Tax policies and developments affecting foreign portfolio investment in sub-Saharan Africa

Despite the increase in nonofficial cross-border capital flows to sub-Saharan Africa following the 2007/2008 global financial crisis, the region is still receiving a limited amount of foreign portfolio investment (FPI) compared to other developing markets. This paper seeks to explore the factors explaining sub-Saharan Africa’s lack of FPI and what measures could be implemented to encourage FPI in the region. The key takeaways of this paper are: • Tax structures have been identified as one of the key impediments to FPI in Southern Africa. Although various sub-Saharan jurisdictions exempt capital gains on the disposal of listed shares from tax, significant withholding taxes are generally levied on dividend and interest payments to foreign investors. • Mauritius, a popular hub for African investment, has recently been under the spotlight with a number of sub-Saharan African jurisdictions terminating or amending their tax treaties with the country or introducing domestic antiavoidance measures to combat perceived treaty shopping. This is expected to have a negative impact on investment flows through Mauritius. In addition, coronavirus disease-19 relief measures introduced by sub-Saharan authorities focus on safeguarding local businesses and foreign direct investment rather than FPI. • The quality of governance is also a significant factor in attracting net portfolio inflows, and there is a clear need in sub-Saharan Africa for simple, efficient tax systems and appropriate tax incentives to support investor-friendly policies and encourage and stimulate FPI.