Financial reforms aim to make Kenya regional hub

We all know that global economic prospects have improved, though recovery in advanced countries remains sluggish.

Africa’s recent growth has backed that trend: it remained robust, even and especially during the 2008-2009 global crisis.

This momentum was confirmed by the recent IMF World Economic Outlook update for January 2014 which revised growth projections for Sub-Saharan Africa for 2014 to 6 per cent, up from the 5.0 per cent projected earlier.

The opportunities for growth and economic transformation in Africa are manifest.

With its friends and partners, Africa must find and apply the policies that will make the most of these openings.

Kenya cannot afford to be left behind.

Our resilience is proven. GDP grew 1.6 per cent in 2008, and 4.6 per cent in 2012.

The Ministry of Finance expects 5.8 per cent in 2014, rising to 7 per cent in 2017.

Eventually, we will hit double digits.

That performance is owed to sound fiscal and monetary policy, and market oriented structural reforms, all supported by the IMF under a three-year Extended Credit Facility arrangement that has recently come to a successful end.

Our financial markets have kept pace with our growth.

In the most recent Global Competitiveness survey, Kenya edged up 10 slots in the rankings.

We were easily the most improved African country: first for “legal rights”; 35th for “ financing through the local equity market”; 44th for “ease of access to loans” and 55th for “regulation of securities exchanges”.

MOST IMPROVED

Our deepening financial markets are matched by an equally welcome development: in the same survey, we ranked 46th for innovation, buoyed by high company spending on research and development, and ever closer ties between scientific research institutions and our businesses.

That innovation, backed by prudent regulation, has broadened access to financial services.

The most recent Financial Access survey finds that 67 per cent of our adult population uses different forms of formal financial services, compared to 27 per cent in 2006.

The virtuous interplay of innovation and financial inclusion is clear.

To build on that growth, and the promising performance of our financial sector, the National Treasury has developed a Financial Services Sector Plan for the years to come.

It is based on Vision 2030, our development blueprint.

Our ultimate aim is “to create a vibrant and globally competitive financial sector that will promote high level of savings to finance Kenya’s overall investment needs.”

That will not happen without extensive reforms. Let me highlight some of the most important.

First, we will establish a Nairobi International Financial Centre.

Our model is the City of London. Once complete, it will consolidate Kenya’s position as our region’s hub, while also supplying the world-class financial services that East Africa’s rapidly growing oil and minerals sector needs.

Second, the Nairobi Securities Exchange (NSE) is at an advanced stage of demutualisation.

We aim to separate ownership from management, the better to support effective and sustainable governance.

Independent management structures mean easier compliance by market intermediaries, as well as better supervision and enforcement by our authorities.

We also expect that more intense competition in the provision of services will bring us the gains in efficiency we will need if we are to take our place as the financial pivot of the region.

We will also spearhead the growth of private equity.

Our region’s firms cannot realise their full potential without reliable and reasonably priced capital.

Our pension and collective investment scheme could easily be more substantial players in private equity.

Kenya, and our partner states in the East African Community will also harmonise our legal and regulatory frameworks for the financial sector in line with international standards.

Regional integration.

Demutualisation.

Private equity.

A new financial centre.

Our plans are clear.

Kenya is ready to consolidate its position as a key African financial gateway.

– Manoah Esipisu is Secretary of Communication and State House Spokesperson. This is an edited version of his presentation at the Bloomberg Africa Forum dubbed “African Financial Gateways” on February 3, 2014.