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In administrative financial centres, the financial centre<br />
is <strong>of</strong>ten the initial spark <strong>of</strong> the local economy. While<br />
administrative centres won’t necessarily operate as sources<br />
<strong>of</strong> capital for the local economy, they produce consumption,<br />
investment in real estate, create tax revenue and require a<br />
business friendly policy environment.<br />
Thus, our discussion about financial centres in (onshore)<br />
Africa is underpinned by two key assumptions:<br />
1) The creation <strong>of</strong> financial centres on the continent has<br />
the potential to provide a substantial boost to the local<br />
economy.<br />
2) Onshore financial centres are less likely to result<br />
in capital flight and / or allow the capturing <strong>of</strong> value<br />
added activities outside the continent that capital is<br />
invested in (i.e., mainland Africa).<br />
However, it is important to distinguish between attracting the<br />
presence <strong>of</strong> international financial companies and merely<br />
attracting foreign capital. The former will have tangible<br />
benefits in creating a financial centre.<br />
Building a financial centre will inevitably attract more<br />
qualified workers into the economy with inevitable benefits<br />
<strong>of</strong> skills transfer. Over time these international companies<br />
will create opportunities for local staff. In some cases<br />
local companies may be acquired by international players<br />
and this process <strong>of</strong> assimilating locals can happen<br />
more quickly.<br />
As the centre grows and caters to international companies<br />
there will be a demand to follow best practice in most<br />
aspects <strong>of</strong> the financial markets. This will accelerate the<br />
development <strong>of</strong> local markets and the range <strong>of</strong> financial<br />
products available to domestic customers. However, the<br />
speed <strong>of</strong> this development will depend heavily on the desire<br />
and the ability <strong>of</strong> the host government to embrace these<br />
international practices and financial products.<br />
3. CHARACTERISTICS AND<br />
DEFINITIONS OF FINANCIAL<br />
CENTRES<br />
Financial centres vary greatly in their size, scope and<br />
the breadth <strong>of</strong> activities. They range from the truly global<br />
centres such as London, Tokyo and New York to many<br />
which are substantially smaller and which are largely<br />
national or regional in nature. There are others which are<br />
based on a specific industry or some specialised type <strong>of</strong><br />
activity. But looking at the various models is informative in<br />
laying down some general indicators on what is necessary<br />
for the creation <strong>of</strong> a sustainable onshore financial centre.<br />
Global Financial Centres such as New York, London and<br />
Tokyo are significantly larger and more developed than<br />
their closest competitors. They have developed over many<br />
decades and each <strong>of</strong> them is host to the largest financial<br />
institutions and as such they deal in the most sophisticated<br />
capital markets around the world. They are in many ways<br />
the cornerstones <strong>of</strong> the global capital markets. They deal in<br />
all financial instruments including debt, equity, commodities<br />
and derivative markets.<br />
Each <strong>of</strong> the global financial centres is host to the biggest<br />
stock exchanges and in each case some <strong>of</strong> the largest<br />
companies, asset managers, financial institutions and other<br />
investors are located in close proximity. In general, these<br />
are defined by the fact that they are host to regulators<br />
and legal systems that are accepted by the international<br />
community and the largest financial institutions feel<br />
compelled to maintain a presence in these centres as a<br />
core part <strong>of</strong> their strategy.<br />
Not only are New York, London and Tokyo home to a<br />
large financial industry, they also <strong>of</strong>fer a broad range <strong>of</strong><br />
other services and infrastructure that make them highly<br />
attractive as living destinations. Each one <strong>of</strong> these cities<br />
is large and excels in areas such as culture, sport and<br />
entertainment. As such, they attract finance pr<strong>of</strong>essionals<br />
across the world, <strong>of</strong>ten without having to <strong>of</strong>fer special<br />
tax incentives.<br />
Clearly each <strong>of</strong> these financial centres is subject to regulatory<br />
and political change in the host country. But the experience<br />
to date has shown that policymakers in these countries<br />
have been aware <strong>of</strong> the need to protect their status as a<br />
financial centre. At times, regulators have created certain<br />
changes which have incentivised institutions to change the<br />
nature and scope <strong>of</strong> their activities. With capital becoming<br />
increasingly mobile, stakeholders and policymakers in<br />
the global financial centres have become aware <strong>of</strong> the<br />
competitive pressures they face in order to maintain<br />
their positions. These lessons are important for potential<br />
new entrants. For example, New York and Tokyo rely<br />
<strong>Conduits</strong> <strong>of</strong> <strong>Capital</strong> – Onshore Financial Centres and Their Relevance to African Private Equity<br />
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