CSOs like Africog and Transparency International in Kenya are already biting at the edges of the issue.
I think the soft underbelly here are professional associations - the legal, accounting, secretarial services fraternities etc
Katy, in this case the international community has a pretty big stick - in that if the Nairobi centre were seen to be failing to meet international standards, it would be confined to smaller, dirtier amounts of money than if it can compete with the more respectable OFCs.
The direction of travel in the G8 is generally towards increased regulation after the 2007/8 crisis. Its a kicking-and-screaming ride but the direction seems steady. So, yes, as they say, when the hedge fund managers show up, real trouble is only just round the corner
My question is where do we as an economy draw the line between genuine FDI and dirty money? FOR NOW THIS DOES NOT MATTER.
I agree that getting citizens to understand something of this issue is important. But it is certainly not sufficient. This case against becoming a tax haven needs to be made by multiple groups at the highest levels of the government and the parliament, repeatedly.
We do but the regulatory environment and culture is key
The money laundering legislation has made little difference since it was passed and that isn't because we don't have the people to make it work; rather it isn't in the interest of those in power and vested interests for it to work
But, Alex, we know that OFCs are essentially designed to handle dirty money. It's optimistic to think that we are going to see a well functioning regulatory regime keeping Kenya's OFC handling only clean money.
Overall, there seems a grave risk here that GoK invests heavily in pursuing an idea which is unlikely to succeed; and which, if it did, is likely to exacerbate the existing problems of governance and inequality. The question should be asked of what the government calculation is that could make this seem sensible.
Raymond, John, I agree - but I think it's not our place to take off the table the option of a NIFC which is completely clean. Rather, if GoK considers what scale of impact might be possible if there were no secrecy on offer, the cost-benefit analysis will make their decision against pursuing this idea.
As you said the train has already left the station in a sense. Key is managing all the trees it may knock down as it chugs its way through the forest of our governance institutions
Alex's point is interesting -- that Kenya has an extraordinary opportunity to exemplify the modern international financial centre, modelling the emerging G8/G20 consensus . But John is pessimistic unless the political elite changes.
Charles, the point about a Qatar-type hybrid model is well made - and certainly if there is any success you would expect to see some (largely expat?) employment growth in these professional services. But whether this would be substantial in relation to the economy, if you think that normally financial services agglomerate around existing infrastructure and peer groups, is unclear. GoK should recall just how much investment Qatar put into achieving its - not necessarily very stable - position.
"The next Mauritius..." I would think Mauritius is increasingly worried about its vulnerability to global transparency moves, and the growing pressure for renegotiation of double tax treaties. At present it benefits from a role as the preferred tax-reducing investment conduit into Africa. If this is lost, there could be major development implications. Seeing it as a model for progress would be foolhardy at best.
All of Global Financial Integrity's work is directed toward transparency -- greater transparency in national and global financial systems. No matter how you slice it, this is the opposite of what an OFC is set up to do. The goal, more often than not, is to provide secrecy to the handling of money, and this leads to handling more dirty money than clean money.
And Mauritius too - is increasingly challenged in this regard
The Isle of Man is a reasonable example of an OFC that has tried to convert itself into simply a place where multiple corporations and parties can come together to enter into agreements for investment elsewhere under a regulatory regime that easily handles such arrangements.
If the current consensus on financial transparency delivers global standards in terms of ownership transparency and automatic exchange of tax information, I think you'd expect the only OFCs that will continue to have meaningful existence to be those that have developed genuine niches with particular skill sets, relevant expertise and so on - it's extremely hard to imagine more than a few of these, and I would suggest impossible to think that a new effort now (NIFC or elsewhere) would have any chance of becoming one. So this looks like the worst possible time to try.
Our work in two reports on illicit financial flows affecting Africa clearly demonstrates that the resource exporting countries have by far the largest problems with such flows. The prospect of this accelerating in Kenya, Uganda, Tanzania, and Mozambique is of major concern.
Looking for the positive here -- given that Kenya is a relatively stable democracy, well educated and growing middle class and there is mounting global policy pressure toward ending financial secrecy, does it have a unique opportunity to be a well -regulated. model OFC for Africa? Or is it too late?
Its never too late but we have to accept the sun is setting
There is a new dawn coming too! With that let me thank you
We have argued for publishing resource contracts, even those already entered into now containing secrecy provisions. The argument is sometimes made by resource companies that if they are forced into disclosing contract terms they will take their investments and go elsewhere. We've made the point many times that the world has no place to go -- Africa's resources are needed and Africa can call the tune to what is acceptable and what is not. Publically available resource contracts is the beginning, not the end point, of improving the retention of revenues from resource exports.
Very many thanks. I have learnt a great deal. Asante sana!!
Stella, thank you for arranging this vigorous discussion. Most appreciated.
John Githongo in Kenya, Alex Cobham in London and Raymond Baker in Washington, many thanks for your insights and stimulating ideas. Let's reconvene a year from now and see what progress has been made.
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