Is Nairobi ready to become a global financial center?

An IFC facilitates services for international activity in areas including banking, asset management, insurance and financial markets.
An IFC facilitates services for international activity in areas including banking, asset management, insurance and financial markets.
Image: Reuters/Thomas Mukoya
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Kenya’s capital, Nairobi, has already made a name for itself as a regional hub of trade, commerce, innovation, and technology. Now, plans are underway to take the city to the next level—that of becoming a global financial hub.

Kenya’s launch of the Nairobi International Financial Centre (NIFC) last week, making the capital a financial hub, shows the country’s openness as an economy and its confidence in its own ability to compete on the world stage, says Mark Napier, CEO of FSD Africa, a nonprofit that promotes financial sector development across sub-Saharan Africa

The center, which has been in the works since 2014, is meant to help direct international investment to Kenya and Africa at large, enabling companies and investors to take advantage of trade and investment opportunities. It aims to raise more than $2 billion in investments by 2030.

While the NIFC is an investment and job-creation tool, it’s also branding that shows that Kenya is ready to embrace new technology and is ready to be connected to the global economy, Napier says. “When you think about the talent that there is already in financial markets in Kenya, you know those guys who are working in those markets, they don’t want to be judged by reference to their regional peers. They want to be judged by reference to their global peers,” he tells Quartz.

An IFC facilitates international financial activity

An international financial center (IFC) is a location with venues and facilitating services for international activity in areas such as bankingasset management, insurance and financial markets. It works in a regulatory framework that fulfills international standards.

Nairobi joins Casablanca, Cape Town, Mauritius, and Johannesburg as IFCs in the continent. Rwanda, on its part, is looking to turn its capital, Kigali into an IFC. Examples of IFCs outside Africa are New York City, London, Shanghai, and Hong Kong.

“It’s a step beyond the domestic market,” Vincent Rague, the NIFC chairman, tells Quartz. He adds that it can mobilize capital by attracting savings into the center and also using that for investing into viable projects.

Kenya is already a commercial and tech hub

Kenya, the third largest economy in sub-Saharan Africa, is already a commercial hub, with major global companies having their regional headquarters in the country’s capital. The country is ranked 61st in the World Bank’s Doing Business 2019 index, which measures regulations on business activity in countries. Its score of 70.31 is much better than the regional average of 51.61. Nairobi is also the global headquarters of the United Nations Environment Programme. In addition, Nairobi is a major continental tech hub. Popularly known as “Silicon Savannah”, the city’s tech ecosystem hosts many innovation hubs and hundreds of startups.

The city is well-positioned to become an IFC because it has proven that it can serve as a headquarters and it’s a good geographic location for reaching most parts of Africa easily and conveniently, says Rague. Other reasons, he says, are that it has a high number of international schools that can provide education to many nationalities, and it has law firms that have affiliations with international firms in case of need for dispute resolution.

African IFCs rank low in global index

Most IFCs located in Africa rank in the bottom half of the latest Global Financial Center Index, which compares the competitiveness of the world’s leading financial centers based on quantitative measures from the World Bank, the UN, and other sources.

The quality of IFCs is measured by different aspects such as perceptions of the rule of law, transparency, global connectedness, ICT connectivity, crime, availability of decent schools for people who want to settle there, and quality of life, Napier says. He believes Nairobi can give the other IFCs in Africa significant competition. Its big advantage, he adds, is that “it is a place where people actually want to come and live”.

Prudential and TheCityUK have taken early steps in the NIFC

The NIFC aims to create opportunities for domestic and international savings and investments, create employment in the financial services sector and related sectors, and support Kenyan companies to increase their competitiveness through increased access to longer-term capital at lower costs and on better terms. Already, Prudential, one of the UK’s oldest insurance companies, has submitted a letter of intent to apply to join the hub, positioning itself as one of the center’s anchor clients. The NIFC has also signed a memorandum of understanding with TheCityUK , a body representing UK-based financial and related professional services.

Africa’s share of international financial flows is very little, says Rague, noting that other regions have more IFCs. Kenya, he adds, has a sophisticated financial system but the financial flows in it are relatively low. To increase it, the country needs to attract international capital into Nairobi to help finance projects and also use Nairobi as a conduit for financing larger projects in the continent, he says.

“Until local capital is mobilized and coupled with international capital, we’ll continue to remain marginal to international capital flows,” he says.

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