Civil Society warns against the enactment of the Nairobi International Financial Centre Bill 2016
NAIROBI, 20 March 2017– Nairobi risks becoming a tax haven and a conduit for illicit financial flows if the recently-tabled Nairobi International Financial Centre (NIFC) Bill 2016 is enacted into law. A cross-section of the Kenyan Civil Society has warned that the establishment of the financial centre in Kenya would give way to money-laundering and financing for terrorism owing to the high levels of financial secrecy enshrined in strict laws that forbid any form of disclosure or investigation.
In a review of the Bill titled Nairobi International Financial Centre or Nairobi Tax Haven? Tax Justice Network- Africa (TJN-A) and the East Africa Tax and Governance Network (EATGN) also argue that the risk of the NIFC in undermining domestic resource mobilisation capabilities especially with regards to the incentive structure envisioned is a legitimate concern for Kenya especially in upholding the Addis Ababa Agenda commitment of financing development through domestic resource mobilisation.
Global gain versus Domestic losses
The Bill which is sponsored by the government through the Majority Leader of Parliament, is moored in Vision 2030, Kenya’s development blueprint through which the country seeks to achieve middle income status. It advances that the international financial centre will provide funding for key development projects, employment opportunities particularly for the burgeoning young population and encouraging domestic and foreign investment as well as improving competition in the domestic financial services. Adopting the Mauritian approach, Kenya would aggressively campaign for investments through the Centre.
Budget deficits, increasing debt levels and the current global economic slump means that governments especially in developing countries need to widen their domestic resource base to source funding for development projects. The NIFC would therefore form a large part of the Kenyan government’s efforts to increase the amount of direct foreign investment into Kenya in a bid to address its funding crisis. However this will mean additional unnecessary tax incentives offered to multinational corporations, thereby depleting rather than building up the country’s financial reserves.
It is important to note that for any international financial centre to succeed a considerable number of tax incentives of must be issued. A 2016 report by TJN-A puts Kenya’s losses through tax incentives at USD 1.1 billion annually. Cumulatively in the East Africa region that figure stands at approximately USD. 2 billion, with Kenya and Tanzania contributing the lion’s share. In its conception, the Bill provides for the establishment of ‘a legal framework that would establish Nairobi as the financial hub for the East and Central African region’. This is in recognition of the strategic position of the country as the gateway to the rest of the region but above all, it is the region’s economic powerhouse. “Considering Kenya’s positioning in the region, politically and economically, the establishment of the NIFC would have far-reaching effects across the region including redirected investments from neighbouring countries to the financing of terrorism,” said Jason Braganza, TJN-A’s Deputy Executive Director.
The establishment of offshore and onshore financial centres has long-been an overt goal for many countries across the continent as exemplified by Mauritius, Liberia and Ghana (now defunct). According to a report by the Emerging Markets Private Equity Association (EMPEA), a majority of Africa’s private equity industry actors prefer to channel their investments via offshore jurisdictions. With countries like Botswana, Tunisia and Nigeria touted as the next possible on-shore financial centres owing to their strategic geo-political importance, regional financial dynamics are set to undergo a drastic change. “If this Bill is enacted into law, recent gains made in combatting the race to the bottom may be reversed not to mention regional tax harmonisation,” asserted Braganza.
Together with the Vienna Institute for International Dialogue and Cooperation as well as Oxfam in Kenya, the two organisations have gone ahead to point out that Kenya must learn from previous attempts at establishing international financial centres such as Ghana. Weak internal regulations provided for the cataclysmic reaction, wreaking havoc on the economy and subsequent closure of the Centre.
Therefore the intention of establishing the NIFC in its present form should be abandoned completely.
Notes to editors:
- The NIFC will be a propagation of commercial related forms of Illicit Financial Flows, increased instances of tax evasion, increased secrecy and opacity of transactions.
- The Executive’s influence in initiating the discussions on the NIFC has left little room for public participation and civic education. If enacted, the Executive would heavy-handedly carry out the constitution and management of the Centre’s oversight body, the NIFC Authority.
- It is almost one year since the Panama Papers were leaked, exposing tax-avoidance and evasion practices by multinationals, complicity between banks and individuals to maintain undeclared accounts, money laundering from proceeds of criminal and corrupt activities all of which were associated to offshore financial centres.
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Michelle Mbuthia Joyce Kabue