News / Africa

London, New York, Hong Kong, and... Nairobi?

Currency dealer counts Kenya shillings at a money exchange counter, Nairobi, Oct. 23, 2008.
Currency dealer counts Kenya shillings at a money exchange counter, Nairobi, Oct. 23, 2008.
Reuters
When Kenyan infrastructure firm TransCentury wanted to issue a $75 million corporate bond, it was forced to look to the Indian Ocean island of Mauritius, Africa's leading offshore financial center some 3,000 km (1,900 miles) away.
 
Kenya is already a growing gateway for foreign investment into East Africa and now has ambitions to become an international banking and financial hub in its own right.
 
But to have any hope of coming close to rivaling the continent's pre-eminent financial pull of Johannesburg, or even Mauritius, backers of the proposed Nairobi International Financial Center must overcome multiple hurdles.
 
These range from the lack of an effective legal system, deficient company and land registries, and the absence of working double-taxation arrangements with neighboring states.
 
Taking TransCentury's bond dilemma as an example, Oliver Fowler, a partner at Nairobi law firm Kaplan and Stratton, sees Kenya's aim to raise its financial profile as work in progress.
 
"Why would you go to Mauritius when you are a Kenyan company to list a debt security? You do it because they are efficient and we are not," Fowler told Reuters.
 
Kenya's judiciary has undergone reforms since 2011, and progress in this area was credited by diplomats with helping to deliver a smooth and peaceful outcome to the hotly-contested presidential vote won by Uhuru Kenyatta in March this year.
 
But decades of political patronage and graft in Kenya, characterized by the "my turn to eat" political culture, means the country's legal system will have to work hard to gain the credibility needed to attract more investors.
 
Plans are underway to improve the efficiency of the Kenyan legal system for business by creating arbitration panels where parties can resolve commercial disputes quickly. Kenyan courts are still notorious for long delays despite the reforms.
 
"We are going to work with the City of London to ensure that we address any gaps that we have in our legal system to bring it in line with international best practice," said Geoffrey Mwau, economic secretary at the ministry of finance.
 
One of Mauritius' biggest selling points as a business center is that commercial parties in dispute can appeal rulings made locally to Britain's Privy Council, legal experts said.
 
According to Transparency International's Corruption Perception Index for 2012, Mauritius has one of the best African rankings at 43, while South Africa was 69 and Kenya lagged at 139, tied with Nigeria, Africa's top oil producer which struggles with an image of graft-plagued government.
 
Razia Khan, head of research for Africa at Standard Chartered in London, said Kenya's financial sector status would grow, but "to pitch itself against the international competition at the outset may be difficult."
 
Luring foreign banks
 
Undaunted, proponents of Nairobi as a financial hub point to the arrival of major international banks, including South Africa's FirstRand, Bank of China, and HSBC Holdings, which have been licensed to open representative offices in the Kenyan capital.
 
Kenya has converted its bourse into a securities exchange, and plans to set up a commodities exchange.
 
To compete for listings that typically head to Johannesburg or London, reforms are needed to make it easier to list locally.
 
Another big drawback is Kenya's failure to put into effect double-taxation treaties — designed to prevent firms from paying the same tax in two countries — signed with Uganda and Tanzania.
 
"There is no way that a company here is going to use Kenya as a base even for its east African operation if there is no double taxation relief across the East African Community, let alone anywhere else," Fowler said.
 
The community bringing together Kenya, Uganda, Tanzania, Rwanda and Burundi is working towards a single currency to increase trade after forming a common market in July 2010. This is an opportunity that Kenya can take advantage of.
 
For its part, Mauritius has already signed double-taxation treaties with nearly all African countries to raise its profile as a finance channel for investment in Africa.
 
Kenya's private equity house Catalyst Principal Partners, which has raised $125 million for investment across the region, chose to be registered in Mauritius.
 
"Even investing cross-border Kenya to Uganda, it is more efficient to invest in Mauritius and then come back from Mauritius to Uganda," said Yida Kemoli, head of strategy and finance at TransCentury.
 
Business brothers
 
Businessmen complain that it takes 6 to 8 weeks to set up a company in Nairobi. A global survey released this year by the World Bank on the ease of registering a company showed Kenya was ranked 126 out of 185 countries, with Mauritius at 14.
 
Kenyan bank executives ranging from multinationals such as Barclays to home-grown lenders like Equity, say registering collateral takes far too long because the country's land ministry relies mostly on manual records.
 
The ministry says it plans to have digitalized all its records by mid-2014, which will help cut the scope for backhanders at a land registry widely criticized for corruption.
 
Banks also worry about costs incurred to install backup generators to cope with unreliable power supply in Kenya.
 
In addition to these drawbacks, backers of Nairobi's ambitions as a financial hub have also had to parry criticism by financial transparency campaigners that Kenya may be looking to turn itself into a new tax haven.
 
Mauritius has faced similar accusations, but rejects allegations that it is a major conduit for illicit transfers, for example between India and Africa.
 
"An international financial center is not a tax haven. Is the UK a tax haven? ... They don't know what they are saying. The most important thing is to reduce the cost of doing business," the Kenyan finance ministry's Mwau said.

You May Like

Photogallery US Storm Falls Short of Severe Predictions, Yet Affects Millions

NYC mayor says, 'This is nothing like we feared it would be,' yet blizzard warnings, travel bans remain for several East Coast states More

Millions of Displaced Nigerians Struggle with Daily Existence

Government acknowledges over a million people were displaced in 2014 due to fight against Boko Haram insurgency More

Facebook: Internal Error to Blame for Outages

Temporary outage appeared to spill over and temporarily slow or block traffic to other major Internet sites More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Obama Urges Closer Economic Ties During Historic India Visiti
X
Aru Pande
January 26, 2015 9:33 PM
U.S. President Barack Obama says the United States and India must do better to capitalize on untapped potential in their economic relationship - by removing some of the roadblocks to greater trade and investment. As VOA correspondent Aru Pande reports from New Delhi, Obama spoke after participating in India’s Republic Day celebration.
Video

Video Obama Urges Closer Economic Ties During Historic India Visit

U.S. President Barack Obama says the United States and India must do better to capitalize on untapped potential in their economic relationship - by removing some of the roadblocks to greater trade and investment. As VOA correspondent Aru Pande reports from New Delhi, Obama spoke after participating in India’s Republic Day celebration.
Video

Video US, EU Threaten New Russia Sanctions Over Ukraine

U.S. President Barack Obama has blamed Russia for an attack by Ukrainian separatists that left dozens dead in the port of Mariupol and cast further doubt on the viability of last year’s cease-fire with the Kyiv government. VOA’s Michael Bowman reports from Washington.
Video

Video White House Grapples With Yemen Counterterrorism Strategy

Reports say the U.S. has carried out a drone strike on suspected militants in Yemen, the first after President Barack Obama offered reassurances the U.S. is continuing its counterterrorism operations in the country. The future of those operations has been in question following the collapse last week of Yemen’s government. VOA White House correspondent Luis Ramirez reports.
Video

Video Kerry Warns Against Violence in Nigeria Election

US Secretary of State John Kerry visited Nigeria Sunday in a show of the level of concern within the U.S. and the international community over next month’s presidential election. Chris Stein reports.
Video

Video Zoo Animals Show Their Artistic Sides

The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video Saudi, Yemen Developments Are Sudden Complications for Obama

The death of Saudi Arabia's King Abdullah and the collapse of Yemen’s government have cast further uncertainty on U.S. efforts to fight militants in the Middle East and also contain Iran’s influence in the region. VOA White House correspondent Luis Ramirez reports on the new complications facing the Obama administration and its Middle East policy.
Video

Video Progress, Some Areas of Disagreement in Cuba Talks

U.S. and Cuban officials are reporting progress from initial talks in Havana on re-establishing diplomatic ties. U.S. Assistant Secretary of State (for Western Hemisphere Affairs) Roberta Jacobson said while there was agreement on a broad range of issues, there also are some “profound disagreements” between Washington and Havana. VOA State Department correspondent Pam Dockins has the story.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid