Kenya passed the Nairobi International Financial Centre (NIFC) Act in 2017 to establish a financial centre, a move that is hoped to transform the country into a financial hub and increase foreign direct investment opportunities.
The country is expected to formally launch the financial hub in June of this year. Financial centres have the potential to increase the popularity of Kenya as a financial hub and help it catch up with or even surpass the other International Financial Centres (IFCs) in Africa – Casablanca, Cape Town, Mauritius, Kigali, Lagos and Johannesburg.
IFCs are specialised legal institutions and regulatory frameworks that facilitate the flow and investment of international capital. The hubs are crucial in building economic stability.
Most countries have established them to increase the inflow of foreign direct investment into their economies because they lower costs and offer better terms to businesses thanks to incentives in areas such as tax and immigration.
A financial centre in Nairobi will develop and promote the export of international financial services, create job opportunities, increase foreign direct investment, and push up the competitiveness of Kenyan companies by increasing their access to longer-term and affordable capital options.
Across the border, Rwanda has entered agreements with several countries and acquired additional investment following the launch of the Kigali International Financial Centre (KIFC). The government, through KIFC, has collaborated with Luxembourg and China, enabling investors to avoid double taxation. On the back of the partnerships, it has been able to raise Sh72bn through the issuance of a 10-year Eurobond.
Kenya has fallen behind its East African counterpart because of delays in publishing regulations for the centre and (only) setting up a board last year and managing to entice just two investors – Prudential Plc and TheCityUK, a private sector membership body and advocacy group that promotes financial and professional services industry in the United Kingdom.
Foreign Direct Investment flows to Kenya decreased from Sh127bn in 2019 to Sh83bn in 2020 as a result of Covid, while East Africa witnessed a 16% dip to Sh753bn from Sh892bn in 2019 as per the UN Conference on Trade and Development. In light of the advantages it offers, a Nairobi IFC will highly likely create a shift in terms of sustainable investments to fuel economic growth, particularly now that the economy is regaining pace.
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