This is the biggest deal in the evolution of the African tech systems since Bill Gates pioneered, through Windows and Intel/IBM chips, personal computing in ways anyone could participate. Yes, foreign companies planning to do business in the Kenyan ICT sector must be required to surrender 30% shareholding to Kenyans, corporates or individuals. This new ordinance is captured in the National Information Communications and Technology Policy Guidelines 2020, which was published last week, spelling out new regulatory mandates for players in the ICT sector: “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 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.
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“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.
This may not be palatable but Africa needs to have tough conversations for its future. A few weeks ago, a “Kenyan company” was acquired. As I researched for a piece, I noticed that 100% of it was owned by non-Kenyans. The Board has no single Kenyan; I decided not to run the piece as there was nothing Kenyan in it; it was a foreign company with operations in Kenya, deceiving journalists that it was “African”.
I expect Nigeria to arrive at the same conclusion by 2023. Yes, the wealth being created in the technology space today, in Nigeria, is largely not Nigerian. More than 70% are controlled outside Nigeria. From registering startups in the U.S. to using entirely foreign boards, I expect changes because if we do not act, we will get only marginal benefits as a nation. I will be happy to help the government write the brief, free, if it is serious.
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I salute Kenya for this move. it is going at the root: OWN something and keep some home.
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It sounds pretty Ok, but not so straightforward. The policy gave a moratorium of 3 – 4 years, to meet the requirement. What happens at the end of fourth year could be anyone’s guess.
For a successful ICT firm, would the 30% local equity be cash backed (purchased) or just a donation from the foreign company to the local players? This is imperative, because if the company’s worth is hundred million dollars, for the former, you are basically saying that the locals have their thirty million dollars, to take up their share. This thing may not look easy as some might think, except the value must be watered down…
Again, the role of competition from other countries: if Kenya is demanding 30% with three to four years moratorium, and Uganda asks for 20% with five years moratorium; and Nigeria asks for 15% with six years moratorium. Then, another African country, having studied others, asks for only 5% with ten years moratorium. Got the gist?
Just like taxes and waivers, this kind of policy could easily backfire, because if you are hungry for employment and tech sector development in your country, you may tempt these foreign companies with 100% ownership, just to host them within your territory.
Plenty scenarios in my head…
Francis, the percentage is always in the local subsidiary. Say Company A is a US company and operates in Kenya and Nigeria. It would have two subsidiaries – Nigeria and Kenya. Kenya is asking for 30% of that Kenyan subsidiary, not the U.S. one. South Africa has been doing this and foreign firms have been investing in it. The nation remains the window to Africa. Local investors will buy the stakes, not free donations. Or the company should bring in local partners as co-founders. I support this.
This will not affect employment. Government is smart to note this is for ICT. If you want to build a factory, Kenya can allow you to control 100% of the firm. Why? You will hire hundreds locally. But in IT, you can have 6 people serving thousands with apps. So, the employment argument does not cut it.
What if a tech company hires thousands? That is a realistic scenario with outsourcing which is considered ICT.