Duncan Miriri Nairobi
When Kenyan infrastructure firm TransCentury wanted to issue a $75 million (R750m) corporate bond, it was forced to look to Mauritius, Africa’s leading offshore financial centre.
Kenya is already a growing gateway for foreign investment into east Africa and now aims to become an international banking and financial hub.
But to have any hope of coming close to rivalling the continent’s pre-eminent financial pull of Johannesburg, or even Mauritius, backers of the proposed Nairobi International Financial Centre must overcome multiple hurdles.
These range from the lack of an effective legal system, to deficient company and land registries to the absence of working double-taxation arrangements with neighbouring 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,” he said.
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 elections in March.
But decades of political patronage and graft in Kenya, characterised 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 financial investors.
Plans are under way to improve the efficiency of Kenya’s legal system for business by creating arbitration panels where parties can resolve disputes quickly. But 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,” Ministry of Finance economic secretary Geoffrey Mwau said.
One of Mauritius’s biggest selling points as a business centre was that commercial parties in dispute could appeal local rulings to Britain’s Privy Council, legal experts said.
According to Transparency International’s corruption perception index for last year, Mauritius has one of the best African rankings at 43, while South Africa was at 69. Kenya lagged at 139, tied with Nigeria.
Standard Chartered head of research for Africa Razia Khan said Kenya’s financial sector status would grow, but “to pitch itself against the international competition at the outset may be difficult”.
Undaunted, proponents of Nairobi as a financial hub point to the arrival of major international banks, including FirstRand, Bank of China and HSBC Holdings, which have been licensed to open representative offices in the capital.
Kenya has converted its bourse into a securities exchange, and plans to set up a commodities exchange.
To compete for listings, reforms are needed to make it easier to list locally. Another big drawback is Kenya’s failure to put into effect double-taxation treaties that were signed with Uganda and Tanzania.
Kenya, Uganda, Tanzania, Rwanda and Burundi are working towards a single currency, an opportunity that Kenya can take advantage of. – Reuters