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How new partnership law will improve investment ecosystem

Among the likely impacts of the development, experts say include investment funds being structured and domiciled in Rwanda as partners, local businesses having more structuring options as partnerships, as well as an increase in businesses registered as partnerships.
Rwanda Finance Limited officials during a virtual meeting at the head office. / Photo File.

Last week, an extraordinary cabinet meeting approved a draft law governing partnerships, which stakeholders say was long overdue and will serve to improve the attractiveness of the Rwandan ecosystem for investment. 

The law allows partnership businesses to be structured in Rwanda, which was previously non-existent in the country. 

 

The legislation yet to be gazetted, is designed to provide for additional structuring options for businesses and investment platforms in Rwanda, increasing the attractiveness of doing business through the Kigali International Financial Center (KIFC).  

 

The law is also further aimed at attracting additional capital and private funding for investments in Rwanda. 

 

Dr. Adelit Nsabimana, the KIFC Technical Advisor at Rwanda Finance Limited, said that the legislation is a key trend in economies across the world that want to develop financial activities. 

Rwanda Finance Limited (RFL), is the government agency overseeing the establishment of KIFC and was involved in steering the law.  

Nsabimana noted that the structure is familiar and friendly to international investors with features such as provisions for limited partners.  

“KIFC has gone the extra mile in line with best practices we have seen in other international financial centers to provide a window to limited partners on their limited partner role without impacting the management done by the General Partner,” he said.  

Ntoudi Mouyelo, the KIFC Coordinator noted that there had received significant demand for the legislation by international institutional investors and fund managers from the Middle East, Europe and Africa, including Rwanda. .  

“This is common for the structuring of alternative investment vehicles, and caters for example to private equity funds targeting institutional, professional and high net-worth individuals,” he said.  

The law is also a complement to the existing framework for collective investment schemes, targeting mainly local retail investors. 

Rwanda Development Board Chief Executive Clare Akamanzi said that the law was long overdue given the ambitions of the ecosystem to turn Kigali into a financial centre.  

She said that there was demand, especially as some business types require the form of ownership as opposed to corporations.   

“Usually, there are some business types that require to structure themselves as partnerships as opposed to corporates, these are mostly professional services such as law firms, audits services, and medical practice, among others. Considering that we are looking at setting Rwanda as a financial hub and we want to attract funds and limited partners who manage funds, these globally structure themselves as partnerships,” she said.  

Beyond attracting global firms, she noted that it is also of benefit to professional services in Rwanda that have been registering as corporations while the best fit for them is partnerships.  

Among the adjustments that a partnership brings is that it reduces the bureaucratic systems a partner providing services has to deal with when managing day-to-day activities of a firm. 

 As a corporate structure, they would be required to have the backing of minutes, board decisions when making a decision which is not the case in a partnership.  

Tax structure for partnerships is tax transparent whereby a partnership does not pay corporate income tax like companies, with the income of partners being  taxed at partner level which is relevant for fund management.   

Yariv Cohen, an entrepreneur and impact investor in a number of African countries including Rwanda welcomed the development saying that it will also enable investors to team up and invest alongside one another in a simple and tax-efficient way. 

He added that following the development, the country is likely to see bigger investments which is often synonymous with partnerships. 

The local private sector has also welcomed the move saying that it brings about a variety and options as opposed to previously where investors working together were restricted to a limited company. 

Stephen Ruzibiza, the Chief Executive of the Private Sector Federation said that the development puts Rwanda at par with other economies that have the framework hence improving the competitiveness with regard to investment attractiveness.  

“We are now at par with other countries and markets that have had the same framework which we were missing. People will not excuse themselves from entering the local market,” he said.  

Among the likely impacts of the development experts say include that investment funds being structured and domiciled in Rwanda as partnership will increase the custody activities of local banks with a broader access to foreign currency for local businesses.

The process of setting up the law included stakeholder engagement, best cases modeling, review of primary and secondary legislation as well as benchmarking on key other financial centers.  

In the process, local stakeholders such as Capital Markets Authority, Rwanda Bar Association and the Private Sector Federation were consulted.  The process also involved engagement and consultation of international stakeholders such as CDC Group, the UK’s development finance institution and impact investor.

Rwanda Finance Limited, Rwanda Development Board and the Ministry of Finance and Economic Planning steered the process.

This is one of many legal reforms within the financial service sector to improve the relevance of the investment climate.  Recently, Rwanda amended its anti-money laundering and counter-terrorist financing law and regulations to ensure compliance to international standards.  

cmwai@newtimesrwanda.com

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