Think and act for entrepreneurship in Africa

competitiveness

Acceleration programs: a miracle solution for early-stage companies? (2/2)

In recent years, “acceleration” programs have proliferated on the African continent. What lies behind this trendy concept? What does an acceleration program bring to a company? After having explored the…

In recent years, “acceleration” programs have proliferated on the African continent. What lies behind this trendy concept? What does an acceleration program bring to a company?

After having explored the different facets of acceleration programs currently deployed on the African continent in a first article (available here), we will focus here with a practical case study of a company benefiting from an acceleration program, with a joint-interview of Mohamed Diaby and Ybrahim Traoré, CEO and co-director, respectively, of Citrine.

Founded in 2014, Citrine Corporation is a company based in Grand-Bassam, southern Côte d’Ivoire, specializing in the production and marketing of Zatwa brand agricultural products in the sub-region, Europe and the United States.

Like many young African companies, Citrine has had great difficulty accessing “traditional” financing (bank loans, equity investments, etc.). However, since 2020, the company has benefited from the I&P Acceleration program in the Sahel (IPAS), which has provided financial resources (seed funding in the form of a repayable advance to meet operating expenses, pilot phases, market testing, research & development, equipment purchases), as well as technical support to strengthen the team’s skills in various areas.

 

What is your business plan ?

Mohamed Diaby : From the very beginning, our intention was to promote the local dishes and cultures from the southern region of Côte d’Ivoire, where we both come from.

Ybrahim Traoré : Our ambition was also to show young Africans that you don’t need to leave the country to succeed. Starting a business and creating jobs is a way to deal with the problem of clandestine migration, which is occurring in several African countries. This is why our business is not limited to import-export: we ensure not only the marketing phase but also the production phase of cereals, fruits and vegetables, such as placali and attiéké, which are produced in the Grand-Bassam region and widely consumed by Ivorians in Côte d’Ivoire and abroad. We have also created our own brand, Zatwa Impex.

 

How did you come up with this idea?

M. D. : We met at the university during our graduation cycle. To complete our degree, we needed to find a work-study program, but we chose to go directly into entrepreneurship.

We thus started this project based on the following observation: the entire distribution circuit of African products and foodstuffs (attiéké, smoked fish, etc.) was run by non-African communities. In France, for example, these grocery stores are owned by the Asian community. We thought this was a shame… and that’s how the journey started.

Y. T. : We didn’t intend to only produce and sell attiéké but also to guarantee the quality of the products put on the market. The company is doing well. When we started, we had about ten employees, 90% of whom were women. Today, we have about 60 permanent jobs and we employ up to 100 people during the production period.

 

Your company has been supported since 2020 by the I&P Acceleration in the Sahel program. What does this partnership bring you ?

M. D. : I would say many things! We had approached the Ivorian fund Comoé Capital a few years ago, but we were not quite ready yet. The opportunity for partnership arose thanks to the launch of the I&P Acceleration in the Sahel program, led by Investisseurs & Partenaires and financed by the European Union.

Today we owe a lot to the team that follows up and gives us very useful advice. I&P and Comoé Capital helped us to carry out our market study on cassava products (such as attiéké and placali mentioned previously) which allowed us to confirm their sales potential, in Côte d’Ivoire and with the African diaspora (from Congo, Niger, Ghana, Benin…), who also consume a lot of cassava. Then, the program allowed us to increase our production capacity with the help of production equipment (ovens, machines, packaging, a crusher, raw materials).

Y. T. : The program’s support also allows us to lighten the workload of our staff. Our employees work full time but produce much more. They can now produce two containers in a month, instead of one. The workload is less tiring but they earn a lot more because it gives us the opportunity to increase their wages. They rely heavily on us and on their job because it helps them support their family needs.

Thanks to the I&P Acceleration program, we have been able to expand our production capacity with a lighter, less tiring workload for our employees and a higher salary to boot.

 

What’s next ?

Y. T. : The program’s support will help us tackle environmental issues. For example, we are going to benefit from a technical assistance mission* for the recycling of waste. We will be able to recover and transform cassava skins and starch into bio-gas.

M. D. : In the medium term, we’d like to consolidate Citrine’s position on the local market. It is important for us to strengthen the sale of our products in markets and supermarkets and contribute to food security in Côte d’Ivoire.

L’appui du programme nous permet de nous attaquer aux questions environnementales. Nous bénéficions d’une mission d’assistance technique pour mesurer l’efficacité de toute notre chaîne de production.The program’s support allows us to address environmental issues. We have a technical assistance mission to measure the efficiency of our entire production chain.

 

 

Keywords

Acceleration: Mentoring, financing or networking services provided by private actors (investment funds, incubators, etc.) and financial backers to small businesses to support them in their start-up phase.

Seed: All the resources granted to a company to meet the expenses related to its start-up (working capital, operating expenses, research and development, purchase of equipment and technologies) and to prepare it for fund-raising.

Technical assistance: All non-financial resources granted to the managerial and/or operational teams of a company to strengthen their skills in several areas (strategy, financial and/or fiscal management, marketing, production, etc.). Generally, technical assistance takes the form of training (individual or collective) or support missions carried out by an expert

 


[1] I&P Acceleration in the Sahel, launched in 2020, is a program deployed by the Investisseurs & Partenaires group and funded by the European Union. The program targets 13 countries in the Sahel sub-region and provides start-ups with access to the financing and skills necessary to enable their development and thus promote the creation of decent jobs.

[2] HACCP (Hazard analysis Critical Control Point) is the main platform of international legislation concerning manufacturing for all actors of the food industry. The HACCP aims to validate the implementation of the food safety system.

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Are mobile phone operators overtaxed in Africa?

A tax on internet voice calls such as WhatsApp, Skype, and Viber triggered massive protests in Lebanon, which brought down the government a few months later. Several other countries, especially…

A tax on internet voice calls such as WhatsApp, Skype, and Viber triggered massive protests in Lebanon, which brought down the government a few months later. Several other countries, especially in Sub-Saharan Africa (Uganda, Zambia, Kenya), have raised or tried to raise (Benin)[1] similar taxes. These experiences reflect the difficult choice of States torn between their desire to take advantage of new opportunities for tax revenue while preserving the dynamism of activity and the level of acceptability of telecoms taxes.

In fact, the telecoms sector is one of the most dynamic economic sectors in Africa and still displays significant growth potential. In 2017 subscriber penetration remained low, at around 45% on average in Africa, compared to more than 60% in other developing countries (GSMA intelligence, 2018). These figures suggest that the catch-up is continuing and there is still significant growth (Cariolle J, 2021).

Telecommunication participates in the economic development of countries by reducing transaction costs and improving market efficiency (Aker and Mbiti, 2010).

Where should we place the cursor between promoting economic activity through fiscal measures and collecting tax revenue for public funding purposes? What design should be implemented for this taxation, which today often takes the form of specific taxes[2], like those usually used for alcohol and tobacco?

What should be the level of taxation on mobile phone operators?

In the economic literature, two approaches exist. For some, the limited number of telecommunications operators would allow them to benefit from their operations[3]. Following this logic the tax regime applied to telecommunication should follow the same schema as applied to the extractive industries, thus including, in addition to taxes under the ordinary law regime, special taxes such as mining royalties, surface royalties, or even rent tax, which would enable States to capture a share of the rent.

For others, telecommunications operators participate in the bridging of the digital divide and thus the development of many other sectors of activity, thus justifying potential tax incentives.

With the app https://data.cerdi.uca.fr/telecom/, we were able to estimate the tax burden on the mobile tele­communication sector in 25 African countries.[4] This tax burden encompasses not only standard and special taxes under the control of the Ministry of Finance (MoF) but also fees raised by the national telecommunication Regulatory Agency (RA). We compute the Average Effective Tax Rate (AETR) for a representative mobile network operator, which we call TELCO, using the GSMA Intelligence database.[5] The Average Effective Tax Rate (AETR) represents the share of taxes paid by TELCO in what it produces as cash flow during its operating licence.[6]

The AETR ranges significantly across the 25 countries from 33% in Ethiopia, 35% in Morocco, 97% in DRC, to 118% in Niger with an average of 64%. Ethiopia is an outlier of our sample since the liberalization of its telecommunication sector has not yet been done. Special taxes and fees represent a large share of the AETR illustrating some taxation by regulation and a potential tax competition (a race to the top) between the MoF and the RA.

Telecommunication is generally more taxed than the mining sector.

We compare the AETR of TELCO to that of a representative gold mining firm and a standard firm with similar gross re­turn over the period. The tax burden of the tele­communication sector is higher than that of the mining sector in 15 countries out of the 19 countries for which we have data on the gold mining sector.

The Average Effective Tax Rates of a mobile phone operator, a gold mining project and a standard firm:

Source: Authors.

 

The AETR in the gold mining sector ranges from 31% in Nigeria to 72% in Chad. The average value of AETR is around 46% for the gold mining sector versus 68% for the mobile phone sector. In several countries, the special taxation on telecommunications alone is higher than the total tax burden applied to the mining sector. However the mining sector remains more taxed than a standard economic sector, except in Nigeria.

Higher AETR is associated with lower market penetration and lower Gross National Income (GNI) per capita.

These results are mainly driven by special taxes and fees (Rota Graziosi, Sawadogo, 2020).

AETR and market penetration:

Source: Authors.

 

As well as the level of taxation measured through AETR the form of taxation matters in terms of revenue and telecommunication development. Telecommunication RAs can raise distortionary taxes or fees, as Hausman (1998) emphasized in the case of the US Telecommunication Act of 1996. Alternatively, these correlations may also illustrate that countries with more mobile phone penetration rely less on special taxation. This relationship could result from the more powerful lobbying of MNOs in these countries.

Thus, in most countries on the African continent, the tax burden on the telecommunications sector is much heavier than that on the gold mining sector and on the standard sectors of activity without special taxation. This is a counter-productive practice that must be stopped.

To go further: https://data.cerdi.uca.fr/telecom/

 

[1] The Lebanese government’s Decree 218-34 of July 25, 2018 introduced a tax on the use of social media at a rate of 5 FCFA or equivalently US$ 0.009 per megabyte. Online and street protests pushed the government to cancel this tax a few month later.

[2] The tax is specific when its base is a quantity (e.g. minutes, megabyte…).

[3] However, a limited number of competitors does not systematically lead to an income, as shown by the classic case of Bertrand’s duopoly. This would imply that there is a tacit collusion between telecommunications operators and a failure in the processes of regulation of the sector.

[4] We study 25 African countries: Algeria, Angola, Benin, Burkina Faso, Cameroon, Chad, Cote d’Ivoire, DRC, Egypt, Ethiopia, Kenya, Gabon, Ghana, Guinea, Madagascar, Mali, Morocco, Niger, Nigeria, Senegal, Sierra Leone, South Africa, Tanzania, Tunisia, and Zambia.

[5] Our approach is close to Djankov et al. (2010) and the Doing Business Report of the World Bank for standard economic activity and the Fiscal Analysis of Resource Industries of the International Monetary Fund for mining and petroleum project.

[6] The cash flow considered here is the pre-tax cash flow corresponding to the difference between turnover and operating and investment expenses.

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Digitalization: a solution for sustainable development?

Digitalization can contribute to the economic growth of developing countries, particularly by promoting private sector development and financial inclusion.

Digitalization can contribute to the economic growth of developing countries, particularly by promoting private sector development and financial inclusion.

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Botswana, a dazzling trajectory

The assessment of the sources of attractiveness through the prism of the SCO reveals, despite some geographical handicaps (isolation and aridity of the territory), that Botswana has good governance, strong…

The assessment of the sources of attractiveness through the prism of the SCO reveals, despite some geographical handicaps (isolation and aridity of the territory), that Botswana has good governance, strong human and financial capital, and the infrastructure to stimulate a diversification that will reduce structural dependence on diamonds.

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Mauritius, when the impossible becomes reality…

The Sustainable Competitiveness Observatory (SCO) ranks Mauritius’ attractiveness as the leading African country in 2016, just behind China. The small archipelago of the Indian Ocean does better than South Africa…

The Sustainable Competitiveness Observatory (SCO) ranks Mauritius’ attractiveness as the leading African country in 2016, just behind China. The small archipelago of the Indian Ocean does better than South Africa (2nd) and even more surprisingly better than Brazil and India.

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