Columnists

How to make Nairobi a financial hub

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Nairobi City skyline. FILE PHOTO | NMG

Summary

  • Kenya and Britain have officially signed a deal about turning Nairobi into Africa’s financial hub, which presents a big opportunity for the former.
  • Britain is the primary investment management centre in Europe and second largest in the world after the US.
  • So such co-operation has a big potential to funnel big international investments into the country.

Kenya and Britain have officially signed a deal about turning Nairobi into Africa’s financial hub, which presents a big opportunity for the former. Britain is the primary investment management centre in Europe and second largest in the world after the US.

So such co-operation has a big potential to funnel big international investments into the country.

But in analysing what this agreement means, Kenyans seem to be getting ahead of themselves on what exactly needs to be done by the country to deliver this vision and mission.

First, we need abandon looking at establishing the Nairobi International Financial Centre on the brick-and-mortar model — feauturing first class real estate development projects to host the financial district.

Just because London has a street lined up with these global banks, investment firms and financial institutions doesn’t mean that is what we need to replicate in order to make Nairobi a successful financial district.

In fact, if we have learned anything from Konza Technocity, it is that when creating any economic hub, brick and mortar is not the catalyst for convergence of investment.

Why London has a cluster of these financial institutions within its CBD is that it developed organically more than a century ago. London as the capital of the British empire has been a financial services provider as far back as the slave trade times.

So, it’s misguided to propose that Kenya has to establish a financial district. For emerging markets like Hong Kong and Singapore, it has not been first class real estate or a financial district that worked for them but high-quality tech infrastructure to run efficient financial services.

Second is the argument that the Nairobi International Financial Centre means re-modelling Nairobi into a low tax haven destination. This is not an advisable because we will be entering the race to the bottom which we cannot afford against established jurisdictions like Mauritius.

It is this race to the bottom that has actually precipitated the proposal for the 15 percent global minimum corporate tax to deter profit-shifting because its unsustainable in the long run for everyone.

The best way the government should design Nairobi International Financial Centre is to prioritise linking the London and Nairobi stock exchanges for fast growing companies in Africa to cross list.

This will attract liquidity into the Nairobi Securities Exchange and investment around securities (NSE) trading like investment banks, financial consultants and private equities, which specialise in provision of finance for business.

The New York and London are different financial hubs is that the former has been a dominant centre for taking companies public through listing since 1950 and was strengthened by establishment of NASDAQ in 1971 challenging the New York Stock Exchange as the first electronic exchange for hot companies such as Intel and Microsoft.

On the other hand, the concentration of banks from all over the world developed London to be a trading hub for currencies and derivatives. But fast-growing companies which have been going public have come from Asia and the US but not London.

So, the low hanging fruit here is that there is an opportunity for the NSE to be the plug for the London Stock Exchange, providing market access to Africa’s fast-growing companies to cross list when they wish to go public.

This means the NSE should therefore put more effort to acquire the emerging market status. Establishing this linkage will easily catalyse securities market investment in Nairobi.

Nairobi is a growing bastion of financial services in the region. Aside from South Africa, which is in a socio-political quagmire dampening its status as an investment hub, Dubai is Nairobi’s main rival in establishing a vibrant financial hub for Africa. So under the Africa Continental Free Trade Agreement, Kenya can lobby for a favourable regulatory regime to leverage against Dubai.