• 28 Aug 2023
  • 3 Mins Read
  • 〜 by Waceera Kabando

Policies pegged on local/foreign shareholding of companies in Kenya have been mired in controversy since 2006 when the local shareholding of foreign companies was reduced to 20% to attract foreign investments. This allowed investors to retain up to 70% of their equity, demonstrating the government’s commitment to fostering both local and foreign investments in the ICT sector. Now, 17 years later, we are haggling with the 30% ICT rule, which has now been amended. 

The deletion of paragraph 6.2.4 of the National Information Communications and Technology Policy Guidelines, 2020 on “Equity Participation” is based on the negative impact this has had in attracting foreign investors. The change in policy is aimed at enhancing local participation in the ICT sector by promoting innovation and creating jobs, reversing the impact of this rule on foreign direct investment (FDI) and encouraging transfer of knowledge from international capacities to the local ICT ecosystem.

Interestingly, local stakeholders have held different views. Some have opposed this move stating that the impact would be an overreliance on foreign entities on critical infrastructure and resources; that it would be detrimental to local problem-solving; reducing the demand for local services due to a lack of skills, technology and knowledge; and hindering local investment.

Looking at other jurisdictions, this scrapped rule is not exclusive to Kenya. Fintech companies in Ghana are required to have a 30% local shareholding, foreigners must invest a minimum of $10 million to be incorporated in mining companies. In Ethiopia, there are some industries that are only for locals, but there has been an increase in direct investments, procurement and bids by international corporations. Malawi’s ICT industry applies a 20% local shareholding rule.

Rwanda, Mauritius and Nigeria have no restrictions on foreign investment and ownership in the ICT sector. Nonetheless, in Rwanda, companies are required to have a resident director. In Mauritius, companies holding radio or television broadcasting licences are limited to having up to 20% of shares held by foreigners.

Uganda recently passed the Telecommunications Licensing Framework, where licensed telecommunications companies are obligated to list at least 20% of their shares on the Uganda Stock Exchange. Tanzania’s regulations dictate that licensed companies in the ICT sector must issue a minimum percentage of their shares to local residents. Network and application services licensees are required to issue at least 25% of their shares to Tanzanians, while content service licensees must issue at least 51% of their shares to Tanzanians.

South Africa applies the Electronic Communications Act, which requires individual licence applicants to have a minimum of 30% of their shares held by historically disadvantaged groups (HDP), including black people and other historically marginalised groups.

Despite this proposal being a win for global companies such as Google, Microsoft and Amazon, herein lies several recommendations to ensure local interests are protected and a conducive environment is maintained to ensure smooth operations.

  1. Simplifying the regulatory processes for foreign ICT companies to attract investments and provide a platform for the transfer of knowledge, technology, and best practises. With collaborations between local and foreign companies, Kenya can leverage international expertise to drive technological advancements, accelerate its digital transformation and develop into not only a regional, but also a global technology hub. It is essential to maintain a balance between ease of doing business and ensuring regulatory compliance. Issues such as data privacy, cybersecurity, and fair competition will need to be addressed in order to grow the digital ecosystem and foster sustainable growth in the ICT sector.
  2. Implementation of targeted incentives and initiatives like mentorship and training programmes, and collaboration opportunities would ensure that Kenyan talent is equipped with the necessary skills to thrive in a digital economy. This can be done through public-private collaborations with foreign ICT companies, industry associations, and educational institutions. 
  3. Companies with a higher shareholding outside the borders of Kenya should dedicate a percentage, not less than 30%, of their capital expenditure (CAPEX) to develop digital skills and transfer of knowledge in Kenya. Such companies ought to reserve top managerial positions for qualified locals and ensure that at least a higher number of their employees are citizens of Kenya, taking into consideration vulnerable groups.
  4. Flexible ownership structures that encourage partnerships between local and foreign investors will enable the sharing of expertise, technologies, and capital. They would also demonstrate the government’s commitment to creating an investor-friendly environment and encourage foreign companies to consider Kenya as a preferred destination for their investments. The availability of flexible ownership structures will bridge entry into the Kenyan market.
  5. Public declarations of financial reports by the companies with greater shareholding outside Kenya would be essential to promoting transparency and building trust.

Conclusively, there is no higher law than the one created by humans as proposed by Jeremy Bentham. All laws are made by humans; the law’s only purpose is to maintain order and social stability. Therefore, the law must progress in tandem with the times so as not to become an obstacle to society’s progress.