Conduits of Capital

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Onshore Options for Africa-Focussed Investment Funds and Vehicles SYNTHESIS REPORT April 2015 Prepared for FSD Africa by Z/Yen Partners Limited | 90 Basinghall Street | London EC2V 5AY | United Kingdom Telephone: +44 20 7562-9562 | Facsimile: +44 20 7628-5751 | www.zyen.com Contact: Professor Michael Mainelli | michael_mainelli@zyen.com 1. SYNTHESISING OPTIONS REPORTS FSD Africa invited Z/Yen Partners Limited to produce a synthesis report based on (i) a series of five reports exploring the feasibility of establishing onshore financial centres for private equity investment funds, financed by African and international capital, focussed on Africa, and (ii) a Round Table discussion that was held to discuss the five reports. This synthesis report has three objectives, to: • Provide an overview of the five reports; • Contrast and collate findings and recommendations; and, • Identify areas for further research. This synthesis report is structured as follows: Section 2 provides an overview of content across the five reports; Section 3 analyses the findings; and Section 4 reviews possible actions for donors to undertake. Appendix A provides an overview of the documents reviewed to produce this synthesis report. The reports were commissioned by FSD Africa in November 2014 to the following terms of reference: “The primary purpose of the exercise is to gather expert opinions on how likely it is that: (i) fund managers will start to consider seriously onshore financial centres in Sub- Saharan Africa for the purposes of fund and / or investment holding company domiciliation; and (ii) investors will support onshore investment as an alternative to investment via offshore financial centres (OFCs). If the answer is “yes,” which countries would these be and under what conditions would these fund managers and investors be prepared to invest? The main output of the Services is a short issues paper summarising the Consultant’s views. In identifying specific countries as potentially viable onshore markets, the Consultant should suggest (at a high level) what sort of reforms would be needed to attract international capital and how long these reforms might take to implement.” 40 |
Experts were asked to make recommendations on which reforms would be needed to attract international capital and how FSD Africa and / or the UK’s Department for International Development (DFID), FSD Africa’s funder, could best support the transformation of particular countries or cities into viable onshore centres, for example, through technical assistance or support to in-country advocacy initiatives to build political will. The series consists of the following five reports: • Bella Research Group, “White Paper on Private Equity and Financial Hubs,” March 2015 (referred to as Bella Research hereafter); • Econsult Botswana Ltd, “The Potential of Onshore Financial Centres for Africa-focussed Investment Funds and Vehicles”, March 2015 (Econsult Botswana hereafter); • Michael J. Fuchs, “Onshore Options for Africafocussed Investment Funds and Vehicles,” January 2015 (Fuchs hereafter); • Lion’s Head Global Partners, “African Onshore Financial Centres,” January 2015 (Lion’s Head hereafter); and, • Z/Yen Partners Limited, “Onshore Options for Africafocussed Investment Funds and Vehicles,” March 2015 (Z/Yen hereafter). financial centre development and results in practice; • Lion’s Head explores how agglomeration effects and economies of scale support a thriving financial centre and suggests that a successful regional financial centre results from finding an equilibrium between decentralising (proximity to clients) and centralising (agglomeration) forces; and, • Z/Yen provides quantitative evidence of how African financial centres compare with each other and with a peer group of similar centres in other regions of the world based on the Global Financial Centres Index, and qualitative evidence based on interviews. Table 1 below provides an overview of the different topics explored in each report. These topics or dimensions can be broadly categorised into four groups: • Financial centre—definition, typology and requirements; • Private equity—importance of a local private equity industry, drivers of funds or investment company location, and impact on the economy; • African financial centres—current and future outlook, comparison, and assessment of their potential to become an established onshore financial centre; and, • Reform requirements as well as scope and format of donor support (see Section 5). 2. CONTENT OVERVIEW While the five reports share common attributes (see Section 3), each report brings some unique contribution in analysing the feasibility of establishing an onshore financial centre for investment funds in Africa: • Bella Research provides a comprehensive review on the role, importance, location and impact of private equity on a financial centre and the economy. Further, it explores the drivers behind domicile decisions and the impact of private equity domiciliation on economic growth by analysing Mauritius in greater detail, noting Mauritius’s first-mover advantage; • Fuchs analyses how a local private equity industry that provides risk capital to smaller domestic companies could be a powerful tool for economic development in Africa; • Econsult Botswana provides a comprehensive comparison of African financial centres and explores the link between regulatory frameworks supporting Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity | 41
Page 1 and 2: Conduits of Capital Onshore Financi
Page 3 and 4: TABLE OF CONTENTS I. FOREWORD .....
Page 5 and 6: predictable, legal systems that res
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Page 9 and 10: Because of the fragmented nature of
Page 11 and 12: Industry Views: EMPEA 2015 African
Page 13 and 14: EXECUTIVE SUMMARY In April 2015, FS
Page 15 and 16: INTRODUCTION Across the emerging ma
Page 17 and 18: As a general rule, GPs tend to foll
Page 19 and 20: “Offshore” refers to a jurisdic
Page 21 and 22: expressed by GPs). Over 61% of GP r
Page 23 and 24: “The industry has found a very sa
Page 25 and 26: INDUSTRY ATTITUDES TOWARD ONSHORE A
Page 27 and 28: A RANKING OF ONSHORE FUND DOMICILES
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Page 31 and 32: WHAT COULD MAKE ONSHORE SUB-SAHARAN
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Page 59 and 60: average. With respect to regulatory
Page 61 and 62: For future research, it is importan
Page 63 and 64: ENDNOTES 1 World Bank Enterprise Su
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Page 71 and 72: The OECD has reviewed over 100 juri
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Page 75 and 76: Rwanda is not included in any of th
Page 77 and 78: Other possible contenders may emerg
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Page 83 and 84: Country Mauritius Morocco 16 Nigeri
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• Good accessibility. Good commun
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4. ROLE OF DONORS AND TECHNICAL ASS
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Thus, while some PE general partner
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management extends to monitoring co
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ANNEX 1: CATALOGUE OF FINANCIAL CEN
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Dublin Mauritius Dubai Botswana Cap
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To some extent, policymakers also n
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In administrative financial centres
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services industry. However, recent
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gains, even if it involves offshore
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ather than an onshore centre that i
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generally look to London or in some
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Onshore Options for Africa-focussed
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whether it is ‘Local,’ ‘Trans
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are suited to particular financial
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In GFCI 16, only three African cent
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The ‘stable’ centres in the bot
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GFCI 16 Investment Management Centr
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Professional service providers tend
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Busan and Doha have been advancing
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Zambia and Zimbabwe, the report not
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Get Connected - Ease Scaling Up In
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Financial centres are added to the
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The SVM then uses the data to predi
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Instrumental Factor Country or City
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Instrumental Factor CA* BU DO DU IS
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Open Government The World Justice P
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Securitisation TheCityUK http://www
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Human Capital Instrumental Factor S
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Global City Competitiveness EIU htt
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6.4 Appendix D - Group Respondent P
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Dubai Istanbul Conduits of Capital
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6.5 Appendix E - Country Summary Ov
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Uganda 26.086 33,800,000 772 Kampal
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