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Adding Fuel to Fire: Why Somalia’s Oil Could Prove to Be a Curse

8 min read. The decision by President Mohamed Abdullahi Farmajo’s government to put Somalia’s oil reserves on the predatory oil and extractive industries’ market argues RASNA WARAH could prove to be a resource curse and a recipe for disaster in a country that has suffered from more than two decades of civil war, fledgling state institutions, absence of checks and balances and which has few or no regulatory frameworks or laws in place to manage its oil in the interest of the Somali state and its people.

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Adding Fuel to Fire: Why Somalia’s Oil Could Prove to Be a Curse
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Early this month, dozens of people gathered outside the Claridge’s Hotel in central London to protest against the Federal Government of Somalia (FGS)’s decision to award oil exploration licences to foreign companies later this year. The hotel was the venue for the International Conference on Somalia Oil and Gas that was hosted by Spectrum, a leading seismic data processing company. The conference was aimed at showcasing possible locations in Somalia where crude oil reserves can be exploited.

Last year, the FGS announced a first round of bidding on 206 offshore oil blocks, mainly in southern Somalia. The decision by President Mohamed Abdullahi Farmajo’s government to put Somalia’s oil reserves on the predatory oil and extractive industries’ market is being viewed by many as a recipe for disaster in a country that has suffered from more than two decades of civil war and which has few or no regulatory frameworks or laws in place to manage its oil in the interest of the Somali state and its people.

Jamal Kassim Mursal, who was the permanent secretary in Somalia’s petroleum ministry until last month, when he resigned, told the Voice of America that Somalia was not yet ready for any oil exploration because “nothing has changed – petroleum law is not passed, tax law is not ready, capacity has not changed, institutions have not been built”.

The decision by President Mohamed Abdullahi Farmajo’s government to put Somalia’s oil reserves on the predatory oil and extractive industries’ market is being viewed by many as a recipe for disaster in a country that has suffered from more than two decades of civil war

A study published in 2014 by the Mogadishu-based Heritage Institute of Policy Studies cautioned that it was still too early for Somalia to be venturing into the oil industry because the country faces a host of challenges and obstacles that need to be addressed before any viable oil exploration and production can start. These challenges and obstacles include scant infrastructure for the transport and processing of oil, political volatility, institutional fragility, physical insecurity and ambiguous property rights.

If not handled with caution, warned the report, Somalia’s oil could prove to be a curse. Given the high levels corruption within the Somali government, and in light of the country’s fledgling state institutions, the absence of checks and balances, as well as nascent democratic structures, the hydrocarbon sector’s economic spoils are likely to also ruin politics, said the study’s author Dominik Balthasar. Lack of oversight and transparency could lead to conflict as competing forces seek to control the lucrative, but highly opaque, sector. “The problem arises in light of the fact that Somalia not only needs to counter the standard challenges arising from the resource curse, but must do so in the context of fragility.”

A study published in 2014 by the Mogadishu-based Heritage Institute of Policy Studies cautioned that it was still too early for Somalia to be venturing into the oil industry because the country faces a host of challenges and obstacles that need to be addressed before any viable oil exploration and production can start.

In his book, The Looting Machine: Warlords, Tycoons, Smugglers and the Systematic Theft of Africa’s Wealth, Tom Burgis describes how the discovery and exploitation of oil and other resources by foreign companies have left many African countries poorer and more conflict-ridden than they were before. From Nigeria to the Congo and South Sudan, the “resource curse” has left populations embroiled in violent conflicts and/or in debilitating poverty. Resources such as oil also distort economies, breed corruption and foster poor governance. Burgis explains:

“More often than not, some unpleasant things happen in countries where the extractive industries, as the oil and mining businesses are known, dominate the economy. The rest of the economy gets distorted, as dollars pour in to buy resources. The revenue that governments receive from their nations’ resources is unearned: states simply license foreign companies to pump crude or dig up ores. This kind of income is called ‘economic rent’ and does not make for good management. It creates a pot of money at the disposal of those who control the state. At extreme levels the contract between the rulers and the ruled breaks down because the ruling class does not need to tax the people to fund the government – so it has no need for their consent.”

Burgis shows how resource-funded regimes are “hard-wired for corruption” and that an economy based on just one pot of resources leads to “Big Man” dictatorial politics, as has been witnessed in Equatorial Guinea and Cameroon. And whereas before, Africa’s resources were often extracted at gunpoint or through violent colonisation, today “the looting machine has been modernized” through “phalanxes of lawyers representing oil and mineral companies” who “impose miserly terms on African governments and employ tax dodges to bleed profit from destitute nations”.

In his book, The Looting Machine: Warlords, Tycoons, Smugglers and the Systematic Theft of Africa’s Wealth, Tom Burgis describes how the discovery and exploitation of oil and other resources by foreign companies have left many African countries poorer and more conflict-ridden than they were before

Dodgy deals

Mursal, the former petroleum permanent secretary, is also against an agreement that gives the first choice for exploration blocks to Soma Oil and Gas, one of the companies that has been embroiled in several controversies with regard to Somalia in the past. The agreement allegedly gives Soma Oil and Gas 12 blocks to conduct oil exploration.

The controversy around Soma Oil began around the tenure of Yussur Abrar, Somalia’s first female Central Bank Governor. Abrar resigned in November 2013 after just seven weeks in the job on the grounds that she was being continuously asked to sanction deals and transactions that violated her responsibilities as governor.

In her resignation letter, Abrar stated that she had “vehemently refused to sanction the contract with the law firm Schulman & Rogers regarding the recovery of the Somali financial institutions’ assets frozen since the fall of Siad Barre’s regime”. She said that the contract did not “serve the interest of the Somali nation” and “put the frozen assets at risk” while opening the door to corruption. She also stated that the Central Bank she had been assigned to manage was in a poor state, with payroll processing being the only semi-functioning unit.

Abrar’s woes also had something to do with the fact that the then President Hassan Sheikh Mohamud was at the time making secretive deals with foreign oil companies. Barely a year after President Mohamud took office, stories began to emerge that the FGS had entered into a deal with Soma Oil. Apparently the Somali government had also held talks with Shell, Exxon, Mobil Corp and BP to revive pre-1991 oil contracts that were put on hold when the civil war broke out and when the government of Siad Barre collapsed. Observers were surprised that President Mohamud in the first year of his term agreed to an oil exploration deal after having earlier expressed fears that the country was too fragile to risk further conflict. Many observers warned that these oil deals would ignite further divisions and civil strife in oil-producing regions of the country, especially in the absence of legislative and regulatory provisions.

There were also concerns that oil deals would pave the way for more corruption in a country that has already gained the reputation of being amongst the most corrupt countries in the world.   These concerns were so widespread that in July 2015 the UK’s Serious Fraud Office opened an investigation on Soma Oil’s dealings with the Somali government. Soma Oil, which was chaired by the former Conservative Party leader Michael Howard, dismissed the investigation, claiming that the British company’s conduct with the Somali government was “completely lawful and ethical”. Through its PR agency FTI Consulting, Soma Oil insisted that “broad terms” of the deal had been made public. (Interestingly, FTI Consulting is the same firm that was given a contract to “unfreeze” Somali assets abroad, the very contract that led to the resignation of Abrar.)

UN monitors reported that the deal would give Soma Oil the right to apply for up to 12 oil licences, covering a maximum of 60,000 square kilometres. In May 2015, Bloomberg Business revealed a draft production-sharing agreement between Soma Oil & Gas and the Somali government that indicated that Somalia could end up paying up to 90 per cent of its oil revenue to the British company, thereby conferring unusually high benefits to the latter.   Barnaby Pace, a campaigner with the watchdog Global Witness, described the agreement as a “terrible deal for the Somali people”. In a private conversation with yours truly, a Somali MP asked, “How can you sign a deal with a patient who is in ICU? Does an ICU patient have the capacity to sign anything?”

Although there has been more funding in the recent years, from the World Bank and the European Union to introduce public finance reforms and to provide budget support to the FGS, these efforts have not yet borne fruit. The FGS still has little authority over large chunks of Somalia where clan-based fiefdoms and Al Shabaab rule with impunity and even collect “taxes” from the local population.

In May 2015, Bloomberg Business revealed a draft production-sharing agreement between Soma Oil & Gas and the Somali government that indicated that Somalia could end up paying up to 90 per cent of its oil revenue to the British company, thereby conferring unusually high benefits to the latter.   Barnaby Pace, a campaigner with the watchdog Global Witness, described the agreement as a “terrible deal for the Somali people”

And despite attempts by Kenyan columnists like Peter Kagwanja to depict Somalia as “the poster child of an ‘Africa rising from the ashes of civil war’”, most analysts would agree that the FGS is ill-equipped to govern and that most state institutions in the country are not only severely degraded, but in many cases are completely absent. The idea of a Somalia being run from the capital Mogadishu is a myth that only comforts the international community that created the FGS. The FGS simply does not have the capacity to manage the entire country or to enforce its will and laws on the various clan-based federal states and the majority of the Somali people.

The auctioning off of Somalia’s oil could also lead to feuds with neighbouring countries like Kenya, which has a dispute with Somalia over a maritime boundary along its border – a triangular chunk of sea in the Indian Ocean of about 100,000 square kilometres

It is estimated that there could be as many as 110 billion barrels of oil and gas reserves in Somalia – equal to Kuwait’s reserves and nearly half of those of Saudi Arabia. It is no wonder that Britain, along with Norway, Australia, Qatar and Turkey, among other countries, have been eyeing Somalia’s oil and gas reserves for some time.

However, exploiting natural resources in an environment of fragility and near-anarchy can spell doom for a country that barely has functioning ministries and other public institutions and which does not have the regulatory frameworks that could protect the country from local and foreign predatory forces. In addition, the looting spree precipitated by oil could lead to further in-fighting between factions and clan-based rivalries and competition could be further aggravated in regions where oil reserves are found. Al Shabaab could also find another reason to rally its troops against the FGS in regions it controls.

The auctioning off of Somalia’s oil could also lead to feuds with neighbouring countries like Kenya, which has a dispute with Somalia over a maritime boundary along its border – a triangular chunk of sea in the Indian Ocean of about 100,000 square kilometres. Kenya has already recalled its ambassador to Somalia because since the dispute remains unsettled at the International Court of Justice, Somalia has no right to auction off the territory, which is believed to have vast amounts of oil and gas reserves.

The heavy presence of oil exploration teams and infrastructure in the Indian Ocean could also lead to more piracy, especially if coastal communities feel disenfranchised and left out of the deal. This could reverse all the gains made by the international community in stopping piracy along Somalia’s coastline, which at 3,300 kilometres, is the longest in Africa.

The heavy presence of oil exploration teams and infrastructure in the Indian Ocean could also lead to more piracy, especially if coastal communities feel disenfranchised and left out of the deal.

Somalia is simply not ready to enter into any oil agreements with foreign companies; the costs are simply too great and any economic benefits derived will most likely accrue to individual politicians and businesspeople rather than to the majority of the Somali people who have suffered from poverty, underdevelopment, lack of basic services and poor governance for nearly thirty years.

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Ms Warah, the author of War Crimes, a sweeping indictment of foreign meddling in Somalia, and A Triple Heritage, among several other books, is also a freelance journalist based in Malindi, Kenya.

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Erased: Get Over It Vanessa, It’s a White Man’s World

8 min read. Instead of seeking fame by association with white people, Nakate must run her campaign from the continent of Africa and create a groundswell of African climate activists who can challenge the orthodoxy that Africans are not capable of addressing issues that affect them.

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Erased: Get Over It Vanessa, It’s a White Man’s World
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When an insensitive photo editor at the Associated Press (AP) erased the image of a Ugandan climate activist from a photo that included the Swedish climate star Greta Thunberg, it created a stir and led to accusations of racism against the news organisation.

It all started when Vanessa Nakate posted a tearful video of herself where she lamented the fact that she, unlike the white activists attending the, had not been recognised for her efforts on account of her skin colour. By removing her from the photo (the cropped version of which showed Thunberg with three other young white activists), she said on Twitter, AP had not only erased a person, but the entire African continent.

AP responded by explaining that Nakate was cropped from the photo because the building behind her was a distraction. As an amateur photographer myself, I can see why a photo editor would want to use a perfect background of the Swiss Alps and not an unsightly building in an image. Maybe racism had nothing to do with the decision to remove her; it was merely an aesthetic choice. However, even the AP’s editors had to finally concede that they had made a journalistic error.

Nakate is still young, so probably she doesn’t know yet that being a woman of colour means being constantly erased, ignored, ridiculed, humiliated, harassed or ghosted by those in power – usually white men. She should have known that black people, and especially black women, rarely get the credit for the work they do, even when it has global impact. She might want to recall that the #MeToo movement was started by Tarana Burke, an African-American woman, but only gained momentum when white Hollywood actresses started using the hashtag and started talking about their own experiences of sexual harassment and abuse. White people not only steal non-white people’s ideas, they appropriate them, make them their own, and then take the credit.

Being a woman of colour means being constantly erased, ignored, ridiculed, humiliated, harassed or ghosted by those in power – usually white men

Nakate may have heard that the civil rights movement in the United States only gained credence when white presidents like John F. Kennedy embraced it, and that Nelson Mandela gained “saintly” status only after he forgave his white tormentors.

Nakate made the mistake of naively believing that she is an equal partner in the fight for the climate; she thought that she would not only be recognised for her efforts, but would be rewarded as well. I applaud her for her optimism and faith, but as she gets older (and more cynical) she will realise that black and brown women – or what we now call women of colour – rarely get to sit at the high table unless they are “anointed” by the white Western world.

Often black people don’t get recognised even in their own countries until a white person or institution endorses them. The Kenyan environmentalist Wangari Maathai, for instance, was considered an irritating busybody by the Kenyan government and its leaders until she won the Nobel Peace Prize, after which she was accorded star status.

You see, this is the problem with us black and coloured folk. We are so desperate for white people’s approval and attention that when they reject or erase us, we are crushed. For many people in Asia, Africa and Latin America, recognition from one white person means more than a million accolades from our own people. It is the kind of self-hatred that makes us use skin bleaching creams and adopt foreign (usually British or American) accents. Nobody criticises French people for speaking with a French accent (which many consider “sexy”) or speaking English badly. But if as an African you appear at a public forum with a heavy Luo accent to explain your brilliant new scientific invention, you will be dismissed as an idiot not just by white people but your own people as well.

Nakate was desperate to be seen as a climate activist in the mould of Thunberg, but she failed to see that Thunberg has many advantages that she might never have.

For one, being a white European, Thunberg doesn’t need a visa to enter most countries around the world, a privilege that Nakate does not have. This means that the Swedish climate activist can go to another country and hold a protest rally at the drop of a hat. This gives her enormous social capital internationally. To get a visa to a Western country, Nakate would have to jump over many, many hurdles and prove beyond doubt that she has no intention of overstaying her visa. As she is a young single African woman, most countries in the West will view Nakate as a risk – as someone who will not return home after her visit and who will become part of the growing group of illegal immigrants in the West. Her activism credentials will be doubted, and her age, gender and skin colour will be held against her.

Nakate was desperate to be seen as a climate activist in the mould of Thunberg, but she failed to see that Thunberg has many advantages that she might never have

This is not to say that Thunberg does not endure ridicule. The world’s most powerful president, Donald Trump, has dismissed her as a young woman with “an anger management problem”. Climate change deniers will no doubt paint her as a pessimist out to destroy the world’s economy. Because of her age and gender, she will face a backlash from the old male establishment. However, Thunberg doesn’t have to face the kind of racism that people like Nakate have to face whenever they confront the white Western world.

Nakate will have to work twice as hard as a white woman to gain a place on the international stage. But even if she does, she will probably be a side show, not the main event. And if her views are considered too radical, she might never be invited again.

Some of us (and I include myself) have come to understand how little our views or opinions matter when we attend conferences where all the leading “experts” on a panel are white or male or both. Sometimes, for the sake of “diversity” or “representation”, a few African scholars or analysts may be included in a collection of essays or in panel discussions. However, in my experience, only those scholars or analysts who do not deviate too far from the traditional narrative about Africa (poverty, war, refugees, failed states, and the like) are invited to contribute; in other words, they gain visibility through conformity. Radical thinkers, or those who actively reject racist of distorted representations of African, are rarely invited. They are also denied jobs. I have been denied many jobs due to my gender, skin colour, nationality, ethnicity or age (yes, ageism is real). Shouting “Racism!” rarely has the desired effect. White people begin to actively shun you or describe you as over-sensitive or paranoid.

In her book Why I’m No Longer Talking to White People About Race, the black British writer Reni Eddo-Lodge explains that she stopped having conversations about race with white people because most white people don’t even recognise that racism exists. “I cannot continue to emotionally exhaust myself trying to get this message across, while also toeing a very precarious line that tries not to implicate any one white person in their role in perpetuating structural racism, lest they character assassinate me”, she writes.

Eddo-Lodge says that white people often silence people of colour by pretending that the problem lies with the latter, and not with the former, or by accusing the non-white person of being overly sensitive about race. “They’ve never had to think about what it means, in power terms, to be white, so any time they’re vaguely reminded of this fact, they interpret it as an affront”, she says.

“I can no longer have this conversation, because we’re often coming at it from completely different places”, she adds.

If they cannot silence you by ignoring you, or by claiming that you are over-reacting, they co-opt you. For instance, the Kenyan writer Binyavanga Wainaina was actively wooed by the Western literary establishment after his satirical essay How to Write About Africa went viral. He lapped up the attention – but it came at a price. Never again would he write so passionately about how Africa has been misrepresented in the Western media, though it must be said that the essay profoundly impacted how Western journalists reported on Africa. After his essay went viral, the narrative on Africa changed from “The Hopeless Continent” to “Africa Rising”. Although people on the continent rejoiced, they failed to understand that neither of these narratives accurately depicts the complexities and nuances of Africa; on the contrary, they reinforce the “single story” narrative that Nigerian author Chimamanda Adichie spoke so eloquently about in a TED talk.

However, while Adichie can talk to the West about the danger of “a single story”, she would not be a literary star today if the West had not embraced her and given her a platform to showcase her work. The white Western establishment knows that her criticisms can only go so far – they cannot topple the power relations between Africa and the West. In fact, her success reinforces the reality that in order to succeed as an African in this world, one must have the support of the West – the very West that is the subject of one’s criticism.

Why are we so eager for the West to embrace and accept us? Why do we want them to like us? Why do we get so excited when Afro-pessimism is replaced with Afro-optimism? Maybe it’s because, as Franz Fanon says in Black Skin, White Masks, black people have been made to feel inferior for so long that they “want to prove to white men, at all costs, the richness of their thought, the equal value of their intellect”. We expend much energy trying to prove our worth to white people, believing that once we have proved our worth, we will be accepted as equals. This is rarely the case because racism is so ingrained in Western culture that it may take many more centuries to eradicate it. We must remember that European powers justified slavery and colonialism by claiming that Africans were not really human beings, that they were an inferior species that needed to be subjugated for their own good.

We expend much energy trying to prove our worth to white people, believing that once we have proved our worth, we will be accepted as equals

The late Toni Morrison said that the main function of racism is distraction – to keep black people so busy explaining themselves to white people that they would not have time for anything else:

It [racism] keeps you from doing your work. It keeps you explaining, over and over again, your reason for being. Somebody says you have no language and you spend 20 years proving that you do. Somebody says your head isn’t shaped properly so you have scientists working on the fact that it is. Somebody says you have no art, so you dredge that up. Somebody says you have no kingdoms, so you dredge that up. None of this is necessary.

My advice to Vanessa Nakate would be to stop seeking the approval of the white Western world and to not be too bothered if the white Western establishment doesn’t give her the recognition she deserves. She must not seek fame by association with white people. She must run her campaign from the continent of Africa with fellow Africans and for the benefit of future generations of Africans. Climate change in Africa is real, and will have devastating consequences because Africa is least prepared for it. Nakate must forge relationships with like-minded African organisations to create a groundswell of African climate activists who can challenge the orthodoxy that Africans are not capable of addressing issues that affect them.

Nakate must run her campaign from the continent of Africa with fellow Africans and for the benefit of future generations of Africans

Vanessa Nakata gains nothing by being photographed in Davos at a conference where the very people who caused the climate change crisis in the first place meet every year. Their acceptance of her means little. If she is going to bring about a climate revolution in Africa, she must look to her own culture, history, environment and people to find solutions. No one can save Africans except Africans themselves.

So Vanessa, please understand this: White people will constantly erase you. Stop asking them to put you back in the picture. You do not need their endorsement.

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Kenya Security Council Bid: David Fighting Goliath, Says Djibouti

9 min read. Although endorsed by the African Union, Kenya’s candidacy for one of the non-permanent United Nations Security Council seats reserved for Africa has been challenged by Djibouti and there are no guarantees that the country will get the votes of two-thirds of the Council members in the forthcoming June elections. With both countries arguing that they are the voice of Africa, Kenya will need to defend its track record on matters of international peace and security and address concerns about its reliability as an ally, among other grievances against it. Otherwise, Nairobi may be in for a surprise come June.

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Kenya Security Council Bid: David Fighting Goliath, Says Djibouti
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The next five months are critical for Kenya in its bid to play a central role in matters of international peace and security. In June, the United Nations General Assembly will vote to decide which of Djibouti or Kenya will take up one of the non-permanent Security Council seats for Africa. Whichever country will be elected will serve for two years (2021-2022). It will be the second time for Djibouti to sit on the Council (1993-1994) and the third for Kenya, which previously served in 1973-74 and 1997-98.

African member states have established themselves as one of the most organised groups in the handling of the rotation of the three non-permanent seats allotted to them. The African Group ensures that each of its five sub-regions (East, West, Central, North and South) has a chance at representation in a rotational arrangement. For instance, in 2019, South Africa replaced Ethiopia which had represented East Africa. In 2021-2022, the seat reverts to an East African country. The Executive Council, the second most powerful organ of the African Union (AU), has the responsibility of vetting candidates for the seats and is advised in these functions by a sub-set of ministers who sit on the Ministerial Committee on Candidatures.

Member states interested in Security Council seats inform the chair or dean of their respective sub-regional group. In case a sub-region submits more than one candidate, the AU Commission requests the chair or dean of the sub-region to hold consultations and present a single country. In most cases, the sub-region agrees to either consider the other candidate for upcoming vacancies in other UN or AU organs including the Peace and Security Council or offers them the slot at the next opportunity. Once consensus is reached, the chair of the sub-region submits its candidate to the AU Commission for consideration by the Ministerial Committee on Candidatures, which meets twice a year (January and June).

When the vacancy for the Eastern African sub-region was announced in 2019, the African Union Commission received the candidacies of both Djibouti and Kenya from the dean of the sub-region, Djibouti. Diplomats based in Addis Ababa with knowledge of the deliberations, argue that this was a conflict of interest on the part of Djibouti; given that its candidacy had made it impossible for Djibouti to play its role of finding a consensus candidate, it should have recused itself and handed over the role of dean temporarily to another country. It did not help that the countries of the sub-region were split between Djibouti and Kenya, with neither enjoying overwhelming support from its neighbours. Therefore, instead of the sub-region trying to find a solution, it kicked the can down the road to the Ministerial Committee.

The Ministerial Committee and the Executive Council were unable to agree on a consensus candidate from either of the two countries during the AU Summit that took place in Niamey, Niger in July 2019. The Executive Council mandated the Permanent Representatives to the African Union (the Permanent Representative Committee) to resolve the matter under Egypt’s leadership as the AU Chair but Egypt was unable to resolve the matter through consensus. It therefore resorted to voting, an unprecedented move on matters of candidacy. In a move that should worry Nairobi and which is not accurately reported in the Kenyan media, it took seven rounds of votes for Kenya to garner the two-thirds majority required to be endorsed. On the first occasion, there were four rounds of votes with neither candidate garnering the two-thirds majority. The second occasion had three rounds of votes where on the third round, Kenya garnered the required two-thirds majority by bagging 37 votes to Djibouti’s 13.

There was expectation that Djibouti would bow out of the race after the August 2019 vote. Instead, Djibouti announced that it was still in the race. Diplomatic efforts to have Djibouti stand down in favour of the African Union-endorsed candidate have faltered. President Abdel Fattah el-Sissi of Egypt brought together President Uhuru Kenyatta and President Ismail Omar Guelleh of Djibouti to discuss the matter at the margins of the United Nations General Assembly in September 2019 but this high-level diplomatic attempt failed. Djibouti has gone ahead and received the endorsement of the Organization of Islamic Conference (OIC) and that of the Organisation Internationale de la Francophonie (OIF).

It took seven rounds of votes for Kenya to garner the two-thirds majority required to be endorsed

As it ramps up its diplomatic charm and campaigns for the seat, Djibouti has sought to present itself as the underdog, David fighting Goliath. Djibouti argues that it was the first to declare its candidacy in 2016 and that Kenya has violated the spirit of sovereign equality of states and the practice of rotation of seats. It argues that for its small size, it has deployed more peacekeepers per capita and that it seeks the seat, not for “self-aggrandisement” but rather to serve Africa. In an underhand attack of the perceived transactional nature of Kenya’s diplomacy, Djibouti presents itself as a “reliable partner” which has a record of working with “UN Member States, large and small, permanent and non-permanent members of the Security Council on ways to advance our common priorities”.

On its part, Kenya has presented a ten-point agenda which it aims to fulfil during its tenure. The first is “Building Bridges”, which seems to be a very politically loaded title to use given the ongoing divisive “Building Bridges Initiative’ at the domestic level. Nairobi argues that it is well positioned to bridge differences between the African Union and the Security Council and to be a promoter of the rule-based international system. It touts its role in peacekeeping with over 40,000 troops deployed over the years. Nairobi argues that it is a regional powerhouse on matters of peace and security and a leader in the fight against terrorism and the prevention of violent extremism. The country hopes to promote the women, peace and security agenda as well as the empowerment of young people. It boasts of its role in humanitarian affairs especially in providing refuge to those fleeing war in South Sudan and Somalia. It also includes justice, human rights and democracy in its agenda. And in a nod to the UN Environment Programme hosted in Nairobi, Kenya lists climate change as one of its areas of focus as well as the achievement of the sustainable development goals.

With both countries arguing that they are the voice of Africa, the positions they take on key international issues in the next few months will be critical for their campaigns. Diplomatic sources intimate that although Kenya has the backing of the African Union, it would be naïve to bank on the support of all the African countries. They argue that the same talking points that Kenya used to rally the support of some members of the African Group may backfire when used in the broader United Nations General Assembly membership. For instance, one African country which changed its mind in the last round of the African Union vote to support Kenya, did so because they were persuaded that it would not be a good idea for Africa to be represented at the Security Council by three countries with an Islamic and French-speaking background. Niger and Tunisia are the current members representing West Africa and North Africa, respectively.

Diplomatic sources intimate that although Kenya has the backing of the African Union, it would be naïve to bank on the support of all the African countries

Djibouti may very well turn round the talking points of the Kenyan diplomats and use them to rally a large section of the 57 members of the Organization of Islamic Conference—which has officially endorsed it—to support its bid. Djibouti has a strong record of support to the Question of Palestine and other Middle East issues. It will certainly continue to play up the maritime dispute between Kenya and Somalia to rally Arab and Muslim countries to its side. Djibouti could also play the victim of an anti-Francophone bias to seek the sympathy votes of the 54 French-speaking countries. Of course Kenya has its share of friends in both the OIC and OIF membership, but it cannot afford to lose any Member State.

Kenya’s waning international standing will further complicate its candidacy. Within the African continent, Kenya is no longer at the centre of political or diplomatic initiatives. This has shifted over the years to Addis Ababa. There was a time when you could not speak of a single African political or peace process without it being hosted in Kenya or mediated by a Kenyan. Presidents Mwai Kibaki and Uhuru Kenyatta decided to take a back seat in these efforts which has denied the country the platform it could have used to campaign for the seat. It is worth noting that Ethiopia’s third bid for the Council seat in 2016 (to serve in 2017-2018) was uncontested. That Nairobi’s standing in the region is on the wane was evident in 2017 when Cabinet Secretary Amina Mohammed failed to get elected as the Chairperson of the African Union Commission, losing to Chad. The recent election of Sudan to chair IGAD, instead of the highly anticipated switch to Kenya, should make Nairobi worried about the long-term implications to its foreign policy agenda, if it has one.

Nairobi is also perceived as running a transactional foreign policy. It does not hold principled positions on issues of international peace and security. Many diplomats are quick to note that, with a few exceptions, Nairobi’s position on any issue is based on the price of the highest bidder. As one diplomat put it, “unpredictability is not good in diplomacy. They will say yes today and tomorrow they will take a different position.” There are many countries who worry that Kenya will continue its transactional approach to Security Council issues at the expense of the interests of Africa”.

Within the African continent, Kenya is no longer at the centre of political or diplomatic initiatives

To be fair to Nairobi, although the elected members ostensibly represent Africa, they hold these seats in their national capacities. They definitely put their national interests first, including economic ones, before the positions of the continent. This is especially so in an era when President Donald Trump openly declares that countries that do not do its bidding will have their foreign aid cut. In Africa, there are many countries which have sanctioned their envoys for jeopardising financial aid by taking principled positions on issues. The most dramatic was in 2002 when Ambassador Jagdish Koonjul of Mauritius was recalled in the midst of a Security Council meeting for not openly supporting a United States resolution on Iraq.

Informal discussions with several diplomats indicate that so far, Kenya is a front-runner for the Security Council seat, boosted by the endorsement from the AU, which will probably be confirmed by the Heads of State at its February Summit. However, the endorsement is non-binding and African countries may choose to vote for Djibouti, abstain or be absent on voting day. Kenya’s squabbling with Somalia, its cozy relations with Ethiopia no longer, the mistrust with Tanzania, the on/off relations with Uganda—including the competition to host the UN Global Service Center among other regional rivalries—means that Nairobi goes into the race without any guarantee of receiving votes from its bloc.

In another sign of the waning support for Kenya within its sub-regional bloc, attempts to present a candidate for the position of Assistant Secretary-General at the 9th African, Caribbean and Pacific (ACP) Heads of State and Government meeting in Nairobi last year were met with strong opposition. Diplomats argue that Kenya’s un-strategic move to seek positions in other bodies during its bid for the Security Council only strengthens Djibouti’s contention that Nairobi is only interested in “self-aggrandisement”. Nairobi could learn lessons from the common Swahili adage, mtaka vyote, hukosa vyote, or from the fable of the greedy hyena.

Djibouti and Kenya seem not to have managed to convince any of the veto-wielding council members (China, France, Russia, United Kingdom and United States) to throw their weight behind their candidacies. Both countries are close allies to the major powers. China has been quick to clarify statements from its officials perceived to be supporting either country. Both candidates have constantly reminded those who care to listen of their unique geo-political significance. However, Djibouti’s location by the Red Sea, which straddles both the Middle East and Africa, cannot be underestimated. By being one of the few countries hosting American, Chinese and French military bases, it has a slight advantage with regards to these three veto-holding Security Council members. Kenya, on the other hand, could argue that as a regional economic powerhouse, it would be the better candidate. But one could argue that having a less economically powerful country on the Council would be more convenient for those interested in buying the country’s influence. A cheaper puppet is certainly better than a costly one.

Many diplomats are quick to note that, with a few exceptions, Nairobi’s position on any issue is based on the price of the highest bidder

As the campaign reaches a critical point, Kenya seems to be scoring an own goal. The decision to move Ambassador Monica Juma from the foreign affairs docket in the midst of the campaign was ill-advised. Lobbying for the Security Council seat very much depends on personal relationships built over time, which the new Cabinet Secretary, Ambassador Rachel Omamo, certainly does not have. It does not help that rather than have a dedicated Permanent Representative in New York, Nairobi decided to copy Djibouti and double-hat its affable and experienced Ambassador Lazarus Amayo to cover both New York and Washington DC. This means that there is insufficient political coverage in both these cities which have a central role to play in the June election. Nairobi will have to rely heavily on its highly respected Ambassador Tom Amollo to pick up the baton.

Nairobi will also need to widen its talking points beyond its ten broad themes. There are still many unanswered questions about its track record on matters of international peace and security. What foreign policy gains can be attributed to Nairobi during its term at the African Union Peace and Security Council? What does the country have to show for its five years as the holder of the Executive Secretary post at the International Conference for the Great Lakes Region (ICGLR)? How has it handled peace and security issues as one of the Deputy Executive Secretaries of the East African Community? What does the country have to show for the 11 years of Ambassador Mahboub Maalim tenure as Executive Secretary of IGAD, apart from Ethiopia’s dominance of the organisation?

Failure to effectively counter these questions and address the concerns about reliability as an ally, among other grievances against it, Nairobi may be in for a surprise come June. This is especially because victory requires a vote by two-thirds of the member states. Djibouti’s task will be to embarrass Nairobi into many rounds of votes, with the possibility of neither one receiving the required number of votes. There have been precedents of inconclusive votes the most recent of which was in 2016 when neither Italy nor the Netherlands was able to muster enough votes. They eventually agreed to split the term. Kenya may end up seeking a compromise of splitting the term with Djibouti, if the latter maintains its current stance. Nairobi still has five months to change tack, otherwise it may continue with its streak of faltering bids for international posts.

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Turnover Tax: Days of Extortion, Days of Revolt

11 min read. Informal micro and small businesses are being unfairly targeted by a new tax that is considered by many as extortionist and punitive. How can the government morally justify a tax on a sector it has done little to assist? Will the new tax force these businesses to close down or to revolt?

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Turnover Tax: Days of Extortion, Days of Revolt
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Our government has decided to extort money from the smallest businesses and is trying to make a virtue of it. Imposing the 3 per cent turnover tax (TOT) on informal micro and small businesses is monstrous, and an insult to poor Kenyans. Though legal, TOT is IMMORAL. I echo the prophetic declaration: “Woe to those who make unjust laws, to those who issue oppressive decrees, to deprive the poor of their right and withhold justice…” (Isaiah 10:1 NIV)

The micro and small-scale businesses, which include kiosks, small grocery stores, hair salons and small market traders (generally those at the bottom tier of the informal sector) now have to pay TOT. TOT is a new tax demanded of any resident person whose turnover from business does not exceed or is not expected to exceed Sh5,000,000 ($50,000) during any year of income. It will be payable from 1st January 2020. This tax rate is on the gross sales/turnover and is a final tax.

Mrs. Elizabeth Meyo, the Commissioner of Domestic Taxes at the Kenya Revenue Authority (KRA), states that “from January 2020, if one operates a salon, butchery, or grocery store, you will be required to declare your sales online and pay the taxes on the 20th of each month.” And for one to get a business licence from one’s county government, one will have to pay an extra 15 per cent of the permit fees to KRA as presumptive tax. In complying to these new demands, Mrs. Meyo further claims, “the business owners will have fulfilled their patriotic duty for a better Kenya”.

Various economic findings acknowledge the substantial contribution of the informal sector to GDP in most developing countries. The informal sector is one of the biggest employers in Kenya, and accounts for over 80 per cent of employment opportunities. It is a shame that attention is turning to this sector only for their moolah, and to bridge the gap resulting from dwindling revenue from the formal sector. According to a Kenya National Bureau of Statistics survey published in 2016, the monthly expenditure on salaries and wages for unlicenced micro small and medium enterprises (MSMEs) was Sh9 billion, which translates to 25 per cent of total outlays a piece.

The neglected informal sector

The colonial market design continues to define the contours of our economy, which conditions us to think of the informal sector as inferior to the formal sector. We still perceive it as “traditional”, marginal or peripheral, having no links to the formal economy and making no contribution to modern industrial development. We have therefore neglected this sector.

Some economists have argued that the informal sector is a dead-end for a pool of labour comprising workers who could not gain entry into the preferred formal sector. Others, like Jeffery Sachs, have even gone to pronounce the informal sector’s obituary, stating that it would cease to exist once Kenya achieves sufficient levels of economic growth and industrialisation.

The informal sector is one of the biggest employers in Kenya, and accounts for over 80 per cent of employment opportunities. It is a shame that attention is turning to this sector only for their moolah, and to bridge the gap resulting from dwindling revenue from the formal sector.

Others see the potential of the informal sector’s small businesses. In his book, The Mystery of Capital (2001), the Peruvian economist Hernando de Soto views these informal businesses as a sign of entrepreneurial dynamism, a real force in the market. They could also be useful in an industrial take-off due to their resilience and ability to withstand market shocks over the long haul, as Shem Watako observed in his doctoral studies of micro and small businesses in Kariobangi.

This hubris in the informal sector has got the taxman’s attention. But the challenge is in how they will implement the TOT. Mrs Meyo identifies this difficulty while responding to why Kenya resorted to TOT for small businesses. She explained that “lack of formal structures and a tax framework that suits the [informal] sector have been major drawbacks in the taxman’s quest to tap revenue from this sector”.

The ethical reasoning of those calling for micro and small-scale businesses to pay taxes as demanded is implausible because it does not raise the second order question. Is it moral to make these demands on the poorest of Kenyan businesses? Is it moral to treat the poor with partiality when the new tax regime would disenfranchise them?

A turnover tax is like a sales tax or a value-added tax (VAT), with the difference being that it taxes intermediate and capital goods. It is on an ad valorem basis (based on the value of the good in question, rather than being flat taxes), applicable to a production process or stage. TOT makes the poor pay another indirect tax, while those whose turnover exceeds Sh5 million pay direct tax, which is a better tax plan for their businesses.

Let us consider a hypothetical case of Nyamulu Beauty  Salon, a business run by Achieng’ in Kariobangi, a low-income area of Nairobi, to illustrate this point. With her revenue turnover of Sh100,000 for January 2020, she would enlist for TOT.

NYAMULU BEAUTY SALON, KARIOBANGI TRADER SCENARIO

ITEM REVENUE/COST GOVT TAXES &LEVIES  
Revenue 100 clients @ 1000                  100,000    
Less cost      
Electricity                    (5,000) VAT +Levies                (901)
Supplies (oils, hair pieces, etc.)                  (30,000) VAT @16%            (4,800)
Rent for stall                  (12,000) Rent Tax @10% Incl            (1,091)
Casual workers 2 @500 a day                  (30,000)    
Mshwari fees[1]                    (5,850)    
County license                    (1,250) county license            (1,250)
Operating Trade Profit                    15,900 Total Taxes & Levies            (8,042)

Assumptions

VAT is standard rated for all goods and services

SCENARIO 1 -TOT
Operating trade profit                    15,900    
Less Turnover Tax                    (3,000) Total Taxes & Levies          (11,042)
Net Profit                    12,900   11.04%

 

SCENARIO 2- Personal Income Tax (PIT)
Trade Profit                    15,900    
PIT -After Relief                          (362) Total Taxes & Levies            (8,404)
Net Profit                    15,538 Effective Tax Rate 8.4%

 

SCENARIO 3 Personal Income Tax and VAT Registered[2] (PIT + VAT registered)
Operating Trade Profit                    15,900    
Add-Input VAT recovered      
Electricity                            664    
Supplies                       4,800    
Net Profit/Taxable Income                    21,364    
PIT – After Relief                    (1,182) Total Taxes & Levies            (3,760)
Net Profit                    20,182 Effective Tax Rate 3.76%

Scenario 3 encourages small traders to register for VAT, which is passed through to consumers; the net effect is increased transparency and increased VAT collection for KRA.

TOT PIT PIT +VAT Reg
Profit                  12,900                  15,538              20,182
Effective Taxes                  11,042                      8,404                  3,760
Effective Taxes% 11.04% 8.4% 3.76%

An alternative tax plan to TOT would give a different result. If the above scenario described her business, then under scenario one, where she paid TOT, her profit would be Sh12,900. Under scenario two, where she pays personal income tax, her profit would be Sh15,538. And if she were registered for VAT and also pays PIT, she would have made profit of Sh20,182.

The individual tax plan would, therefore, be more favourable to the poor income business groups than the TOT. Notice also that her business has contributed indirectly to the government’s revenue by more than Sh8, 042. Then, if subjected to the TOT of Sh3,000, she would have contributed Sh11,042 to the government coffers.

Is it moral for a tax regime to erode the business capital of the poor?

The start-up capital of small businesses usually comes from family resources. This tends to limit the size of the businesses, the number of workers they hire, and the level of profits they generate. So they have a limited amount available to reinvest.

In 2016, the Kenya National Bureau of Statistics found that licenced micro establishments reported spending 45.3 per cent of their net income on investments, either as reinvestment or investing in new businesses and investment in agriculture, while expenditure on household and family needs accounted for 44.5 pervcent. In 2016, small and medium establishments spent a significantly large part of their net income on investment, at 63.4 per cent and 69.7 per cent, respectively.

The erosion of capital from small business via the TOT will delay their growth. Rather, by allowing them to grow capital we would help debunk the notion held by some, including the International Labour Organisation (ILO), that these businesses are doomed to remain small. Yet a significant number of entrepreneurs in the informal sector earn more, on average, than low-skilled workers in the formal sector, according to some studies.

It is immoral to deny the poor a fair chance to compete in the market by imposing a tax on their businesses.

Governments have used taxes to shut out a section of the economy. N. Cheeseman and R. Griffiths (2005)[3] point out that turnover taxes can also be punitive when designed to create a disincentive for buying particular products. They say that environmental regulations sometimes encourage this practice.

Despite the expansive nature of the informal sector, aiming at the bottom end of the pyramid is suspect. We must keep in mind that the current regime is struggling with a debt burden that is uncreative and evil. TOT could be an attempt to cut off informal sector traders from the market. There are 1.3 million micro and small enterprises in Kenya, which, according to a government survey, employed about 2.4 million people – 17 per cent of the total workforce in Kenya – in 2009. They were engaged in the following: close to two-thirds (64.1 per cent) of all enterprises were in the trade sector; retailing made up 62 per cent of all trading in Kenya; manufacturing comprised 13 per cent, while services accounted for 15 per cent.

It is immoral for the government to burden the poor.

In a liberal democracy, argues Prof. Nicholas Wolterstorff of Yale Divinity School, the state should act impartially when distributing burdens and benefits to its citizens. Our government is absent in the lives of poor citizens because of skewed development priorities. The poor live in squalour with children attending overcrowded schools. They have dismal access to healthcare and are the main users of public transport on what is left of roads.

But the government now finds it expedient to tax these businesses operating on the margins of our nation, either in the slums of our cities and towns or in the rural areas. Yet it is through their businesses that low-income households have managed to improve their lot, not through any government subsidies or incentives.

There are 1.3 million micro and small enterprises in Kenya, which, according to a government survey, employed about 2.4 million people – 17 per cent of the total workforce in Kenya – in 2009.

We can use taxes for the public good, to even out the inequalities in society and to provide essential services to all citizens. Eric Nelson, a Harvard professor, explains the idea that the state should coercively maintain an egalitarian distribution of property because it is the business of the state to engage in the redistribution of wealth through taxation, thus ensuring the welfare of the poor; this idea is the genesis of welfare states in many European countries.

Forcing a blanket tax without considering the business conditions of payees is reminiscent of the colonial administration’s hut and poll tax of the 1920s. Then, local leaders and community representatives defended their people against the colonial extortion. Responding to the tax demands, Luo leaders in Nyanza consulted and convened a a general meeting at Lundha in Gem on 23 December 1921. About 9,000 people attended from all parts of Nyanza to discuss the hut tax. During the meeting, Chief Ogada Odera of Gem in Central Nyanza lamented: “As regards our taxes, they used to be 3 shillings. Mr John Ainsworth [the Nyanza Provincial Commissioner in Kisumu from 1906] told us that the amount would be increased to 5 shillings. We agreed. The government then increased it to 8 shillings. It is very heavy. Besides, we do not want our women taxed.”

Forcing a blanket tax without considering the business conditions of payees is reminiscent of the colonial administration’s hut and poll tax of the 1920s.

Chief Ogada made a perceptive comment: “As regards the word colony, the government came here and found us occupying the land and now it calls us ‘wasumbni’ [their slaves].”

Most commentators on TOT have sided with the government’s position and made a virtue of the extortion of poor businesses by calling the tax fair, patriotic, and easy to compute and complete. I think they are misguided. Kamotho Waiganjo reflected this distorted thinking when he commented in the Standard:  “But the government was getting no tax benefit from these businesses…those who operate in the formal sector, and who are therefore in the taxman’s spotlight…cough up 30 per cent of annual profits as tax…businesses in the informal sector means that many of the operators in this expansive sector escape the taxman’s dragnet. Not anymore.”

This assumption – that the poor in the informal sector churn out a considerable volume of revenue but do not contribute to the tax pool – is erroneous. TOT is an indirect tax on businesses and not a tax based on income from business profits. Informal sector businesses already pay other indirect taxes that are levied on fuel, electricity, VAT on their goods and rent taxes collected from rental income. Shouldn’t their cost of goods, business expenses, and other costs also be considered, as they are with formal businesses?

Most commentators on TOT have sided with the government’s position and made a virtue of the extortion of poor businesses by calling the tax fair, patriotic, and easy to compute and complete. I think they are misguided.

Some argue that the cost of compliance is low and that all that these small businesses need to do is record their sales. Those paying turnover tax will not need to worry about tracking their expenses; their tax is only on turnover. They say keeping proper business records will benefits business owners because proper records would help them evaluate their business performance, monitor purchases and sales, and make crucial business decisions.

However, the consequences of eviscerating small businesses would be catastrophic owing to sector’s significance in the economy. It may arouse two major reactions from the poor:

First, if the small businesses sense extortion, they may disappear into thin air. These businesses are supersensitive to extortion by the authorities and would hibernate, adjusting their operations till conditions change. The damage in the wake of their disappearance could be devastating. Mr. Francis Atwoli, the Secretary-General of the Central Organisation of Trade Unions (COTU), warned that further taxation on small and medium businesses will not only destroy the fastest growing sector of the economy but also render many Kenyans jobless.

The 2016 Kenya National Bureau of Statistics survey shows that approximately 400,000 micro, small and medium enterprises do not celebrate their second birthday. Few reach their fifth birthday, leading to concerns about the sustainability of this vital sector.

Second, if poor business owners interpret this tax as oppression, they will revolt. Implementation of TOT will conjure up the pain of the colonial era. The colonial hut and poll taxes became a heavy burden on the people of Kenya in the 1920s. B A Ogot[4] (2009:772) observes that it was made worse by the method of collection, which was ruthless and arbitrary. In Nyanza, the colonial regime collected the hut tax from all huts in a kraal, including the cattle sheds. When many people refused to pay these taxes, the colonial authorities, including chiefs and tax clerks, resorted to brutal methods of collection, ordering policemen, chiefs and sub-chiefs to raid villages, set houses on fire, and confiscate property or food stuff such as grains, bananas and cassava.

Since TOT will eat into the livelihood of these business owners, they will revolt. But the authorities will crush their revolt due to their lack the organisational capacity, unlike the UK’s anti-poll tax groups of 1990. Introducing an unpopular “poll tax” is credited for forcing Mrs. Margaret Thatcher out of office in November 1990. The Green Paper of 1986, Paying for Local Government, proposed the poll tax, which charged a fixed tax per adult resident for the services provided in their community, hence the term poll tax. It was a change from payment based on the worth of one’s house to a resident individual. The tax was, therefore, criticised as being unfair, and needlessly burdensome on those who were less well-off. What followed were protests and riots that prompted the abolishing of the tax following the change of government in November 1990.

What should KRA do with poorer businesses?

The government and the KRA, the implementing tax collection authority, can act morally and avoid hurting small-scale businesses. They can make it a priority to rationalise the informal sector rather than wipe it out through harsh tax policies.

Turnover tax, as currently enacted, is elective. Therefore, qualifying small businesses can opt to register for the standard tax system. This move would allow them to be recognised like other businesses. And with sound records, they may take advantage of comprehensive inclusion rules and a reduction process that requires maintaining proof of expenditure. We should make efforts in aiding small-scale businesses to maintain proper business records and wean them into an alternative tax regime.

The government and the KRA, the implementing tax collection authority, can act morally and avoid hurting small-scale businesses. They can make it a priority to rationalise the informal sector rather than wipe it out through harsh tax policies.

This government should heed the words of Hubert Humphrey, the former US Vice President, who on November 1, 1977, said: “The moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life, the sick, the needy and the handicapped.”

The tinders are there waiting for something to ignite them. If the poor interpret TOT as extortion, we may as well have ushered in days of revolt.

 

[1] Trader uses Mshwari for working capital, interests at 7.5% per month.

[2] Allow Voluntary registration for traders who are below the threshold for compulsory VAT registration.

[3] Cheeseman, N., & Griffiths, R. (2005). Increasing Tax Revenue in Sub-Saharan Africa: The Case of Kenya. Oxford Council on Good Governance, Economy Analysis, 6.

[4] Ogot BA. 2009: A History of the Luo speaking people of Eastern Africa. Kisumu Kenya Anyange press ltd.

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