Is Revenue Assurance Vital to African Development?

I promised myself I would not mention Brexit on Commsrisk. The UK vote to leave the European Union is a great example of how risk management needs to be so much more than the automated analysis of corporate data, but too many people get emotional about the subject. Their emotions cloud their judgement. So I can do without stirring up the hornet’s nest of Brexit, although our tendency to rely on emotions when making decisions is another good reason to invest time and money in the objective discipline of risk management. However, it is now appropriate to mention Brexit because of a seemingly unrelated story that keeps being repeated in various guises around Africa. “Revenue assurance” is increasingly used as a shorthand for imposing the same kinds of international trade barriers that were a key talking point during the UK’s recent referendum campaign, and which are increasingly discussed in US politics too. And if there are good reasons not to mention Brexit on Commsrisk, there are also good reasons why revenue assurance must not become associated with just one side of political arguments about international trade.

Consider the following story from IT News Africa:

African countries can achieve their sustainable development goals by 2030

…In pursuing equitable growth, digital solutions like the Internet of Things and robotics can help bring almost USD 1 trillion in economic benefits to industries from smart manufacturing and smart logistics.

In terms of protecting the environment, digital solutions could enable the reduction of greenhouse gas emissions and drive market transformation for renewables, cutting carbon emissions by about 20% in 2030…

In summary, the article begins with a very high-level overview that explains what sustainable development is, and sketches some methods to realize the goal. There is no detail, only a big fuzzy emotionally uplifting picture of a brighter, better Africa. But the article changes dramatically half way through. One particular “ICT technology” is given peculiar attention. In short, we get told that revenue assurance provides an important contribution to sustainable development.

… Where governments were once the primary source of development assistance, today the private sector, civil society, academia and donors are all working together to discover, fund and scale up innovative solutions for long-term development challenges. Some of these solutions have already resulted in transformative innovations that have improved development outcomes. Building the skills and ecosystem to participate in the fast-growing digital economy is probably one of the most powerful drivers for future employment and economic prosperity.

The recurring themes in all this are clearly innovation and collaboration and this is where a global expert in revenue-assurance and ICT solutions like Global Voice Group (GVG) can assist. GVG has developed innovative solutions that enable real-time data-driven governance supported by highly reliable and effective data systems. These innovative systems allow governments, through their respective agencies, to monitor different sectors of the economy in terms of regulatory and tax compliance optimising the collection of surcharges, taxes, levies or any other contributions due to government.

Excuse me? How did we get from the benefits of promoting greater use of ICT in general to signing a contract with GVG to do revenue assurance? I like revenue assurance, but that is like leaping from a proposal for universal internet access to dictating which browser I must install on my laptop.

The rest of the IT News Africa article is an advert for GVG. It claims that clever use of ICT by GVG has enabled several governments “to create new revenue streams of nearly USD 1.5 billion to finance their development projects”. But that is a misleading statement. These governments did not find “new revenue streams”. They raised money from taxes. They may have spent that money on development, or not. Maybe they bought guns and ammo with the money. There is nothing new about the concept of governments raising money by taxes, and no real control that says money raised from tax A must be spent on objective B. Either the governments taxed businesses or they taxed individuals, but either way their revenue comes from those being taxed. All GVG did was to help governments collect the tax that was due, mostly by analyzing telecoms traffic. Whilst tax evasion may be harmful, it does not follow that encouraging governments to raise taxes is always beneficial to a sustainable economy.

When we talk about tax evasion in African telecoms the biggest single subject is international termination fees and the bypass of those fees. So what is an international termination fee in effect? It is a trade tariff. It is a fee imposed by a telco, or by a government, on the movement of somebody’s voice across an international border.

The parallels to the Brexit argument should now be plain. The population of a country should have a view on whether free trade is good for them or not. They have opinions on taxes. A decision about whether to impose a trade tax should not be disguised as a new source of money from the innovative use of ICT. Revenue assurance may improve tax collection, but it does not pull magic money from thin air. Somebody else must have made that money first, in order to be taxed.

I know people could argue that termination fees are necessary to reimburse telcos. The telco which receives a call has made a significant capital investment that is not easily linked to the cost of a single call. But we also know the cost of a termination fee is often set artificially high because the paying customer has no choice but to suffer that fee in order to speak to the person they dialed. A monopoly position can be abused, and the potential for abuse is greatest when the government sanctions a monopoly on all inbound international traffic. There is no doubt about the exploitation of the paying customer when the government takes a tax as part of that termination fee. Did the government do something useful to make the call happen? Hardly. They took the tax because it was a convenient way for them to raise money, and because the taxpayer in this instance is unlikely to be a citizen of their country, so cannot vote against it.

There will be different political opinions when it comes to the advantages and disadvantages of trade. Some people, like supporters of Bernie Sanders and Donald Trump in the USA, are more inclined to impose trade tariffs and other barriers to trade. They say this is necessary to protect the people of their country. Others prefer free trade, and want to minimize the obstacles. They believe the advantages of free trade in terms of encouraging economic growth and lowering the costs paid by customers will outweigh the harm done to those who cannot compete with international rivals. This topic is central to many arguments for and against the European Union. During the recent campaign some believed that the priority for the UK should be ensuring it can trade freely within the EU. Others argued that the EU imposes unwelcome barriers to trade with countries outside of the EU.

It is not the job of Commsrisk to provide a single sweeping conclusion about whether countries should impose tariffs on international trade. But nor is that the job of GVG or anyone else working in telecoms revenue assurance. GVG and the writer of this article were doing just that, though they omitted so many details about what revenue assurance really is, and what GVG really does, that few readers will have understood the connections. Good professionals should not influence public debate this way.

The Brexit campaign resulted in some overdue discussion of the impact of UK and EU trade tariffs on development in Africa. For example, a noted libertarian argued that EU tariffs disproportionately hurt the development of African economies. Following the vote, a former government minister wrote a thoughtful article that argued that a post-Brexit UK should lower trade tariffs in order to encourage more imports from African countries. One paragraph is especially relevant:

…the highest tariffs which poor countries face are invariably those imposed by their equally poor neighbours. These tariffs repress trade and boost corruption. We must help them replace customs duties by supporting governance reforms that boost other sources of revenue. One reason governments of the poorest countries impose such high tariffs is that they are a relatively simple source of revenue to collect. It is ultimately up to developing countries themselves to decide whether to move away from reliance on levying high tariffs particularly at their borders with their neighbours. However, donor countries can and should encourage them to do so by offering technical assistance in building up alternative domestic sources of tax revenue, by offering aid to make good lost revenues while this transition is being made, and by not insisting that the reduction or elimination of tariffs on imports from neighbouring countries is matched by any similar reductions in tariffs on imports from the first world.

Hopefully this paragraph has clarified why the debate about revenue assurance in Africa should be treated as part of a wider debate about international trade. Would Africa benefit if rich European countries decided to increase the cost of calls from Africa to Europe? Obviously not. So why is every decision to increase the cost of calls terminating in African countries presented as a benefit to the whole of Africa, with no downside to anyone living there? Kenyans phone Egyptians. Ethiopians phone Angolans. The tax collected in one African country is often paid by an African in another country.

Trade tariffs affect the volume of trade, whether we are talking about physical goods being driven through a customs checkpoint or bits carried by an optical cable which straddles a border. You cannot do business with somebody in another country if you cannot deliver the goods to them or if you cannot communicate with them. If countries want to erect barriers they have the right to do so, but their people should make informed decisions when choosing their government. Articles like the one found in IT News Africa present an emotionally uplifting story about technology and prosperity, but they fail to provide vital information that helps people to understand important policy decisions. Revenue assurance only delivers “new revenue streams” to governments if tariffs are being imposed in the form of a tax on the termination of international calls. The higher the tariff, the greater the revenue, and the greater the opportunity for GVG. But that also discourages calls, which discourages trade, which discourages growth. The author of the IT News Africa article did an incompetent job by not linking the two, and by failing to discuss the pros and cons on both sides.

My worry is that revenue assurance is now increasingly being identified with the imposition of international trade barriers. Whilst at WeDo’s Lisbon summit I was asked a question by an audience member who wanted me to say governments and regulators should impose more revenue assurance obligations on telcos. I dismissed the question as politely as I could, because I no more believe that governments and regulators should tell private businesses how to maximize profits than I believe they should tell me how to tie my shoelaces. At the time I failed to perceive the motivation behind the question, but now I see it differently. I fear the questioner had been influenced by the kind of marketing pushed by GVG and other firms who sell RA services in Africa. Those firms, in cooperation with governments, push a relentless message that they could collect a lot more money which would be used to boost the national economy. However, they fail to explain how the amount collected by the government will depend on tax rates, tax collection, and combatting tax evasion. Often they hint that huge amounts will be made because all telcos cheat their taxes.

The increasingly skewed description of revenue assurance is exemplified in this piece about the opinions of the top student body in Nigeria.

NANS calls for speedy passage of Communication Service Tax Bill

The National Association of Nigerian Students (NANS), has called for the speedy passage of the Communication Service Tax (CST) bill currently before the National Assembly.

NANS’s President, Tijani Shehu, who briefed newsmen on Wednesday in Abuja, said that the bill which is before the Senate, aimed to take a little from the rich and give to the poor…

…Shehu noted that trillions of naira had been lost as a result of under remittance from telecom companies since there is no statutory method of confirming the actual tax due to the government.

“Note that these trillions hitherto netted in other countries via automated tax collection system is completely absent in Nigeria and that is what CST is designed to legitimately introduce.

“The CST Bill provides for the Federal Government through its agents, to attach revenue assurance software and hardware at the billings systems of telecom companies as done world over…

…The NANS president said that MTN, GLO and AIRTEL were already complying with the CST in Ghana and other African countries where they operate.

In how many countries do university students issue press releases about revenue assurance?! This Nigerian student cites the example of Ghana, showing how trade tariffs are being promoted from one African nation to the next, under the guise of implementing revenue assurance. I may have bored some Commsrisk readers by writing about Ghana so much, but that country has set a precedent which is altering the meaning and purpose of revenue assurance for other countries too. A promise of fabulous RA riches is being conveyed to ordinary Africans. This gives them a distorted view of what revenue assurance is. Ghana is the country which talked and talked and talked so much about the vast amounts of money they intend to make from revenue assurance that they ended up having a public fight over which government agency is allowed to chase that money. But it is not correct to present such taxes as ‘taking a little from the rich and giving to the poor’. Poor people want to use telephones too, and they also get hit by these taxes. The poor do not benefit if the economy is weak because taxes have stifled trade. And African economies will not benefit overall if the price of calls go up solely because each government is under pressure to raise termination fees to match those imposed by their neighbors, and to deliver the promised ‘trillions’ of new revenues.

I really do not want to host a debate about the merits and faults of international trade on Commsrisk. The subject is complicated. People are entitled to their opinion. It is up to you to decide if you agree with politicians like Bernie Sanders and Donald Trump, or if you side with those Brexiters who wanted free trade outside the European Union. But whether we work in London or Lagos we have a duty not to misinform the public. Revenue assurance can be implemented to police taxes. Our tools and techniques can do a good job of policing those taxes, and to counter tax evasion. But we should not encourage taxation just because we could profit by selling ourselves as tax policemen. That would be like imposing new laws just so a policeman can collect a higher bonus for catching more criminals.

Revenue assurance is being used to justify the imposition of new and greater trade tariffs, without serious analysis of who will pay those tariffs, how much money might be raised, or the wider impact on the economy. It is not for revenue assurance practitioners to perform that analysis, and certainly wrong for them to perform a partial analysis that only talks about the revenues they might collect, as if the money comes from nowhere. Firms like GVG need to shut the hell up instead of promising they will ‘reduce dependency on foreign aid’ and ‘enable true progress’ towards sustainable development. They are guilty of manipulating the emotions of ordinary Africans for selfish ends. RA practitioners are not economists, and they overreach when making wild and one-sided claims about the economic benefits that flow from their work. It is fine for governments to employ RA specialists in order to better collect tax that is owed. It is wrong for RA specialists to mislead the public in order to selfishly influence the trade and tax policies of governments.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.