Understanding the financial challenges of paying for travel in Africa and the Middle East
Africa’s reputation as one of the most challenging places to do business often precedes it, with bureaucracy, corruption and a plethora of ever-changing regulations coming to mind.
The Middle East, on the other hand, does not at first seem like a difficult place in which to operate.
However, what both locations have in common are sets of complex and restrictive rules and legislation when it comese to finance, invoicing and payment.
For any organisation, finding a travel management service that will deliver value can seem like a tough task – when you add the requirement that a TMC must be experienced in the energy sector, that task becomes even more challenging. So imagine the difficulties that some organisations within the energy sector discover when trying to procure travel management across the continent of Africa.
When procuring travel services in certain African countries, energy organisations may be required to commit to spending a specified amount with local suppliers due to strict localisation policies. In turn, this can limit the choice and flexibility that is so valuable to the energy sector, where agile travel itineraries can be the difference between a successful crew change and costly project extension.
Moving money out of, or around, Africa has long been challenging but has become even more so due to localisation legislation. For example:
- South Africa operates a system of exchange control over the flow of money into and out of the country
- Mozambique and Angola implement frequent black-out periods during which no money can leave the country
- Namibia, Nigeria and Angola all operate compliance regulations regarding the use of and spend with specified suppliers
Which rules apply can vary due to your residency, location and history – the only practical way to navigate this is to seek expert advice.
Energy organisations operating in Africa need to consider the potential tax treatment of their transactions upfront. Planning for a withholding tax liability allows for certainty regarding the tax liability associated with any commercial transaction.
Withholding tax is applied to any service fee for services rendered in a specific African country. The current trend seems to be to introduce or increase these taxes. Failure to withhold or pay these taxes to could result in the person that is required to withhold the tax being personally liable for the tax. In addition, penalties may be levied
in certain instances for the failure to withhold or to correctly withhold.
In order to benefit from withholding tax, energy organisations should seek out TMCs that allow the client to pay in local currency – a service that is not always easy to find.
The key to finding solutions
Although the financial challenges of operating an energy organisation in Africa seem complex, the solution seems relatively simple in comparison. Everything rests on the location and geographical spread of your chosen TMC.
The more African countries that your TMC has a presence in, the better they will be able to fulfil your billing requirements while remaining compliant and up-to-date with differing localisation policies. An established presence in as many African countries as possible will enable your organisation to:
- uphold any promised procurement value in specific regions
- save on charges such as withholding tax
- benefit from local and multiple currency billing to overcome limits on the repatriation of funds
- report on all spend in real time, irrespective of currency