South Africa’s slow decisions on customs duties are hurting the economy, with the unclear role of finance and trade ministers causing most ... of the damage, XA Global Trade Advisors CEO Donald MacKay told an online briefing.
“We are currently exploring a way out of the crisis.” In recent days, when it comes to discussing the battle that has been waging between the Senegalese telecoms regulator and the country’s three operators since December 2021, Mamadou Mbengue, Free’s general manager in Senegal, uses a periphrastic approach. Is he afraid that he might scupper this dialogue that has finally resumed between his counterparts and Abdoul Ly, head of the Telecommunications and Posts Regulation Authority (ARTP)?
The latter sparked a crisis at the end of last year when he decided to sanction Sonatel, Free Senegal and Expresso Senegal, to the tune of €31m, for poor quality of service. The case excited the local press, which was fuelled by the various press releases and press conferences held to counter the regulator’s arguments.
To make matters worse, the minister of digital economy and telecommunications, Yankhoba Diattara – who at the time had been running for mayor of Thiès, but ultimately was unsuccessful – threw in his two cents at the beginning of January, directly attacking Sonatel (a subsidiary of the French giant Orange and the local market’s leader) during a workshop on regional development. And in front of all the sector’s stakeholders that had gathered for the occasion, no less.
Loss of value in the sector over the last 10 years
Senegal has certainly displayed a lack of originality when it comes to introducing sanctions for “non-compliance” of the specifications’ commitments.
“Quality of service is the ultimate argument for African states to recover revenue from operators,” says Burkinabe economist Fayçal Sawadogo, a specialist in telecoms taxation and an AfDB consultant.
Operators keep repeating over and over again that excessive taxes prevent them from investing in network expansion. In a research paper presented in 2016 at Telecom ParisTech, Irène Sare Kanzie, from Arcep-Burkina Faso, Ouagadougou’s telecoms regulator, noted that between 2010 and 2015, operators’ annual investments had fallen from 108bn CFA francs to 22.6bn CFA francs (from €164.6m to €34.45m).
“According to the operators, these decreases are due to the fiscal pressure observed in the telecoms sector and in particular to the high cost of customs duties,” said the economist, who is also head of Arcep-BF’s economics and forecasting department.
Based on her calculations, taxes paid by telecom companies in Burkina Faso more than doubled over the same period, from 33.8bn to 76.8bn CFA francs.
Estimates vary as to the revenue weight of traditional and special taxes applied to the sector (frequency, numbering and regulatory charges, contributions to universal access and service funds, specific tax on telecoms companies). A GSMA study concluded that on average, telecom companies south of the Sahara pay 25% of their annual turnover, compared to 24% in the Mena zone (North Africa, Middle East) and 21% in Europe.
According to Sawadogo, when all taxes applied by tax authorities and regulators are taken into account, the “average effective tax rates” are much higher than the ones found by the professional association. “Telecom taxation exploded between 2004 and 2021,” he says.
The trade lobby, which identified 41 cases of rate increases and taxes created specifically for the sector in sub-Saharan Africa between 2011 and 2017, agrees with him.
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Moreover, industry players argue that, since the start of the massive 3G roll-out a decade ago, their industry is no longer as lucrative as it once was. This technology has enabled the development of communication services based on internet protocols (also known as over-the-top services or OTTs) such as WhatsApp, Telegram and Signal that compete directly with revenues made from SMS and phone calls.
Powerful advocates such as the GSMA and the Alliance for Affordable Internet, an NGO backed by the US colossus Google and Sweden’s National Development Agency, are supporting African operators’ endorsement. These bodies also point to the vicious cycle of fines that are too easily levied against telecoms companies with an already high tax burden.
“Quality of service regulation is at the heart of efforts to achieve the goal of high-quality service levels,” the GSMA acknowledges in a study on the subject.
In sub-Saharan Africa, however, the trade body warns that there is a lack of regulation due to “complex and disproportionate objectives, a lack of technical standardisation and industry collaboration and consultation, outdated and homogenous frameworks, and the risk that financial penalties are counter-productive.”
Overtaxing and sanctioning therefore hinders the telecom sector’s development and the continued investments necessary to maximise territories’ network coverage. But are telecom operators victims of an unfair attack, a discreet settlement of accounts or their own blunders? A mixture of all three, perhaps.
“Within the same government, a conflict may arise between the agenda of the Ministry of Finance, which taxes heavily to ensure the success of the current term of office and that of the Minister of Telecoms, who wishes to spare the sector in order to develop the digital ecosystem,” says a senior Congolese administration official.
However, the public authorities continue to tax the telcos as they did in the heyday of 2005-2015 because they are aware that, despite the operators’ offence, the voice segment remains their main source of revenue – even though its share decreases each year. But also because they are aware that the authorities, who in many cases remain convinced that they are not receiving the ‘real figures’ from the telephone companies, find it difficult to monitor this segment.
Regarding this first point, one need only examine the operators’ results. Although 630 million was made between 2012 and 2020, the segment, which grew by 4.8% in 2020, still accounts for almost 52% (€5.4 billion) of its total revenue, compared with 27% for mobile data – which has grown by 31% over the same period.
Moving on to the second point, as Sawadogo points out, the lack of investment in monitoring institutions gives the allusion that operators falsify their declarations in order to be taxed as little as possible.
“Political leaders are convinced that operators do not provide their real information, for example, regarding the state of their network coverage and an accurate estimate of their international call minutes,” says the economist, who trained at the University of Ouaga II and is a research assistant at the Foundation for Studies and Research on International Development (Ferdi) in France.
“Due to the regulators’ lack of technical means, we find ourselves with a declarative system where operators can take advantage of ignorance or their technical superiority to communicate false figures,” says the ministerial advisor. In this light, sanctions are simply a way for the state to recover its dues.
But the “excess sanctions” are also made possible by unclear legal frameworks that foster widespread distrust. “The method of calculating sanctions is never clearly described in the telecoms specifications,” says Sawadogo. Regulators’ lack of independence is also a more structural problem.
According to our ministerial adviser, three conditions determine how truly independent a regulator is. “Funding allocated through an appropriation voted on by Parliament; a clear legal corpus without the possibility of plural interpretations; and an institutional status that guarantees equidistance between the government, operators and users.”
In France, for example, three members of Arcep college (including its president) are appointed by the head of state, two others by the president of the National Assembly and the last two by the Senate’s president. Furthermore, the institution’s budget is discussed and then voted on by parliament.
African countries certainly do not follow this type of governance. For instance, the boards of Gabon’s Arcep and Senegal’s ARTP are appointed by presidential decree, while Morocco’s ANRT’s board is chaired by the head of government.
Ways to reform
However, this permanent crisis of confidence could be defused by a number of reforms and some effort by the private sector. On the regulator’s side, in addition to the weapon of massive extraction that is sanctions, there are more transparent recourses that allow an operator to be called to order. These have already been applied, notably in Chad. In 2020, discussions between the regulatory authority and the Tigo-Airtel duopoly led, according to the GSMA, to an agreement whereby the operators directly reinvested the 8bn CFA francs fine into improving their network’s coverage and quality.
This is in contrast to the current practice in place in most countries on the continent where the sums are either paid directly to the Ministry of Finance and then diluted in the State budget, or injected into a universal service fund allocated to developing telecoms. However, the latter’s competencies remain poorly defined, resulting in abysmal underinvestment of the resources entrusted to them. In 2018, the World Wide Web Foundation estimated that $408m was lying dormant in the coffers of 37 African universal funds.
It might be useful for telecom operators, who are too often engaged in a zero-sum game, to abandon the current logic of competition in favour of collective and coordinated action, by creating real coherent lobbies that are capable of influencing discussions and imposing certain conditions.
“One might imagine that the telecoms sector could have recourse to tax stability clauses that impose preferential taxes for a given sector, as is done in the extractive industry. But the lack of cohesion prevents operators from uniting and negotiating such conditions,” says Sawadogo.
“The analysis shows that the loss of revenue due to tax and customs exemptions is considerable. If mining companies were to pay their taxes under the same conditions as the telecoms sector, the mining sector’s contribution to the economy would be even higher,” adds the study by Arcep-BF’s Irène Sare Kanzie. History has shown that the industry managed to find some cohesion, but only in an emergency.
In 2015 – in the middle of the DRC’s election period, when the President decided to cut off internet access and SMS – the operators came together and forced Lambert Mende, the powerful telecoms minister, to reconnect the networks. Better still, the industry managed to get the rate of a new tax on telephone networkers (Tartel) lowered during that same year in Guinea. African phone operators simply need to learn to speak with one voice.
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