Conduits of Capital

paying financial advisers fees (except on success) and there are few investment banking businesses that are
able to absorb deal origination costs, especially in markets that are generally more unpredictable than those in
developed economies and where there are simply fewer viable transactions.
There is greater recognition in the donor community that investment instruments are often a more appropriate
means to achieving development outcomes than grants, and may result in less market distortion (i.e., uneven
playing fields). Besides their ability to leverage private capital, thereby making more capital available to the
market, investment instruments encourage partners (i.e., investees) to take risks without transferring risk,
which is what happens with grants. Thus, they require that partners properly assess risks and think through the
achievability of goals and how to best allocate capital in the most efficient way.
Conclusion
It goes without saying that donors cannot do everything (and obviously should not attempt to do so). However,
Conduits of Capital has shown that in nascent markets there are numerous entry points where donors can play
a constructive role investing in “soft” market infrastructure, such as regulation and skills. This requires effective
market facilitation and intervening where there is a clear market-building opportunity to do so, but avoiding
becoming a market player where possible. The guiding principle should be to provide the real market actors
with the resources they need to carry out their functions effectively—occasionally providing funding, but more
often access to information, networks and skills.
Our hope with Conduits of Capital is that it will lead to a better understanding of what needs to be done to
create viable onshore financial centres in Sub-Saharan Africa, and how donors can play a supportive role in
accelerating their development.
No one is pretending this is an easy task. For centres such as Nairobi or Lagos, they will have to either
outcompete Mauritius at its own game, which they will find very difficult (as Michael Fuchs argues in his paper),
or commit to creating a new kind of financial centre which offers advantages (not least locational advantages
such as proximity to investment opportunities) that Mauritius can never offer. Moreover, they must do so whilst
ushering in the basic regulatory and tax reforms which international investors regard as a prerequisite.
Michael Mainelli from Z/Yen describes this as “getting real”—setting proper targets, being accountable for
delivery of these targets and ensuring that real political capital is invested in the achievement of those targets.
We hope that this publication assists all stakeholders in “getting real” about the challenges of building onshore
financial centres, but that it also demonstrates the agency we all have in driving toward a more financially
inclusive future.
Mark Napier
Director, FSD Africa
October 2015
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