Foreign Companies Relinquishing 30 Percent Ownership to Kenyans in National ICT Policy Could Be Counterintuitive


The National ICT Policy, 2019 was published in the Kenya Gazette last week.

As explained in the original story, the policy was first reviewed in 2006 after a notable growth in the ICT space I the country.

The reexamination of the policy is based on the need to match the space to what global trends are offering, mainly in a fast-changing ICT department.

Read: The National ICT Policy 2019 Goes Live in the Kenya Gazette

Furthermore, the policy aims to meet, among many other goals, ‘global recognition for innovation, efficiency, and quality in public service delivery. Government services will be delivered in a manner that ensures we have a prosperous, free, open, and stable society.’

One thing that might have escaped many Kenyans is the manner in which non-Kenya ICT companies will organize ownership.

In a clause named Equity Participation, the policy states the following:

The government strongly encourages Kenyans to participate in the ICT and Science & Technology sector through equity participation.

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

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% Kenyan ownership calculus.

Licensees will have 3 years to meet the local equity ownership threshold they may apply to the Cabinet Secretary for a one-year extension with appropriately acceptable justifications.

For listed companies, the equity participation rules will conform to the then extant rules of the Capital Markets Authority.

Our take

According to opinions raised by many Kenyans, the policy is pursuing the ownership angle because a substantial number of ICT companies and start-ups operating in Kenya are run by foreigners.

It also goes further: the boards and upper management of the targeted companies include predominantly non-Kenyans.

On the whole, if more than 30% of ownership is not Kenyan than the ICT companies will not be licensed to run their trade in the country.

Another way of looking at this is that the development is expected to increase the number of startups by easing their barrier to entry.

However, it would appear that the policy does the exact opposite; it makes it harder for startups to set up shop by increasing regulatory requirements.

Further, it makes it harder for existing startups to raise funding beyond that equity threshold.

In fact, what this regulation does is tie the hands of foreign investors without addressing any of the challenges that make it hard for locally owned startups to thrive.

This belies an underlying assumption that without the competition of foreign-owned, local ICT firms, locally owned ICT firms would proliferate and flourish.