Effectiveness of investment funds: Fonsis calls for a more incentive tax and regulatory framework

In a context marked by significant financing needs, investment funds appear to be a relevant alternative. However, adjustments seem necessary to the legislative framework, for greater efficiency. This is the analysis of the general director of the Sovereign Strategic Investment Fund (Fonsis), Babacar Gning.

In Senegal, the development of investment funds remains hampered by an unsuitable legal and tax environment. This is the observation made by Babacar Gning, general director of the Sovereign Fund for Strategic Investments (Fonsis). He spoke on Friday January 30 during a meeting with the economic press. For Mr. Gning, structural reforms are needed to encourage the emergence of local investment funds capable of sustainably supporting the private sector, in particular SMEs and SMIs.
Today, he points out, very few investment funds are domiciled in Senegal or, more broadly, in the UEMOA zone. “Most of the funds you hear about are domiciled in Mauritius, Luxembourg or the United States,” observes the CEO of Fonsis. In his view, this situation is explained by the existence in these countries of clear legal frameworks and tax incentive schemes, offering both legal certainty and tax attractiveness to investors.
In detail, the CEO of Fonsis touches on the “double or even triple taxation mechanism, which heavily penalizes activity”. In the current scheme, underlines Mr. Gning, “companies financed by the funds pay corporate tax on their profits before paying dividends to the funds, which are themselves taxed. When these funds then redistribute the income to their own investors, new taxation occurs.” “We have done simulations which show that the level of taxation is prohibitive,” he explains.

Massive financing needs for SMEs

Conversely, in leading financial centers, the principle of fiscal transparency prevails: the company is taxed, but the financial flows passing through the fund are not taxed again, in order to avoid any distortion. “Fonsis is working closely with the State to put in place a more attractive legal and regulatory framework, capable of attracting both national and international private investors,” he assures.

Faced with the needs of the Senegalese economic fabric, efforts remain insufficient. The four investment funds, set up by Fonsis and dedicated exclusively to Senegalese companies, represent approximately 85 billion FCfa mobilized. An amount still far from covering needs in a country where SMEs represent nearly 99.8% of the economic fabric. This is why Babacar Gning considers it urgent to multiply the sources of capital financing, in particular with more modest tickets, adapted to the realities of the informal sector and small businesses whose needs often amount to tens of millions rather than billions.

Oumar FÉDIOR