Inside deal that cut red tape for Afreximbank Kenya entry

Cairo-based African Import and Export Bank (Afreximbank). [iStockphoto]

President William Ruto recently unlocked a plan by the Cairo-based African Import and Export Bank (Afreximbank) to finally set up shop in Kenya.

The lender three years ago reached a deal with neighbouring Uganda to set up its Sh3 billion regional headquarters in Kampala following red tape by Nairobi.

The choice for Kampala was seen as a major blow to Kenya as it denied Nairobi the benefits that come with hosting such top international organisations.

But President Ruto recently said the pan-African lender would finally be given the necessary approvals and backing to set up a branch in Nairobi.

He spoke after he met the bank's officials led by its president Prof Benedict Oramah at State House, Nairobi a fortnight ago. "We welcome the plan by the African Export-Import Bank (Afreximbank) to set up an office in Nairobi," said President Ruto.

"This will allow us to expand our engagement with the bank on several investment areas such as infrastructure, housing, the creative industry, and the MSMEs (Medium, Small and Macro Enterprises) ecosystem."

The announcement belied the near-decade-long intrigues and struggle that saw the regional bank give up on hopes of ever setting base in Nairobi.

The regional trade bank had earlier blamed Kenya's reluctance to grant it diplomatic status for its decision to dump Nairobi for Kampala. At the heart of the dispute that saw Kenya lose out to Kampala was Kenya's rejection of some of the banks' critical demands.

"The Kenyan Ministry of Foreign Affairs (MoFA) has responded but deleted a number of key requirements such as diplomatic immunity for the president of Afreximbank. As of now, the MoFA has not given the bank what the bank asked for. The gap between MoFA and the bank is so wide. From the response of MoFA it is clear they do not want Kenya to host a branch of Afreximbank," a senior person at the bank, who did not want to be named as they are not authorised to speak to the media, had earlier told this writer.

"A letter will soon follow communicating our decision to relocate the branch to another eastern African country barring a change in the ministry's position," they had said. While highlighting its frustration with Nairobi's hardline stance, the bank had, for instance, said it had waited for two years for a response from Kenya's MoFA.

Paying tax

Apart from diplomatic immunity, the multilateral lender wanted its employees exempted from paying tax in line with the privileges accorded to the staff of other multilateral institutions.

Nairobi is seen as the region's financial centre and a hub for many multinationals doing business in the region. It hosts regional offices of the African Development Bank (AfDB), the United Nations Environmental Programme (Unep) and the World Bank, multi-national companies and diplomatic missions.

The United Nations Office in Nairobi - the UN headquarters in Africa - was established by the General Assembly in 1996. It has more than 3,000 workers.

Afreximbank had maintained that the privileges it sought were not unique to Kenya as they had been granted by host governments in Abuja (Nigeria), Harare (Zimbabwe), Abidjan (Cote d'Ivoire), Tunis (Tunisia) and Egypt (Cairo).

The bank's demand for special privileges was supported by the fact that similar multilateral institutions and diplomatic missions in Nairobi enjoy the same.

The Foreign Affairs ministry under the previous administration was said to be particularly uncomfortable with several clauses in a draft agreement touching on taxation.

International observers and local investment analysts had earlier questioned Kenya's decision to delay approvals, warning that relocating to Kampala or another country meant all potential benefits of hosting such an office, including investment in buildings, rents and employment, would be lost.

Afrexim, which finances and promotes African trade, has become a significant player in Kenya's economy in the past decade, having financed big-ticket deals, including national carrier Kenya Airways. The lender said recently it wants to pump money into Kenyan firms in various sectors as it eyes an increased role in the local economy.

"We are looking at providing support in different areas," Afrexim Director and Global Head of Client Relations Rene Awambeng had said earlier.

The regional lender focuses on private and public sector loans, guarantees and advisory services. Its range of financing programmes and advisory services are in trade and project financing as well as export development guarantees. Observers also saw the loss of hosting rights to Kampala as a blow to retired President Uhuru Kenyatta's efforts to create a regional financial hub in Nairobi. Prof Oramah, the bank's chairman and president, had earlier blamed the previous administration for keeping it waiting for more than three years for the necessary approvals.

"It took too long to obtain the necessary approvals from Kenya. That is the reason we decided to go to Uganda at their invitation," said Prof Oramah. The Kampala branch serves 11 countries, including Kenya, Uganda, Sudan, Eritrea, Djibouti, Ethiopia, South Sudan, Tanzania, Rwanda, Burundi and Comoros.

The Treasury had in 2016 indicated that Kenya would finally sign the deal, paving the way for the establishment of the regional headquarters in Nairobi.

The plans had been in the works for over three years. But a decision by the MoFA bureaucrats led by then Cabinet Secretary (CS) Amina Mohamed to dig in appeared to have scuttled the process.

Credit facility

Former Foreign Affairs CS Monica Juma was the Principal Secretary in the ministry before rising to the helm of the docket. Ms Mohamed later headed the Sports Ministry. Earlier, former Treasury Cabinet Secretary Henry Rotich had said in a letter to Afreximbank that his office had completed a review of the agreement to set up the office and the same had been forwarded to the MoFA for "finalisation."

Afrexim in March 2020 created a $3 billion (Sh360 billion) credit facility to help African countries overcome the effects of the pandemic. Kenya recently inked a $3 billion financing deal from Afreximbank.

A technical team drawn from Kenyan and Afeximbank is expected to begin working on the structure of the support, said the bank. Part of the planned lending will go towards dams construction and industrial hubs.

During the meeting held at State House, Nairobi, Prof Oramah said the bank is keen to roll out this package of financing as part of its efforts to support Kenya as it navigates the current global economic challenges. "We had a very good meeting with President Ruto and agreed that we needed to reset the relationship between Afeximbank and Kenya," said Prof Oramah.

President Ruto hailed the move as a major win for Kenya. "This will allow us to expand our engagement with Afreximbank on several investment areas such as infrastructure, agriculture, commercial irrigation, housing, the creative industry and the MSME ecosystem," he said.