. They point out that such firms have grown rapidly despite high taxes.

Yet this misses the point. Phone and internet penetration rates in Africa are still far below those of other regions and connectivity is costly relative to incomes. As mobile phones spread, they speed economic growth and help boost productivity. Fast cable internet may be even better at creating well-paid jobs, boosting the number of startups and stimulating exports. Although data are still scarce, there is every reason to think that phones, the internet and the technologies that they enable may together provide Africa with the most powerful tools yet to alleviate poverty, boost growth and ultimately catch up with the rich world. Governments should remember that the best way to get less of something is to tax it heavily—and Africa plainly needs more connectivity, not less.

Source: economist