Africa’s economic landscape is changing rapidly and if numbers are anything to go by, then the continent is primed to benefit from this change.
One of the tip of the iceberg in this journey is the small steps helping Africa get noticed. One of the helpers shaping Africa’s destiny is the head of Kigali International Financial Centre, Nick Barigye.
In September, Barigye said, “I did a thing!! After 9 months of advisory effort and outreach to 700+ financial professionals, I and the team got Kigali, Rwanda, to be listed and join the club of global financial centres (and ranked ahead of both Lagos and Nairobi)”.
With this proclamation, Njenga Hakeenah of The Exchange reached out to him to understand what this was all about. Hakeenah got schooled.
Here is an excerpt of the interview.
1: What prompted the need to come up with the report and not just focusing on Africa?
The Global Financial Centre Index (GFCI) Report provides evaluations of competitiveness and rankings for the major financial centres around the world which are needed by investors and businesses to take informed decisions on where to deploy capital for investment or trade. In our view, just focusing on Africa may lead to missing the global perspective on financial centre performance, as well as useful information for investment and business opportunities. As various jurisdictions aim to progressively improve their performance regarding the business environment, human capital, quality of infrastructure, reputation, and diversity of the products offered in the financial sector, we believe this report is important in understanding how different jurisdictions have performed and where they need to improve in order to stay competitive as financial centres.
2: What do you mean by financial centres and what characterises one?
Financial centres are defined as locations hosting a collection of financial service providers and professionals (banking, insurances, fund managers) offering a diverse range of financial services and products. Financial centres play a significant role in facilitating the movement of capital and investment across borders, the creation of networks of interaction among jurisdictions, corporations, and high net-worth individuals.
They are characterized by a legislative, financial, and business infrastructure framework which is more flexible than the traditional one and caters specifically to the needs of both non-resident and resident investors. That legislative, financial, and business framework includes evolving innovations in trust, banking, fiscal, insurance, and non-banking financial products among other financial and business products.
3: The overall average rating fell globally indicating some lack of confidence in the world economy. Does this mean that the world is staring at an imminent economic collapse?
According to the IMF World Economic Outlook report published in July 2021, the global economy is projected to grow 6.0 per cent in 2021 and 4.9 per cent in 2022 and this global forecast is unchanged from April 2021 projections. These statistics show a positive recovery of the global economy and no signal of economic collapse so far, despite the third consecutive fall in the average rating of financial centres as shown by the Global Financial Centres Index 30 report. Covid-19 is among the factors that triggered the lack of confidence in the world economy; however, as countries and international organizations are strategizing on how to assist each other in increasing access to vaccines for their citizens, confidence in scaling up economic activities is progressively gaining momentum.
4: Africa has operationalised the AfCFTA with the hope that it will open trade borders. With this in mind, what does the continuing uncertainty around international trade portend for the trade agreement going by what this report shows?
The hope that AfCFTA will enable African countries to progressively remove trade barriers as they are operationalising the AfCFTA agreement toward a single market is still there despite what the Global Financial Centres Index 30 report emphasized around international trade uncertainty. This, among other factors, led to the overall fall in the financial centres’ rating. The overall global trade forecast for 2021 indicates an increase of about 16 per cent from the lowest point of 2020, 19 per cent for goods and 8 per cent for services (Global Trade Update Report, published by UNCTAD, May 2021). Based on this recovery and the global trade outlook, we believe that African countries will be motivated to fast track the implementation of the AfCFTA agreement in order to have [in the near future] stronger negotiation power on the international markets.
5: The report indicates that Casablanca continues to be the leading African centre, while Cape Town, Johannesburg, and Nairobi increased their ratings by more than 20 points while Kigali and Lagos join the index for the first time. What are the investment implications of this?
The increase in rating of the African financial centres namely: Cape Town, Johannesburg, and Nairobi will likely lead to a potential increase of investment and businesses in those centres, as they are giving a good signal to the entire international business community. The ratings show good overall performance for the said financial centres in the business environment, reputation, financial sector development, infrastructure, and human capital categories.
The debut of Kigali and Lagos on the GFCI serves to increase the two jurisdictions’ visibility to the international business community as places to consider for the domiciliation of businesses and investments. In our view, having additional financial centres coming on board is good, as it offers different alternatives for investors to consider domiciling their business and investments on the African continent.
5: Out of the 109 FinTech centres rated, Africa has less than 10 and none is in the top 10 despite the hype that the sector is doing well. Do the numbers on the ground speak another story?
It is important to set the context for this comparison. Out of the 109 fintech centres rated, many are within developed countries; consequently, they score higher on some of the most important elements identified as factors in generating a competitive environment for fintech. Hence, the lack of representation in the top 10. However, the numbers on the ground are strong evidence of the growth happening in African fintech centres. Fintech has been a catalyst for radical change in the delivery of financial services in Africa. Various reports show that Fintech represented at the very least 25 per cent of the $1B investments raised by African start-ups. In addition to this, despite Covid-19 slashing growth in many sectors, according to TechCrunch African start-up investments report, “fintech retained the lion’s share of African VC funding”.
