We have some of the best trained people on the continent and export them throughout the region. Political will at the highest levels of government explains the contradictions that you are describing
Interesting. In Washington you here capacity as a reason to give Kenya more time and go easy on them. - What can you tell us about Kenya’s goal of turning Nairobi into an international financial hub by 2030? What are the risks against this backdrop?
We also have an expensive democracy here. The last election was the most expensive in Kenyan history - estimates vary but hundreds of millions of dollars were spent by the leading parties. That money doesn't come from membership fees
ALEX - Tell us about the risks of the Kenyan government building up an international financial centre in Nairobi and its discussions with the City of London. Should this give pause?
Kenya has what it takes to become a key financial hub and profit handsomely from it for all. We don't have the culture yet though. It would criminalize almost immediately
Kenya becomming an offshore financial centre -- a tax haven -- is a most worrisome prospect. Such a reality will continue, indeed accelerate, the outflow of money from the country and its surrounding neighbors.
It would be like a financial crime aircraft carrier - self contained and able to cause considerable damage
I'd agree with John on the capacity argument - not only because of Kenya's strengths in some areas, but also because this just isn't a legitimate defence if a government is pursuing growth in this area. You can claim capacity limits if you have no intention to promote financial flows with other jurisdictions; but not if that is your aim. If you're going that road, you need to resource your capacity to ensure transparency and cooperation.
In terms of the plan for a Nairobi financial centre, this should sound alarm bells for Kenyan citizens, and for Kenya's neighbours.
Correct. Kenya is ideal because it has the capacity
Kenya's neighbours will know that the evidence shows immediate neighbours of tax havens tend to see falling investment flows and also greater exposure to illicit flows.
So are you saying, politicians are happy to build up a centre to improve their ability to whistle illicit earnings out of the country? That's damning
For Kenya's citizens, the plan raises a number of risks. First, tax havens become such by giving up control over some of their legislation - the 'commercialisation of sovereignty', as the academic literature has it. This inevitably weakens links between citizens and their political representatives.
Several tax havens are already finding that the easy access to their financial systems has not in fact aided economic growth. Even the Cayman Islands had to ask for a bailout from the UK Treasury. Switzerland has backed off of many of its secrecy offerings.
The second aspect is that pursuing a financial centre, if successful, is likely to be associated with higher income inequality; and as the State of East Africa Report 2013 and others have shown, there are clear concerns over inequality already.
Lets not assume that the illicit funds would all be whistled away. Kenya is a beautiful place to be corrupt so long as one is certain that accountability is a low probability
The third concern for Kenya's citizens would be that the prospects for success, in a context of weakening governance, are unlikely to be great in any case - so it may be a wasted investment, even on its own terms.
I second Alex's point. Inequality is a huge challenge for Africa and will be driven further by setting up the nation as a tax haven.
The other big project of the City of London body that is working with Nairobi is... Moscow. After several years there has been a lot of legal change, but little growth. And of course the external perception of Russian governance is weakening too. The government of Kenya should think about their own position in this light, perhaps...
Inequality is accompanied by conspicuous consumption that feeds the resentments of especially the young and unemployed. This is easily politicized.
When Ghana was giving consideration to becoming a tax haven, the point was made that this should be a good reason to cease foreign aid from donor nations. It is probably time to put forward that argument in the case of Kenya.
Good question Anna. I wonder if John has thoughts on this?
- Is the international community giving Kenya a free ticket because the US and UK want its support in the wider war on terror?
The first thing to do is raise it as an issue - blow the whistle on it; ask questions about it; seek to have presented to all Kenyans the regulatory framework envisaged
Being a haven for dirty money and asking for foreign aid shouldn't go together. And it's up to the donor nations to make this point clearly.
Raymond is right - the pressure from international actors for financial transparency is greater now than it has ever been, so there would be no free ride for Kenya if it goes this road. The OECD today published a report which is damning about the transparency of its own members - so no country should imagine that they will be able to hide behind a 'capacity' defence.
Then you ask the 'Who?' question and a lot becomes obvious
If Im not mistaken in the 1990s some leading arms manufacturers in Europe set up plants in the so-called Third World as the legal regime became more difficult in the West. Would the Nairobi-Moscow plans fit into the same model
Our elites are small - the WHO always includes leading politicians and their proxies.
The High Level Panel on Illicit Financial Flows from Africa led by President Thabo Mbeki is addressing illicit financial flows for the continent and will come out with recommendations next year. This is a start to the WHO question. Next, donor nations need to speak up with a reasonably united voice. Next, CSOs in Kenya need to get much more active on the issue.