Building a financial centre in Rwanda Lessons from Mauritius

1. Services Investment Forum Building a financial centre in Rwanda Lessons from Mauritius Dr Rama Sithanen 8 July 2013 Kigali

2. Why Financial services in Mauritius and its challenges • The urgent need to diversify the economic base • The necessity to build resilience to external shocks • Contribution to income, growth, employment, taxes, BOP • High spillover effects: technology, skills, innovation, management, etc • Competitive advantage: initial endowment or acquired through policies? • Context, circumstances and timing do matter • Hotly competitive business: over 60 such IFC/RFC • Convergence of two unlikely factors: DTAA & opening up of India • There is no one size that fits all: but there are lessons. Common threads

3. Creating the enabling environment • Conducive business environment • Open economy • Structural reforms to unlock opportunities • Legal infrastructure : identify what is required to become competitive RFC • Regulatory & supervisory framework : efficient, flexible, responsive. Red tape • Robust institutional base • Catalytic role of Government to drive the strategy • Strong partnership between public and private sectors. Dynamic private sector • Build modern and developed banking and financial infrastructure

4. The incentive framework • Network of DTAA: to prioritise countries • Network of IPPA: where is the market niche for Rwanda. Managing/mitigating risks • Fiscal incentives: a simple and effective tax system • Eliminate exchange control : free repatriation of funds • Links among sectors: Real Estate, ICT, Tourism, Free Port, Capital & Commodity markets • Regional Economic Communities: SADC and COMESA • Gateway between Asia and Africa • Convenient time zone • Quality of life: housing, education, health, leisure, office space, etc. Welcome expatriates with special skills

5. Invest in hardware and software • Invest in people and human capital: skill set is very different • Invest in strong institutions: FSC. One single regulator or two • Invest in infrastructure. Airport and other facilities • Invest in technology and ICT: internet & broadband at affordable costs • Invest in marketing and promotion. Building a brand. Dedicated promotion agency? Development versus marketing/promotion. Host conferences • Invest in building trust and confidence. Comply with best international practice. EOI and TIEA • Invest in lowering the cost of doing business

6. Fiscal Incentives • DTAA: where are taxing rights. Source v/s Residence • Capital gains tax on disposal of assets. CG taxed as income • Withholding tax on interests, dividends, royalties, etc • Foreign Tax credit/Deemed tax credit • Inheritance tax • Simplification of tax system: broad based or restrictive • What level of taxation to be attractive and competitive? • Base erosion and future increase in tax proceeds • Low Taxation and international criticisms

7. Which model should Rwanda choose? • Finance hub on a stand alone basis • Traditional offshore centre or platform with substance and value • Finance hub plus trade, logistics & distribution hub and ICT outsourcing hub • Prospects in banking, trade finance, insurance and captive, fund management, pension, trusts, foundations, private equity, IBC, etc • Develop services in which Rwanda has competitive advantage • Niche player/RFC • To position for when EAC will become a single market • A dedicated area for the IFSC (Dublin, Dubai, etc)

8. Some tangible strengths of Rwanda • Political/economic stability & reliability. National harmony • Strong commitment with clear strategic vision shared by all • Good rank in ease of doing business • Good reputation: corruption-free, high transparency, OECD White List • Bilingual capability in English and French • High growth region • Good time zone • Good location in Africa: gateway to Eastern and Central Africa. EAC tax regime and its implications • Clean, tidy and efficient country. • Safety and security Necessary but not sufficient

9. Products and Services • Diversity of products/services as an attraction • Two types of licenses: GBC 1 and GBC 2: tax considerations • IBC companies • Banking • Fund administration and fund management. Domicile of choice for funds • CEF and CIF • Asset management • Investment holding • Insurance • Trusts and foundations • Operational headquarters • Pensions

10. Legal and legislative framework • Limited partnership • Limited liability partnership • Limited companies • Partnership law • Trust Law & Foundations • CIS Law • Company law • PCC • Insurance • Pensions • Capital market • Tax Laws

11. Understand the competition • Competition is hot: How does Rwanda compare to other regional centres? Kenya, Mauritius, South Africa, Seychelles, Botswana, Ghana • Kenya: skill base, size/scale, economic powerhouse in East Africa • Singapore, Dubai, Malta, Hong Kong, Luxembourg, Netherlands, Cayman Island, BVI • What is competitive advantage of Rwanda? To convince business outside Rwanda that we have a good case . Focus on COMESA and EAC • Must be as attractive if not more attractive than competing jurisdictions • Build unique set of competitive advantages • Can Rwanda become a regional financial hub? What are the strategic options?

12. Parameters of competition • Skilled labour force • Revenue generation potential • Image • Legal environment • Political & economic stability • Fiscal environment • Regulatory environment • Infrastructure • Ease of doing business • Cost of doing business • Lifestyle • Who will choose the winners?

13. The do list • Development of a modern legislation for new types of financial structures and companies and • Effective regulation and supervision of the offshore sector • Cooperation with international institutions and global standard settings: FATF, OECD, IMF, etc • Cooperation/complementarity with other RFC/IFC’s: Dubai/Mauritius • Overcome shortage of skills in financial services sector: attract talents and capacity building • Strategic development project involving various interrelated aspects and issues

14. The do list • Understand steps/measures necessary to develop and implement vision. What are the critical success factors? • Visit countries with IFC’s to understand how they work • A roadmap with strategy, action plan and responsibilities, implementation and time frame • Smaller countries like Lux and Ireland do compete against bigger competitors provided they have an attractive environment

15. Word of caution • A marathon race rather than a sprint: a patient game. At least 10 years • Do not become a RFC over night : even with all elements in place, it does not mean instant realisation of project • Takes time to establish products and services and to market them, • To develop specialities, to have skilled workforce to deliver products and services • Can Rwanda attract a major international bank now? Sophisticated service providers? • Success depends on permanence of political will and support/follow up from all stakeholders • Set up various working groups for implementation and monitoring • Commit significant resources and patience on returns on investment plus strong leadership

16. “I am not predicting success. I am not predicting failure. Rather than make predictions I am encouraging you to get on with the job that needs to be done” Jeffrey Sachs