1. Executive Summary
The Rwandan government is rolling out a visionary and ambitious reform program of its financial sector under the name of Kigali International Financial Centre (“KIFC”) shifting Rwanda’s economy towards a service driven industry in line with the goals set out in the “7 Years Government Programme: National Strategy for Transformation (“NST1”) 2017 – 2024”. This will entail a modernisation of the existing financial sector, its institutions and regulatory frameworks positioning Kigali as a preferred destination for sophisticated and compliant financial services and cross-border financial transactions within Africa.
2. Macroeconomic Key Indicators
Rwanda’s economic growth since the implementation of the Economic Development and Poverty Reduction Strategies—EDPRS (2008-12), EDPRS-2 (2013-18) and NST1 is impressive whereby growth averaged 7.5% over the decade to 2018, while per capita growth domestic product (GDP) grew at 5% annually (Source). In 2019 economic growth exceeded 10%, driven mostly by large public investments for implementation of the NST1 illustrating Rwanda’s government determination to stimulate constant growth and to push its countries’ economic development policies. The IMF staff teams latest Virtual Review Mission to Rwanda dated October 2020 concluded as part of its preliminary findings that given the size of external shocks and the domestic shock caused by strict containment measures to curb the impact of COVID-19, Rwanda’s GDP growth has been much affected and real GDP growth for 2020 is projected to amount to 2 percent and expected to rebound to 5.7 percent in 2021 (according to World Bank to 6.3 percent in 2021 ). Rwanda’s projected relatively quick recovery of its economy, which started in the second half of 2020, is a good indication of its robustness and effective economic growth policies. President Kagame’s continuous economic reform program significantly improved over the years his countries investor climate advancing Rwanda as a leading emerging market in some of the major international and regional performance indices rankings. For instance, the World Bank ranks Rwanda second in Sub-Saharan Africa (“SSA”) in terms ease of doing business, the WJP Rule of Law Index® 2020 places Rwanda second out of 31 countries in the SSA region and Transparency International ranks Rwanda fourth out of 49 countries in SSA in the 2019 Corruption Perceptions Index (“CPI”). Centred in the heart of the African Great Lakes region Rwanda has easy access to its adjacent regional markets such as EAC, ECCAS, COMESA positioning Rwanda as a regional economic catalyst.
3. The KIFC Initiative
Besides President Kagame’s longstanding fundamental economic and political reforms fostering the liberation of the private sector and strengthening good governance policies which help to transform Rwanda to a competitive business friendly and dynamic economy within Central and Eastern Africa, the Rwandan government now aims to elevate Kigali to a major financial destination within Africa with introducing the Kigali International Financial Centre (“KIFC”) initiative. The KIFC initiative was approved in December 2017 during a cabinet meeting chaired by President Paul Kagame and set as a priority under the NST1.
Rwanda designs its own distinctive concept of a financial centre and at the same time adopts some of the frameworks and instruments proven as effective within other globally successful financial centres such as the Jersey International Finance Centre. The KIFC in fact cannot be compared to a “financial centre” the like of the DIFC or ADGM in the UAE or QFC in Qatar. It is not a standalone government body operating as a designated free or investment zone with its own jurisdiction, autonomous regulatory framework, authorities and separate set of rules. Rwanda’s KIFC can rather be described as a governmental “branding strategy” for a sweeping structural reform program of the Rwandan financial sector in line with President Kagame’s strategic long-term economic reform agenda the NST1. In fact, one of the key strategic interventions of the NST1 is to develop Rwanda into a financial services center which will entail developing specialized skills and establishing incentive mechanisms to attract investors in the financial sector (Page 23 NST1). Therefore, the reform program shall overhaul and modernise Rwanda’s existing financial sector, its institutions and capital markets including its regulatory, legal and compliance frameworks and thereby build on existing structures to create an efficient and advanced financial ecosystem qualifying to attract African and international investors alike for domestic and cross-border financial investments.
Among others, the creation of the KIFC has mainly three objectives, first to advance the competitiveness of Rwanda’s financial sector to meet international standards and position the country as a financial services hub for the region, second to leverage Rwanda’s reputation as a safe and compliant jurisdiction to increase foreign direct investment to structure and domicile their investments in Rwanda and thirdly to create a conducive legal and tax environment and upskilling the local financial sector to offer specialized talent to serve the market. By pursuing those three major goals, Rwanda will undoubtably continue enhancing its good governance policies, advance its legal systems and compliance frameworks, increase market and institutional transparency, raise overall productivity in the labor and service sector, promote an inclusive and diversified economy and enable integrating new fast-growing industrial and tech sectors such as fintech, blockchain, data mining, agri-tech, health-tech, IT and bio-tech to mention few.
KIFC’s target investors consist predominantly of high net worth individuals (“HNWI”), institutional and retail investors (e.g. mutual and pension funds and insurance companies) multinational corporations, (investment) banks and financial advisory firms interested in establishing Funds & Fund Management companies, Holding companies, SPVs, Foundations, Trusts, Banks, FinTech and Global Trading companies in Rwanda under the new scheme.
The Ministry of Finance and Economic Planning (“MINECOFIN”), the National Bank of Rwanda (“BNR”), the Capital Market Authority (“CMA”) and the Rwanda Development Board (“RDB”) play a central role in the transformation process as the competent financial and economic policy making institutions and regulatory bodies mandated with the licensing of new businesses, monitoring and governing the implementation of the KIFC initiative.
4. Cornerstones of KIFC’s Wide-Ranging Financial Sector Reform Program
Besides the initiated large-scale structural reforms of the Rwandan financial sector the KIFC initiative entails fundamental legal and policy reforms substantially revising existing legislation and in addition to it introducing a variety of new laws, regulatory and compliance frameworks and policies drafted to enhance Rwanda’s financial ecosystem. By adopting those changes the KIFC strives to meet international legal and regulatory standards comparable to those of other recognised global financial centres. Hereinafter, is a summary describing some of the key reform initiatives pursued by the KIFC.
As part of the reform process a total of 25 relevant laws have been drafted or amended involving the regulation of investment vehicles, regulatory frameworks and financial services among others. Four key laws awaiting parliamentary adoption concerning the Investment Code, Partnership Law, Insurance Law and the Law governing the BNR. Further, two major laws concerning Anti Money Laundering (“AML”), Combating the Financing of Terrorism (“CFT”) and the establishment of Financial Intelligence Center have been promulgated and gazetted and forming the foundation for compliant financial transactions.
Moreover, 24 Double Taxation Treaties (“DTTs”) have been initiated under the KIFC umbrella including international partner countries in Africa, Europe, Asia-Pacific, US and Israel in addition to a variety of existing DTTs which are already in force. Such an extensive network of DDTs provides (foreign) investors not only with beneficial, transparent and reliable international tax frameworks but creates also legal certainty critical for international market entrants.
The Rwanda Finance Limited (“RFL”), the designated promotion and marketing agency for the KIFC initiative, entered into a multitude of strategic partnerships with international financial centers such as Jersey Finance, Casablanca Financial City, Dubai International Financial Center, Qatar Financial Center and the Paris EuroPlace promoting the cooperation and knowledge exchange between the centers. In addition, the RFL signed Partnership Agreements for technical assistance and promotion of the KIFC with CDC-UK, USAID, FSD Africa and BPI France which are essential for attracting international investments.
As a result of the reform program Rwanda will have established a sophisticated and dynamic legal and regulatory environment providing for the following features:
- The promulgated AML/CFT legislation will strengthen financial (conduct) compliance systems, improve KYC procedures and facilitate exchange of information in criminal matters. The issuance of the Partnership Law will enable general and limited partnership structuring options for businesses and offers corporate tax neutrality for both partnership structures which shall only be subject to personal income tax (“PIT Tax”).
- The adoption of the Investment Code will provide for tax incentives on corporate and passive income for specific regulated financial services spurring cross-border investments. The passing of an Insurance Law introduces investment opportunities for captive insurance solutions, establishment of private insurances, foreign policy risk underwriting and policy for unclaimed funds.
- The Central Bank Law will authorize the National Bank of Rwanda to regulate trusts and corporate service providers.
- The Capital Market Authority Law will grant the CMA special status appointing it as an independent regulatory body in line with internationally recognised securities sector standards set out by the International Organization of Securities Commissions (“IOSCO”).
- Capital Market laws will permit companies to hold electronic custody of shares (central depository securities) and entail new capital market activities and instruments promoting digitization of corporations and its key functions.
- The Law regulating Collective Investment Schemes will govern all fund activities including PE and VC as well as unit trust schemes, partnership schemes, investment company schemes, and contractual schemes.
- The new Foundations Law regulates the establishment of (private) foundations for charitable or non-profit purposes.
- Laws on Data Protection and Digital Assets will enable local domiciliation of data centers, entry of blockchain technologies and upgraded payment systems which will create a safe environment for data and digital assets related economic sectors.
- Laws regulating the establishment and governance of trusts will offer trust structures for various purposes such as estate planning, purpose trusts, succession planning enabling sustainable wealth management.
- A new legislation governing the organization of banking will provide for private banking for high net worth individuals and establishment of banks as private entities.
- The implementation of robust tax and AML legislation will facilitate compliance with OECD and FATF guidelines.
Beyond that, the new investment scheme will grant investors a number of far-reaching incentives such as no restrictions on foreign currency and profit/capital repatriation, 100% foreign ownership of companies and other assets such as land, competitive tax on passive income (dividends, interest, royalties), no withholding tax (“WHT”) at the level of shareholders and capital gain tax exempted for all investors under the KIFC, among others.
Rwanda’s long-term reform program entails also the revision and improvement of the dispute resolution and alternative dispute resolution systems which started off with the establishment of the Commercial Courts in 2007. Thereafter, on 6th March, 2008 the Rwandan parliament adopted a new Arbitration Law modelled on the UNCITRAL model law applicable to domestic and international commercial arbitration and conciliation (Source). On 31st October, 2008 Rwanda’s accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the “New York Arbitration Convention”) allows investors to enforce foreign arbitration awards in Rwanda. With “Law N°51/2010 of 10/01/2010” the Rwandan parliament promulgated legislation to set up the Kigali International Arbitration Centre (“KIAC”) and determined its organisation, function and competence which became operational eventually in 2012. The 2012 KIAC Arbitration Rules determine the procedures applicable to the disputes referred to arbitration to the Kigali International Arbitration Centre (KIAC) unless agreed otherwise by the parties. Given Rwanda’s well-established Arbitration infrastructure (foreign) investors will have access to an independent and qualified alternative dispute resolution mechanism essential for solving disputes in complex financial transactions and investments in sophisticated financial sectors.
5. The Role of the Rwanda Finance Limited (“RFL”)
The RFL is the promotion agency for the KIFC initiative and serves as the legal entity entering into strategic partnerships with international cooperation partners supporting the KIFC initiative. The RFL is a private company established under the Ministry of Finance and Economic Planning (MINECOFIN) and hence entirely government-owned and controlled. A team of 19 professional staff members, with many of them having an international financial background, works with national and international key stakeholders to develop and promote the KIFC.
The RFL has mainly three guiding objectives:
- Investment promotion including investor outreach, support of investor entry and set-up and promotion and marketing of the KIFC initiative.
- Policy advocacy entailing coordination and development of legal and tax policy reforms as well as leading policy and industry research.
- Sector upskilling by promoting capacity building initiatives for financial sector and leading stakeholder engagement on skills reforms.
With the prominent appointment of Mr. Tidjane Thiam, a renowned Ivorian banker who was before the CEO of the Swiss bank Credit Suisse, as chairman of the board of the RFL along with 6 other board members on 11th November, 2020 by virtue of a cabinet meeting chaired by President Paul Kagame the RFL and the KIFC initiative attracted international attention in the financial sector. Given Mr. Thiam’s strong global ties with the international financial community it can be assumed that the KIFC initiative will benefit from increased international support and strategic alliances.
Rwanda’s ambitious KIFC initiative is another significant NST1 reform agenda point with the potential to transform the country into a financial service hub within Africa. This will contribute to much-needed diversification of Rwanda’s economy by nurturing high-growth financial service and tech sectors. Political and security stability will be decisive for the future and further success of President Kagame’s wide-ranging reform program in the years to come. The countries strong track record and past achievements in effective implementation of crucial economic and governance reforms suggests that Rwanda will remain successful in pursuing its reform agenda.