The Information and Communications Technology (ICT) Sector Policy Guidelines 2020, Kenya, introduced the requirement that foreign firms licensed to provide telecommunications services in Kenya should have at least 30 percent(%) shares held by the locals, within a 3-year
grace period.
The rationale of the 30 percent (%) local shareholding requirement in the ICT sector was to ensure national security, attract foreign investment and create employment for Kenyans. It was premised on an underlying assumption that local participation at all ownership levels would
equip Kenyans with enough knowledge to ensure local ICT firms would flourish. However, the policy was not successful in achieving its mandate as the number of foreign investors in the ICT sector declined significantly. Foreign companies found the policy prohibitive and were reluctant to find local partners. Further, the policy made it harder for existing startups to increase their stake beyond the 30 percent (%) equity threshold.
Consequently, President William Ruto proposed the removal of the mandatory local shareholding requirement, among the fiscal policy changes which would be expected in the Finance Bill 2023 and the Budget Policy Statement. This proposal was made during the
American Chamber of Commerce (AmCHAM) Summit held on 29th and 30th March, 2023 in Nairobi. Vide a Cabinet despatch dated 18th July, 2023 (the despatch), the Kenyan Cabinet approved the President’s proposal. The despatch stated that the rationale of scrapping the 30 percent (%)requirement is “part of the reforms to enhance Kenya’s overall ease of doing business index while also fortifying legislative consistency in the governance framework for foreign investments. The policy shift is geared towards facilitating technology and knowledge transfer as well as to aid the expansion of the digital economy by positioning the country for increased foreign investments in technology as envisioned in the
Administration’s Bottom-Up Economic Transformation Agenda (BETA).” Interestingly, following Kenya’s Cabinet approval of abolishing the mandatory local shareholding requirement in the ICT sector, Elon Musk launched his satellite Internet firm, Starlink, in Kenya on 19th July, 2023. Starlink partnered with a local internet company, Karibu Connect, as its first authorized distributor in Kenya. The launch made Kenya the 6th African
country to be explored for business by Starlink after Nigeria, Mozambique, Mauritius, Rwanda, and Comoros. Shortly after the launch of Starlink, United States (US) Ambassador, Meg Whitman attended the 8th Devolution Conference in Eldoret. In her address, she strongly pitched Kenya as Africa’s best investment destination for the international community. The envoy did not hide her enthusiasm about Kenya’s investment prospects and climate. She described the country as the region’s ICT Hub and gateway to East Africa.
| Engineering- the Engineering Technology Act No. 23 of 2016 | provides that a foreign firm may only be registered as an engineering consulting firm if the firm is incorporated in Kenya and has a minimum local shareholding of 51 percent (%); |
| Aviation– Regulations 5 and 12 of the Civil Aviation (Licensing o | require a prospective licensee to be a citizen of Kenya or, if a body corporate or a partnership, have at least 51 percent (%) of its voting rights held by the Kenyan Government, a Kenyan citizen, or both; |
| Private security– the Private Security Regulatory Authority established by the Private Security Regulation Act, 2016 | requires a prospective license holder to have a minimum of 25 percent (%) local shareholding; |
| Pension funds/ schemes–the Retirement Benefits Act, 1997 | requires at least 60 percent (%) of the paid-up share capital of a scheme administrator to be held by Kenyan citizens, unless the administrator is a bank or an insurance company; |
| Shipping– the Merchant Shipping (Maritime Service Providers) Regulations, 2011 | require an applicant for a licence to be a citizen of Kenya or, if a body corporate, have at least 51 percent (%) of its share capital held by Kenyan citizens; |
| Insurance- the Insurance Act (CAP 487) | provides that not less than 1/3 (one-third) of the paid up share capital of an insurance company must be owned by citizens of the states forming the East African Community, a partnership whose partners are all citizens of those states, or that is wholly owned by the Kenyan Government. |
| Mining– the Mining (Local Equity Participation) Regulations, 2012 | Under the previous Mining Act, a mining license applicant needed 35 percent (%) local shareholding for a mineral right. The 2016 Mining Act lets the Cabinet Secretary set capital expenditure limits. If a licensee’s planned spending surpasses this limit, they must list 20% percent (%) of equity on a local stock exchange within 3 years of production start. Small-scale operations tied to mineral rights are limited to Kenyan citizens or bodies corporate with 60% local shareholding. |
| Capital markets– the CapitalMarkets (Foreign Investors) Regulations | require every legal entity that offers securities to the public or a listed company to reserve at least 25 percent (%) of its ordinary shares for investme |
| Financial institutions– the Banking Act (CAP 488) | Financial institutions– the Banking Act (CAP 488) |
We hope this information is helpful in understanding the 30 percent (%) local shareholding requirement in the ICT sector and the effects of its abolishment in Kenya. Please note that the contents of this newsletter are intended to provide a general guide to the subject matter. It should not be relied upon without legal advice on its contents. Should you require further information or legal assistance on Compliance or any other legal issue, kindly feel free to contact us at info@wka.co.ke, www.wka.co.ke, +254 798 03 580, Nairobi Hub: Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road
Authors:
Founding Partner: william karoki
Lawyer:Florence Mwende