FINANCES : THREE PLACES TO DREAM OF BECOMING SINGAPORE IN AFRICA

Kigali Conference Centre

By Amol Rajput

Landlocked country with few natural resources, Rwanda has no clear path to wealth. However, its capital, Kigali’s new international financial center, provides clues to the government’s strategy. It has passed new legislation to encourage investment and has signed contracts with distant financial centers such as Morocco and Belgium. The idea is to « position Rwanda as a gateway to other parts of Africa », says Nick Barrige, CEO of Rwanda Finance Limited, the agency behind the project.

Kigali (pictured) is one of several cities on the African continent trying to become a financial hub to acquire some of the businesses currently flowing through offshore centers such as Mauritius. Kenyan authorities have signed an agreement with the City of London as part of a plan to set up a financial center in Nairobi. Ghana is drafting a law to create its own law. Finance Minister’s adviser Sampson Acrigo says Accra can be a hub for everything from pension funds to private-equity firms like Singapore in West Africa.

Jet-installing lenders have spread the gospel of free-flowing capital and low taxes through consultant reports and study trips. Advice also comes from donors such as: CDC Group, the development finance sector of the UK Government. Colin Buckley, head of the Foreign Ministry, argues that this is suitable for development because foreigners are confident in investing in countries with strong financial centers. Locals can also learn new skills.

The architects who will become these hubs will talk about building a financial « ecosystem » with legal, accounting and business services expertise. « We tried to move away from the notion that this was just a business district or a symbolic tower, » says Vincent Rague, chairman of the Nairobi International Financial Center. Prudential, a British insurance company, is proud to be the first company to set up a store in the hub. He points out that the prosperous local center will make it easier for local borrowers to issue bonds near their homes. Meanwhile, the partnership with the city will support access to foreign capital by allowing companies listed on the Kenya Stock Exchange to list their shares in London as well.

However, fostering this type of ecosystem requires time, expertise and political will. Kenya has been talking about financial centers for nearly a decade. Whether in Mauritius or Casablanca, the presence of an established hub servicing Africa makes it difficult for new entrants to enter the market. « Competition isn’t just in Africa », says a partner in a private-equity fund focused on Africa. « It’s global ».

One way centers can compete is to reduce taxes on companies that move to the center. However, this can cause « race to the bottom », warns Chenai Mukumba of Tax Justice Network Africa, a Pan-African campaign group. He has appeared in court challenging the tax incentives offered by Rwanda, calling for a temporary suspension of the Kenyan center until tax and transparency regulations have been tightened. When Ghana first tried to open an « offshore » banking center in the late 2000s, the project collapsed and the country was blacklisted by the International Money Laundering Oversight Agency, the Financial Operations Task Force. None of the three countries are among the 130 recently signed up for the plan OECD, Clubs in developed countries set a lower limit of 15% on corporate tax.

Each center offers its own investment incentive package. Rwanda includes a basic corporate tax rate of 15%, which can be reduced to 3%. Dividends, interest and royalties are not taxed. Barigye states that the investment is « clean and compliant ». The government has strengthened money laundering legislation. Investors must not only install letterboxing, but also show that they have established a true presence in the country.

Even with the temptation to cut taxes, the odds seem to be piled up for the new center. Fund managers at European banks suspect that Africa’s new financial center will « grow on a very large scale ». But Lag points out that it took hundreds of years for a city like London to become the world leader in finance today. If these projects are successful, « we will contribute to the coming-of-age ceremony in Africa », he says.