Sunday, December 12, 2010

Africa's biggest development hurdle: Taxes

So I've been watching the West Wing for the past couple months. Its a good show. In one episode during a presidential debate between the Republican and Democratic candidates the Republican said that the largest barrier to economic development in Africa was the high taxes rates that African governments levy on local businesses. You'd probably expect this from a Republican, but at least it was an answer that you don't hear talked a lot about in the Aid community. I'm certainly not enough of an expert to know about the continent as a whole but in Malawi our diving business will be taxed 30%. This certainly isn't an unusually high rate for a developed nation but I wonder how it compares to how businesses in China or other "factory" nations are taxed. Awhile ago there was some discussion over at Aidwatch about how clothing factories in Madagascar were shutting down because the U.S. government decided that the recent coup in that country was a good excuse to reimpose some pretty stiff import tariffs. Now tariffs and domestic taxes certainly aren't the same thing but it does seem to show that if governments are willing to refrain from taking too much of the profits, Africa does not have any other unique barriers to the development of a flourishing manufacturing industry based on cheap labour such as that which is currently thriving in China.
Sure "sweat shops" are not exactly ideal, but if you ask those working in them, they certainly believe them to be better than nothing.
If anyone has more experience with this issue and can confirm or deny how much taxes rates are a barrier to opening more factories in Africa, let me know.

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