Wine and chocolate from the Tax man

[vc_row][vc_column width=”2/3″][vc_column_text]The New York Times online edition ran this breaking news story on Tuesday September 15th this year: “De Blasio to require computer science in New York City schools.” The article explains further, “To ensure that every child can learn the skills required to work in New York City’s fast-growing technology sector, Mayor Bill de Blasio will announce on Wednesday that within 10 years all of the city’s public schools will be required to offer computer science to all students…the goal is for all students, even those in elementary schools and those in the poorest neighborhoods, to have some exposure to computer science, whether building robots or learning to use basic programming languages. Noting that tech jobs in New York City grew 57 per cent from 2007 to 2014, Gabrielle Fialkoff, the director of the city’s Office of Strategic Partnerships, said, “I think there is acknowledgment that we need our students better prepared for these jobs and to address equity and diversity within the sector, as well.”

Bill de Blasio was sworn in as Mayor of New York City on January 1st 2014. It’s still early to comment on the efficacy of his tenure, but it is noteworthy that his goal is to have an educational curriculum that makes his citizenry relevant in the not so distant future, when he will likely already have left office. At the risk of sounding condescending to you dear reader, this is what forward planning looks like. It requires complete selflessness in the sense that you are making policies that will benefit future generations and that have zero positive impact on today’s bottom line. If you ask any employer what a key resource for delivery of their organization’s strategic goals is, they will tell you that it is competent and skilled human capital. And that human capital doesn’t buy skill from aisle 7 at the local supermarket. The academic curriculum in our secondary and tertiary institutions is critical for businesses today and it is imperative that they are regularly reviewed for relevance in a rapidly changing technological backdrop. Let me park this aside briefly.

So I went to visit Moraa at her furniture factory last week. Yes, I did say pax romana on any more entrepreneur-in-Kenya horror stories in last Monday’s column, but I have uncrossed my fingers just this one time after the mind blowing visit. For those of you reading this for the first time, Moraa is one of several insanely committed entrepreneurs whose courage to do business in Kenya, employ citizens and develop a supply chain that generates value as well as impacts more lives is nothing short of admirable. She, and many others like her, try to do legitimate business in Kenya but have had great difficult getting government support in opening new markets or creating an enabling environment for goods to be distributed within the region despite all the chest thumping around “ease of doing business” reforms.
Anway, Moraa has imported state of the art furniture cutting and printing machines in order to make a high quality Kenyan product. I stood in awe as I watched one laser machine print out a beautiful cartoon motif on the back end of a wooden bed resulting in a high definition, permanent image that did not drip or bleed past the edges. She had several other cutting machines that remained unmanned, and when I asked I was told that there was a severe shortage of skilled wood artisans since many polytechnics had converted into universities. On her last jaunt to one of the former polytechnics [I will not say which one, as I’ve realized government agencies take umbrage whenever I talk about them here and are always quick to send me a point of correction. However it is extremely refreshing to see that a) they read the papers b) they are sensitive to public perception of their services and c) they actually do care!] She found that they had some of the latest and very expensive machines that were simply lying idle in the workshop. Having been purchased, there were no trained personnel one to teach the students on how to use the equipment! As entrepreneurs always turn a challenge into an opportunity, Moraa’s next goal is to see how she can create a technical institute to train wood artisans, as she needs some for her own factory and envisages that the growth opportunities in the industry will continue to drive demand for this skilled resource.

Back to the curriculum discussion: How often do our public universities meet with industry and determine whether the output in the name of graduating students meet the needs of employers today? I recently saw an advertisement in the newspaper calling for public participation in the much-needed review of the 8-4-4 curriculum which is a wonderful initiative. My two cents worth from my well worn armchair: Have a two year course run in form 3 and 4 that teaches students how to run a business and ensure that it is project based rather than theoretical. It will assist a) those students who don’t necessarily want to pursue university studies and b) will ensure that those students who eventually end up working in government get a good sense of what it takes to be an entrepreneur which should guide their future policy making of today’s current buzz word: “ease of doing business”. Of course all this is futuristic, like Bill de Blasio’s dreams of a tech driven culture in the New York City post 2030.

On a happier note, staff from Kenya Revenue Authority visited Moraa last week. They came bearing gifts; a bottle of wine and a beautifully wrapped box of chocolates as part of their customer care week thanking tax compliant businesses. When she managed to scrape her jaw off the floor in shock at the friendly and very engaging visit, she shared the incredulous story. My jaw, not surprisingly, is still on the floor. When government works, it works well! Nice touch KRA!

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Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Angel Investors as Key Drivers of Entrepreneurship

An angel appears at a board meeting and tells the chairman that in return for his unselfish and exemplary behavior, the Lord will reward him with his choice of infinite wealth, wisdom, or beauty. Without hesitating, the chairman selects infinite wisdom.
“Done!” says the angel, and disappears in a cloud of smoke and a bolt of lightning.
Now, all heads turn toward the chairman, who sits surrounded by a faint halo of light.
One of the directors whispers, “Say something.” The chairman sighs and says, “I should have taken the money.”

Earlier this month I attended the G-20 Global Partnership for Financial Inclusion, which held a workshop on Financing Entrepreneurship Innovative Solutions in Izmir, Turkey. Turkey currently holds the G20 Presidency and therefore its government played a pivotal role in the organization of the successful of the workshop. One of the panelists was a well-known Turkish entrepreneur, angel investor and author, Baybars Altuntaş, who impressed the audience with his vocalization of tax incentives that the Turkish Government provides to angel investors. I pulled Baybars to the side during a coffee break and asked for more details. Once a person has registered as an angel investor, he is allowed to net off up to 75% of his investment in the start up company against his income tax payable in the year. In other words, a tax holiday of up to 75% of your investment! Baybars added that angel investors tend to get together and pool their funds to reduce the risks as the success rate for their investments was only typically 10%. “Why would one invest money in start ups if only 1 in 10 initiatives succeed?” I quizzed. Baybars smiled the smug smile of the wealthy and responded, “Because the returns from that 10% will make you more money than the losses on the 90%!” I walked away, scratching my head and realizing why my risk aversion would leave me a pauper for the rest of my life.

Angel investment is the provision of financial capital to newly established or growing companies which have novel business models or technologies with high potential for growth and profit but are unable to find eligible financing resources to realize their investments.

Recognizing the inherent benefits that angel investors would provide through entrepreneurial seed capital support as well as stimulating economic growth through job and value creation, the Turkish parliament passed the “Regulation on Angel Investment” law in June 2012 and the Treasury promulgated the enabling legislation in February 2013. The rationale behind the law is to promote the financing of small enterprises and entrepreneurs by providing tax incentives to angel investors. According to a PwC Turkey Asset Management Bulletin, in order to benefit from the tax reliefs provided in the law business angels first have to obtain a license from the Treasury. The business angel cannot directly or indirectly be a controlling shareholder of the qualifying company that it wishes to invest in, neither can the qualifying company belong to his relatives. A qualifying company should, amongst other criteria, be a registered company in accordance to Turkish company law with a maximum of 50 employees and net assets of not more than TRY 10 million (Kshs 354 million). If the business angels participate in qualifying companies whose projects are related to research, development and innovations then the applicable tax incentive is 100% instead of 75%. This is where it gets interesting. In order to get 100% tax relief those activities have to have been supported in the last five years by the Scientific and Technological Research Council of Turkey, Small and Medium Enterprises Development Organization and the Ministry of Science, Industry and Technology. The tax reliefs are applicable until the 31st of December 2017 making it a 5-year program, but the Cabinet can authorize the extension of the date by another five years. Shares acquired by the angel investor have to be held for at least two years and the minimum investment is TRY 20,000 (approximately Kes 700,000) and a maximum of TRY 1,000,000 (Kes 35 million) annually.

So let’s bring this concept home. Imagine if the Kenyan government picked four key economic areas that they wanted to drive with the help of the private sector. Let’s say agriculture, health, technology and education. Then the government wakes up to the fact that they can’t be all things to all people, and that they need to leave the business of business to the best people suited to do it: business people. They then assume that it’s far better to allow a business person to take a risk on an entrepreneur as the business person has a) a much better nose for sniffing out and recognizing good opportunities, b) years of experience in making and losing money therefore an appreciation for and recognition of risk, c) business experience the kind of which they don’t teach in business school leading to mentorship and d) his very own money which defines his skin in the game. The same Kenyan government would then ensure that the business angels’ interests are aligned to the strategic objectives of the relevant ministries for the four key areas. Rather than allocate funds in totality to the Women and Youth Funds, re-route a portion of those funds to backstop a tax incentive program for Kenyan business angels. The benefits hardly merit articulation due to their sheer obviousness. The Government will distribute the risk of repayment from their annual budget allocations to the Women and Youth funds by providing an alternative mechanism for reaching those same stakeholders in a credible, efficient manner that provides the extra flavor of mentorship as well as stronger linkages between the existing business community, women and the youth. Finally, it allows for a wider tax bracket to be formed since, by requiring investees to be formalized legal entities, the investee companies enter into the taxation realm. It shouldn’t take a little wisdom from heaven to permit business angel investing to become a government driven entrepreneurship initiative.

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Twitter: @carolmusyoka