Driving growth in ICT by removing barriers to foreign investment and fostering innovation

  • 31 Jul 2023
  • 3 Mins Read
  • 〜 by Kennedy Osore

The proposal to remove the 30% minimum local shareholding requirement for foreign entities operating in Kenya’s ICT sector marks a significant milestone in the country’s efforts to encourage foreign direct investment and drive growth and innovation in the digital economy. This decision comes after acknowledging the negative impact of the local shareholding requirement on attracting foreign investors, particularly prominent multinational ICT companies.

Taking a look at the historical context of the local shareholding requirement, we find a series of policy changes aimed at striking a balance between promoting local participation in the ICT sector and attracting foreign investment. These changes over the years showcase the government’s flexibility in adapting its approach to meet the evolving needs of the sector and the overall economy.

To grasp the implications of this proposal, it is crucial to analyze its potential effects on various aspects of the economic landscape. Firstly, the removal of the local shareholding requirement is expected to lead to a substantial boost in foreign direct investment. This move sends a clear signal to international investors that Kenya is open for business and actively creating an environment conducive to foreign companies investing in the ICT sector. As a result, we can anticipate a significant influx of capital, knowledge, and advanced technology into the country, spurring economic growth.

A major advantage of this proposal lies in the potential for technology and knowledge transfer. With the local shareholding constraints lifted, multinational ICT companies can freely share their technological expertise and best practices with their operations in Kenya. This transfer of knowledge will contribute to upskilling the local workforce, fostering innovation, and narrowing the technology gap between Kenya and more advanced economies.

The growth of the digital economy is another exciting outcome of increased foreign investment. This expansion will encourage the emergence of more ICT-related businesses, leading to job creation, economic development, and improved digital services for consumers. Additionally, the removal of bureaucratic hurdles associated with local shareholding requirements aligns with the government’s broader efforts to improve Kenya’s overall ease of doing business index, making the country more appealing to international investors seeking to establish or expand their ICT operations.

The positive impact of the proposal extends beyond the ICT sector. The growth of ICT can have a ripple effect on other sectors such as finance and healthcare, which heavily rely on digital technologies, potentially leading to a more diversified and resilient economy.

Moreover, removing the local shareholding requirement will offer vital support to tech startups. The previous requirement acted as a barrier for startups seeking funding beyond the equity threshold. By eliminating this restriction, startups will have better access to funding opportunities, promoting a thriving entrepreneurial ecosystem within the ICT sector.

Furthermore, this proposal aligns with the government’s Bottom-Up Economic Transformation Agenda (BETA) by promoting foreign investments that can stimulate economic growth and create job opportunities for the population.

However, while the removal of the local shareholding requirement presents numerous opportunities, there are also challenges and considerations that need to be addressed to ensure inclusive and sustainable growth.

A crucial consideration is ensuring that the benefits of increased investment are distributed equitably among various segments of society. As the local shareholding requirement is removed, the government must take measures to encourage participation from local individuals, marginalized groups, and employees. Mechanisms like employee sharing option plans and partnerships with universities for training can play a significant role in achieving this goal.

Protecting local interests is also paramount. While attracting foreign investments is vital for economic growth, the government must carefully balance this with safeguarding the interests of its citizens. Implementing local content regulations, such as procurement and employment quotas for locals, can help ensure that the national workforce benefits from the sector’s growth.

With the expected growth in data storage and processing, there will be an increased need for robust data protection measures to safeguard citizens’ privacy and sensitive information. The government must provide effective regulatory oversight to prevent potential abuses or anti-competitive practices as foreign companies invest and expand their operations in the ICT sector.

The proposal to remove the 30% minimum local shareholding requirement for foreign entities operating in Kenya’s ICT sector represents a progressive step towards attracting foreign investment, promoting technology transfer, and stimulating sectoral growth. Aligned with the government’s vision of becoming a globally competitive digital economy, it holds the potential to create an environment conducive to innovation and economic prosperity. However, to strike a balance between attracting foreign investment and protecting local interests, the government must carefully plan and implement the policy change, ensuring that the benefits of growth are shared equitably across the Kenyan population. With proper consideration and execution, this policy change has the potential to position Kenya as a leading player in the digital economy and drive sustainable economic development.