Salary fix would not end brain drain in Sub Saharan Africa

March 6, 2014

A new report has emerged that sub Saharan African firms faces tougher battles to nurture and retain talent, particularly in the technology sector, amid escalating competition. The most affected are telecoms, local startups and foreign funded agencies. According to the study conducted in more than fifteen countries local executives and industry technocrats have been seek government assistance without any registered success. In countries like South Africa, Zambia, Nigeria and Kenya business leaders interviewed want the relaxation of an employment compensation tax rule. It has been cited as the main reason for brain drain. It is common sense that the less the companies earn, the less they can pay employees and that has lead to loss of core staff and, thereby, corporate competitiveness. This is what companies are striving to avoid. In the latest African countries talent scouting survey, multiple foreign firms are launching a hiring spree in sub Saharan Africa, aiming to increase product development time and beef up their expansion and cements their presence in world’s fastest growing continent.  The effort focuses on new growth engine countries of Nigeria, Kenya and South Africa that have particularly seen western technology firms invest heavily with General Electric said to be pumping $250m in Nigeria, IBM has just set up a research lab in Nairobi to mention but a few.

Clearly, it is almost impossible for local firms to compete with foreign companies given their better salaries, growth potential and employee benefits. Studies conducted in 2012 showed that African firms have a very slim chance of stopping talent drain, as most cannot equal the salary packages of their global rivals, given weaker profitability and much smaller operations. The question is how African countries can create a sufficient talent pool by nurturing home grown talent, retaining that talent and recruiting experts from overseas. Limited resources, local technology companies have been focusing on the old trick of attracting core employees by resuming share and stock bonuses but tax problem are a stumbling block. It has become a fashion for firms in Africa, those who are listed in local securities exchanges are delivering stocks as bonuses and has been an important approach in countries like Nigeria and South Africa because stocks there have usually been performing well for the last couple of years. In countries like Tanzania and Kenya stock bonuses have been seen as a good way to compensate underpaid employee who do not have to pay tax on the bonuses until they sell the stocks but that is bound to change soon when new changes comes into effect where employees will be taxed for the market value of the stock bonuses instead of face value.

However more than 89% of technology firms in Africa still pay bonuses in cash instead of stock to cope with accounting rule of booking stock bonuses as expenses rather than earnings, which is common in Sub Saharan Africa. A friend living in Cape Town South Africa told me recently that its harder to retain talent in Rainbow nation, as employees jump bandwagon right after receiving cash bonuses and that’s why business sector has been agitating for revision to the country’s tax rule to allow employees to pay the income tax after they sell the shares but that has so far fell on deaf ears. In my own opinion, relaxing the tax cannot resolve the fundamental problem of talent shortages in Africa and I don’t know of any country in the world that has achieved that. African firms should focus on fixing the talent retention issue and the best way to achieve that is through higher salaries that always attract the best talent out there although its not the only proven way to keep employees. Research has shown that the problem in African countries, corporate organizations lack vision and innovation are merely importers of ideas and technologies from western world and cut throat competition means most firm’s employees lack hope for any substantial growth potential and that in my opinion has been behind talent brain drain and not salaries or punitive taxes as consultants would want us to believe.

Contador Harrison