Nairobi International Financial Centre : An illusion?

Kenya has been striving to establish the Nairobi International Financial Center since 2008 with the aim of turning the country into a global financial hub. However, after 13 years, the dream of the NIFC seems to be fading, sparking concerns about whether it has become more of an illusion than a reality. Churchill Ogutu, Head of Research at Genghis Capital, sheds light on the progress, challenges, and future prospects of Kenya's financial aspirations. According to Ogutu, the NIFC is still a work in progress, conceived as part of Vision 2030 to elevate Kenya to a middle-income status and achieve various national goals. Despite this vision, Nairobi has slipped to 108th position in the global financial services index, indicating a decline in its quest to become a financial hub in the region. Countries like Rwanda have been proactive in implementing investor-friendly policies to establish themselves as International Finance Centers (IFCs), posing a challenge for Kenya. One major focus for Kenya's financial development has been on the capital markets sector. With the market capitalization at less than 20% of the GDP, Kenya aims to increase this to 60-70% to boost the capital markets' significance. However, the country faces challenges in achieving this target, including the lack of new substantial listings on the Nairobi Securities Exchange (NSE) and limited product diversification beyond securities. Additionally, attracting global financial services funds to Nairobi remains a hurdle, especially amid the push for a global minimum tax of at least 15%, making the tax environment less appealing for foreign investors. The unpredictability of Kenya's taxation regime further raises concerns among investors, creating an environment of uncertainty and deterring potential investments. Moreover, Kenya's policies, such as the full repatriation of profits, pose a risk of capital flight and illicit practices, potentially hindering the NIFC's credibility. International financial centers typically restrict full profit repatriation to prevent becoming tax havens, a concern raised by stakeholders in Kenya's financial landscape. Balancing the need to attract foreign investments with preventing illicit financial activities poses a delicate challenge for the government. While Kenya aims to increase its investment-to-GDP ratio from 6.5% to 13.5%, addressing issues of taxation fairness and capital flight becomes paramount to realizing the NIFC's full potential. In response to these concerns, stakeholders in Kenya must navigate the complexities of enhancing the financial environment to attract international investors while mitigating risks of tax evasion and illicit financial practices. Addressing the challenges in the taxation regime, encouraging long-term capital inflows, and fostering a level playing field for investors will be crucial steps towards establishing Nairobi as a credible International Financial Center. As the country continues to work towards its financial aspirations, the road ahead will require strategic reforms, policy clarity, and a conducive business environment to transform the NIFC dream into a tangible reality.