The role of services in economic transformation SupportingEconTransform Judith E Tyson Research Fellow Overseas Development Institute April 2015 Financial services in Kenya its potential role in economic transformation ID: 132404
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KENYA AS A SERVICES HUBThe role of services in economic transformation
#SupportingEconTransformSlide2Slide3
Judith E. Tyson, Research Fellow, Overseas Development Institute
April 2015
Financial services in Kenya:
its potential role in economic transformationSlide4
introductionOverview of Kenya’s financial deepeningTypes of hubs and their pros and cons
Regional financial hubsFinancial processing hubsKenya’s competitive positionKey questions for our discussion
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Kenya has experienced strong success in its financial sector7.4% of 2013 GDP
Financial deepening has accelerated Growth in regional banks and cross-border bankingInnovation in mobile banking
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Source: World Bank’s Global Financial Development database Slide6
And Its regulation is keeping pace with new demands2014 removal from the Financial Action Task Force following improvements in anti-money laundering and terrorist financing
2015 enhanced capital buffers implementedIMF see a “Strong commitment to strengthening prudential and regulatory oversight” (IMF, 2014)EAC Treaty – liberalization and harmonization of financial services
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GLOBAL Financial HUBs
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Hong Kong
Singapore
Tokyo
New York
London
Globally represent $3.2 trillion or 5% of GDP and 10% of services exportsSlide8
Developing country successes are of most relevance to Kenya
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Hong Kong
1. Regional financial hub
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. Specialist financial hub
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. Processing financial hub
Mauritius & Seychelles
(Offshore banking)
Dubai (Islamic banking)
Bermuda
(Offshore banking)
Singapore
Johannesburg
Sao Paolo
India
Philippines
There are 3 broad types of hubs… some examples in developing countries today
LagosSlide9
1. Regional financial hubHigh potential contribution to GDP
High potential to create high-skill, high-wage employment Accelerates economic development through financial sector growth and strong linkages to other sectorsBut…
“Winner takes all” - although not yet in Sub-Saharan Africa Potential negative impacts on macroeconomic management and financial stabilityLonger term timeframe
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2. Financial processing centersServe as “outsourced” processing centre to major financial centres
Examples include call centres, data processing, accounts and invoice processingHigh-volume, low-skill employment creationLittle potential for negative impacts on macroeconomic or financial stabilityRelatively rapid timeframe
But …Little impact on financial sector deepeningMore limited linkages to other sectors
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What is Kenya’s current competitive position?Proven success in domestic financial services and its rapidly regionalizing banks are creating critical mass in Nairobi
Further synergy because of growing strength in complimentary business services and IT
Large talent pool of English-speaking graduates (2)Compatible time zone for global financial centers (2)
Participant in EAC treaty (1)11
Need for “best practice” legal and regulatory framework (1)
Need for greater number of experienced financial service professionals (1)
Need for further financial deepening including in capital and interbank markets (1)
Need to ensure confidence in long-term political and economic stability
Weaknesses in urban infrastructure that attract business
Competitive advantages
Competitive disadvantages
(1) Most relevant to regional financial hubs (2) Most relevant to financial processing centersSlide12
Key questions for the panel discussion;1. Do participants believe that being a financial hub is a realistic prospect?
2. If so, which type of hub is best for Kenya’s structural transformation - a regional financial center or a processing hub?
3. What is needed from private institutions, regulators and government to make it a reality?Thank you!Slide13
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Website address
Email addressSlide14
KENYA AS A SERVICES HUBThe role of services in economic transformation
#SupportingEconTransform