Conduits of Capital

African Onshore Financial Centres
REPORT
January 2015
EXECUTIVE SUMMARY
Financial service providers tend to cluster in centres.
These centres generally develop for commercial reasons.
Thus over time they become the main centres of financial
services, of international trade and they become the key
components in international commerce. It is certainly
possible to delineate reasons why some financial centres
have developed and why some have grown to be the largest
centres but it is more difficult to create a definitive blueprint
for how to develop a new financial centre from scratch.
This poses a challenge for policymakers in developing
countries that may be seeking to develop a specific financial
centre as one of the pillars of their strategy for development
and promoting growth. Clearly there is evidence to show
that growing economies will attract providers of financial
services. Normally, the development of a financial centre
in any particular country goes hand in hand with broader
development within the economy—i.e., large and growing
economies develop financial markets as is demonstrated in
Africa by South Africa, Nigeria and Kenya. There are only
a few cases where creating a financial centre is itself the
catalyst for significant growth and development; the best
recent example of this is possibly Dubai.
It is important to recognise that there are different types
of financial centres in today’s world. They have developed
for different reasons, they are of different sizes and often
specialise in different activities. The largest and most
influential centres are Global Centres such as London and
New York; they provide the most sophisticated services at
a global scale and host the largest collection of financial
services providers. Next are the regional centres such as
Hong Kong or Dubai that provide sophisticated financial
services to their particular geography. Their growth in recent
years has benefitted significantly from accelerated regional
development. Finally, there are the administrative centres
such as Mauritius or the Cayman Islands that provide certain
administrative services for a broad cross section of clients.
A classification of these financial sectors into ‘onshore
centres’ and ‘offshore centres’ is slightly more complex.
In general the administrative centres are more likely
to be classified as ‘offshore centres.’ They often act as
jurisdictions for booking transactions or for locating certain
financial vehicles such as funds. This is usually because of
the favourable tax environment they provide for users of that
particular centre. Administrative centres can also be seen
as the link between sources of capital and users of capital—
the reason why they are mostly ‘offshore’ is that they do not
introduce additional taxation on top of taxes levied on users
of capital (investees) and providers of capital (investors).
It is difficult to envisage building a new full service global
financial centre from the bottom up without accompanying
growth and development in that economy. In addition the
host government needs to create policies which make
their centre more attractive than possible competitors
and makes the centre user friendly for international
capital markets.
Thus, when policymakers consider building new African
onshore centres, they need to consider first whether it
is to be a regional or administrative centre. Some of the
conditions needed to establish either of these are similar
but some are definitely unique. Understanding these can
help them understand which measures may be needed in
order to succeed with their goals of building new onshore
centres.
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