The appointment of Nick Barigye as first CEO of Rwanda Finance Ltd that operates the International Finance Centre (K-IFC) late last year passed quietly.
However, those in the know especially his peers in local financial sector, are talking about the creation by the government of Rwanda of one of the most influential financial sector organs in the days to come.
It is this prospect of influencing a new direction for Rwanda’s financial sector, given its sensitive nature, overall importance and its seemingly conservative orientation that prompted Taarifa to seek out Nick Barigye for an in depth insight.
K-IFC is operated as a special purpose vehicle (SPV) known as Rwanda Finance Ltd (RFL), which is a firm created in 2018. It is fully owned by the government of Rwanda.
RFL’s mandate creates an independent body that has a duty to attract into Rwanda huge non-traditional financial resources.
In order to do so, RFL’s intervention is bound to radically cut deep into current architecture of Rwanda’s financial system.
Experts are foreseeing deep reforms in the national taxation laws among other changes as a result of RFL operations.
RFL’s tentacles, once it starts being felt, will impact the traditional commercial banking and capital markets sectors in a very profound manner.
For instance, it will impact on practically all major capital intense sectors of the Rwandan economy, such as real estate and hospitality that are currently struggling with under capacity issues.
This critical factor alone points to the influential nature of RFL in the not so distant future.
There is also an important issue of assisting Rwanda to cultivate a reputation of being a safe haven for this new source of funding that comes with a lot of conditions.
This is something that will probably take very many years to achieve, especially when one looks at the real tough situation on the ground that needs RFL’s full attention.
Armed with the above context, we sought for an understanding, and in the characteristic style from top Rwandan business leaders, Nick Barigye, first gave us a cold shoulder, a challenge journalists in Rwanda face while seeking for credible sources to be put on record.
Barigye finally gave in.
An ambitious Rwandan finance chief
Over the course of our many years of journalism, stretching more than 15 years, we have seen many CEOs in Kigali city rise from humble origins.
Nick Barigye is one of them.
Armed with an MBA from Strathmore Business School in Kenya, earned in 2015, Barigye has occupied the executive suites and directorial slots of some of Rwanda’s top notch firms.
He started off with stints as a mid-level officer at the Ministry of Finance and Economic Planning (Minecofin) after his first degree at the University of Rwanda in 2004 before moving to the private sector.
The first time we met Barigye was when Crystal Ventures Ltd (CVL), RPF’s investment arm, had hired him as the group’s operations officer. That was way back in 2012.
Before that, CVL retained him as a project officer for Building Materials Investments Ltd, its construction materials supplier arm as from 2010.
CVL for all intents and purposes, is Rwanda’s number one investment firm, with diverse interests in virtually all the major sectors of Rwanda’s economy.
Therefore, working at CVL at that level, is a huge shot in the arm for an ambitious Rwandan finance professional.
In 2013, he was promoted to COO at NPD-Cotraco Ltd, CVL’s civil engineering firm, where he worked for less than one year before being posted to lead CVL’s new edible oil processing firm, Mt Meru Soy Co Ltd.
Barigye left CVL to join Karisimbi Business Partners (KBP), sometime in 2014.
KBP is a mid-tier business advisory firm.
You can also call it a deal making firm.
It is not in the big leagues of international players such as PWC, Deloitte or KPMG .
However, locally, it has cut its teeth into doing some very good stuff with a number of local firms in need of specialized services such as corporate restructuring, financial engineering, buy outs, mergers and acquisition; the kind of work sophisticated deal making artists like Barigye would love to do.
While at KBP, the issue of having in place a world class financial services centre in Rwanda was gaining momentum within the corridors of power.
After a cabinet decision approved its formation in 2017, it was just a matter of time before the head hunting of K-IFC CEO would be announced.
It did not come as a huge surprise that Barigye who sit on the boards of Green Hills Academy, AB Bank Rwanda and Sonarwa Life Assurance among others, clinched the job.
Breaking the ice with CEO, K-IFC
We met Barigye at RFL Hqs at Alliance Towers, located within Rwanda’s financial district in down town, Nyarugenge district.
The heart of Rwanda’s financial district is also home to the national treasury building right behind Alliance Towers and I&M Bank Hqs. The Central Bank of Rwanda is also a stone throw away from Barigye’s office.
The location of RFL HQs is quite telling.
When we checked into RFL offices, what struck us immediately is that the new firm is set to be a very powerful totem within Kigali’s financial district.
Barigye and his core team felt quite at home being at the helm of something new happening within the nascent financial district of Rwanda.
It felt as if a powerful wind was blowing within the sector, to bring something new and refreshing from the current business as usual situation.
His team was clinically selected. Their profiles are posted on the firm’s website www.rfl.rw for everyone to see.
Click on the link below to watch our video analyzing how RFL is likely to impact Rwanda’s financial sector.
We exchanged a few pleasantries with Barigye and one of his assistants at the RFL reception.
This is due to fact it was long ever since we had engaged in a one-on-one with him.
After pleasantries, he invited us into his executive suite for a chat.
As we were ushered into RFL offices, we could not help feeling that the newly recruited team settling in for what is clearly an outfit that is meant to stimulate the local financial sector in several ways.
Barigye ushered us into his cozy executive corner, offering an inviting view overlooking the expansive Kigali city.
He began with taking us through the challenges that needed to be tackled through creation of K-IFC.
The local financial system is rebuilt over last 20 years. No doubt about that fact. But there are still major challenges to tackle going forward.
Local businesses cannot easily access services from commercial banks that can easily do deals in ways that reflect existence of an ultra-modern forward looking banking system.
New found entrepreneurs such as those in the creative sector in Rwanda are yet to be fully accommodated in the current financial sector, set up pointing to the fact that it is very conservative in thinking and outlook.
So far, Rwanda is yet to attract some of the big boys in the world of investment banking and fund management, two of the key areas of RFL intervention.
We are talking about the likes of JP Morgan, Goldman Sachs, BofA Merrill Lynch, Citigroup, Barclays Bank and firms of that league.
The reason for this lack of attractiveness to date, analysts reason, is that the financial ecosystem is not fit enough for the big boys to feel comfortable to play in Rwanda.
This is despite fact that there are many big ticket deals, especially in infrastructure, natural resource exploitation, mass housing, manufacturing, among others, that are ripe on the table for exploitation.
A practical solution, experts say, is for Rwanda to start and sustain a whole new sector known as private equity (PE) and fund management in order to boost the supply side of local capital markets and by extension, the commercial banking sector.
Triggering the billions of dollars to enter Rwanda
Our research show that private equity and fund management activities are rapidly growing in Africa and already certain economies in Africa have felt its benefits.
Kenya is case in point.
A report by KPMG states that Kenya took the lion’s share of private equity investment in East Africa in 2017 and 2018.
Out of US$1.4 billion private equity investment injected into East African region, Kenya attracted investments worth US$1.2 billion in the two year period, the report says.
This report corroborates an earlier survey by African private equity and venture capital association (AVCA), which ranked Kenya as the second most popular country for private equity deals in Africa.
Therefore, it is safe to say that Rwanda is seeking, through the creation of RFL Rwanda, to gain seat by being a preferred private equity and fund management jurisdiction in Africa.
Observers in these matters say that private equity and fund management sector in Africa is a significant activity.
There are more than 120 private equity firms in Africa, according to Preqin’s Fund Manager profiles database.
Of this, over 100 are based in Africa.
By end of first half of 2019, the estimated value of fund raising closed by African PE firms reached US$1.7 billion, according to AVCA.
After presenting this observation to Barigye, he dived into details of how K-IFC is set to carry out its mandates.
“It is true that the contribution to GDP of the local financial system is still low at less than 5 percent. That is one of the reasons prompting the creation of the K-IFC; which is to increase the portion of financial sector contribution to Rwanda’s GDP to double digits in line with peers.”
Therefore, he reasoned, a country serving as a preferred jurisdiction the way K-IFC seeks to position Rwanda, in the days to come, will benefit from capital raised from Africa’s private equity and fund management industry.
Mauritius, as a reference point, has more than 800 global funds operating from it.
All the so-called big boys mentioned earlier are operating from there.
Others include Helios, Aureos, Adlevo, Grofin and I&P capital to mention but a few.
So, we asked Barigye; “How will Rwanda realistically achieve it ambitious plan to match the big league players?
He shredded the complex subject into five major tasks that K-IFC needs to do in order for Rwanda to be seen to be a serious player in Africa.
“Through our work, we will support Rwanda’s economy to develop into a leading jurisdiction for fund management and private equity,” he says.
Putting in place legal frameworks
Here are the details of key steps that are expected to be undertaken.
First is legal.
Rwanda, it emerged, needs to put in place a clear, but very strong legal base with a competent regulatory system.
Barigye says, “Various laws are in the process of being enacted. A key example is the anti-money laundering law.”
The implication of this is that, much as Rwanda needs the new forms of capital, the money has to be clean and free of blemishes.
Once the legal framework is in place, the structural elements of K-IFC will naturally fall into the line.
He explains further; “Fintech one of our major focus areas has a lot of potential to realign and complement commercial banking sector operations.”
“We as RFL have already given recommendations on how concerned organs of the state can go about this.”
This means that specialized private equity and fund management firms will be able to see the attractiveness to set up shop in Rwanda once the legal system that favours their entry and operations is in place.
These firms want destinations with a modern government like what Rwanda has, which values the importance of working closely with private sector to provide legislation that meets market needs.
That means that RFL will be involved in reforming Rwanda’s laws to make it favorable for the global big boys of massive financial muscle to play in Rwanda.
Reforming the tax system
The second requirement is reform of the tax system.
The national tax system affects key revenue streams of private equity and fund management companies.
According to PWC, the tax system in Rwanda, currently imposes a 15% with holding tax on dividends, which is the main revenue stream of private equity and fund management firms.
This is something that needs to be reviewed and if need be to scrapped.
Experts are familiar with this matter, are saying that Rwanda needs to create a new system known as low flat rate tax system to replace the existing system.
In Barigye’s view, “It is right to say that Rwanda’s taxation laws must be reformed to make it more clear and advantageous to these investors.”
Reforming the tax system to reach ideals sought by private equity and fund management firms requires a robust and significant influence in the national fiscal policy system.
“We as RFL and key stakeholders have already initiated dialogue with concerned organs of the state on how to go about this,” the soft spoken Barigye reveals.
Signing of more tax treaties
Another key issue that RFL needs to put into place is the need by Rwanda to put in place an extensive network of double tax avoidance agreements (DTAAs), according to experts.
Also known as tax treaty, DTAA is a bilateral economic agreement between two countries that aims to avoid or eliminate double taxation of the same income in this case dividends in two countries.
Rwanda, according to PWC experts we consulted, has double tax treaties with Barbados, Belgium, Jersey, Mauritius, Morocco, Singapore and South Africa.
Going forward, the experts advised it is important for Rwanda to grow the number of tax treaties it has with leading economies such as USA, China, India, Brazil, Japan, EU and several others in the days to come in order to encourage foreign investors to benefit from understanding the rules and regulations on the ground.
All these critical issues point to a lot of reform work in progress for K-IFC to handle.
RFL, needs clearly to be deeply influential in the same breath that Rwanda Development Board (RDB) for instance, is doing in terms of investment promotion if real impact on the ground is to be seen.
Lowering cost of private equity and fund management firms in Rwanda
What is K-IFC going to do with respect to lowering operational costs of firms that will play within the private equity and fund management space?
According to Barigye, RFL is mandated with designing and operateing a competitive framework for these firms to operate along side other organs such as RDB.
This includes charging reasonable licensing fees and related charges for private equity and fund management firms.
Flexibility experts insist thi is something RFL needs to seriously consider.
There is need to have in place fast and straight forward authorization of new funds with less red tape.
Attracting right number of experts
Once licensing framework for private equity and fund management operators is in place, Rwanda needs to work very hard to put in place support services essential for these investors to operate.
“The fourth thing needed is to have in place the right number of experts” he says. “This includes fund administration, custodians, trustees, internationally recognized law firms and auditors.”
Technically, he told us, this is known as funds domiciliation.
In this sort of business, we are putting in place mechanisms for K-IFC to have capacity to carry out tasks such as offshore banking, trust management and global custodial services and fund management.
Rwanda needs to put in place a whole new set of experts within the financial sector for prospective investors and with high expectations for managing entities such as family offices, trustees among others.
This is already happening with RFL posting on. It already has three professional firms from Belgium, Nigeria, and the USA.
But Barigye quickly waves us, as if saying that the three firms already taking a position in K-IFC, ahead of its official launch slated by mid this year, is just but the beginning of something big coming up soon.
This means that K-IFC needs to start working with other stakeholders in order to have in place a good supply of local solid accounting, financial services and administrative experts as a key ingredient to attracting globa private equity and fund management companies.
“Correct,” was his apt reply.
Given the challenges the Rwandan economy has faced in having local professional accounting and finance professionals across the board, RFL’s intervention in this area is something that will be interesting to follow.
Cultivating the right reputation
Rwanda needs to work very hard for it to earn the reputation that will illustrate that indeed it is a safe haven for investors in Africa the way Mauritius has done in the last many years.
This is what is known as intangible criteria, according to experts familiar with this matter.
It will definitely take many years and continuous effort to earn that reputation.
“It is possible, given the fact that Rwanda has worked very hard to position itself as reformed destination for doing business in Africa,” he observes.
Work cut out for RFL
We wanted to discuss matters related to RFL, such as crypto finance and fintech in more depth. These are weighty matters that Rwanda has vigorously championed as departure from norms in Africa.
On this matter, RFL will fluidly sail through.
But his time was up and he was rushing to the next meeting.
We concluded and checked out of his offices as he excused himself.
Our engagement at RFL that day left us thinking that Barigye’s team at RFL has its work cut out for them.
It is a job that is very challenging as it is satisfying in equal measure.
Only time will tell if Barigye and his team will assist Rwanda to attract billions of dollars that Rwanda desperately needs.