Foreign firms to cede 30pc stake under new law

Foreign companies eyeing to do business in the country’s lucrative ICT sector will have to surrender 30 per cent shareholding to Kenyans. 

This is according to the National Information Communications and Technology Policy Guidelines 2020, published last week, that spell out new regulatory obligations by companies and individuals working in the ICT sector.

“The government strongly encourages Kenyans to participate in the ICT and science and technology sector through equity participation,” states the regulatory policy published last week by the ICT Ministry. 

“It is the policy that only companies with at least 30 per cent substantive Kenyan ownership, either corporate or individual, will be licensed to provide ICT services.”

The move is likely to raise eyebrows among companies looking to make an entry into the country’s growing and lucrative ICT sector. It is also likely to increase compliance requirements for foreign firms bidding for long-term State tenders in the ICT sector. 

“For purposes of this rule, companies without majority Kenyan ownership will not be considered Kenyan, and may thus not be calculated as part of the 30 per cent Kenyan ownership calculus,” the document reads in part.

In the recent past, dozens of companies have set up shop in Kenya, with the country appearing among the top three in Africa in terms of start-up investment. 

According to investment platform Partech, which tracks equity deals in African start-ups, last year, Kenya recorded Sh5.6 billion worth of investments, emerging second in total funding and number of transactions in Africa.

The ICT policy further says foreign companies will be given three years to meet the local equity ownership threshold, and may apply to the CS for a one-year extension with appropriate acceptable justifications. “For listed companies, the equity participation rules will conform to then extant rules of the Capital Markets Authority,” explains the policy. 

The policy appears to respond to recent queries raised over the high number of tech start-ups locally with foreign boards of directors and management.   

The policy, however, does not specify if the rules will apply to new companies making their entry into the country, or those already in existence. 

Under the new regulations the government will also introduce a new licensing and registration regime where companies are given temporary licences that are later withdrawn if they fail to make commercial success. 

“This will take the form of rules that allow companies to be licenced for certain services and only pay for the licence when they commence operations or achieve benchmark goals within predefined time frames,” explains the policy.

The State anticipates the policy will create 20 Kenyan multi-national ICT companies, 300 mid-sized firms, 5,000 small and medium enterprises and 20,000 startups.

This is expected to increase the number of startups through easing their barrier to entry. The policy also proposes a government venture capital fund that will invest in start-ups for a portion of the equity on a first-loss basis in case the startup fails.

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