On 22 August 2023, the Ministry of Information, Communications, and the Digital Economy published in the Kenya Gazette an amendment to the National Information Communications and Technology Policy Guidelines, 2020 (the 2020 ICT Policy) which required companies to have at least 30% substantive Kenyan ownership, either corporate or individual, in order to be licensed to provide ICT services (the Equity Participation Rule). Prior to that, licensees in the ICT sector were required to have 20% local ownership.
The recent amendment deletes the provisions of the Equity Participation Rule, thereby removing the local shareholding requirements for companies providing ICT services in Kenya.
ALN Kenya participated in the legislative process leading to the removal of the Equity Participation Rule.
The Equity Participation Rule was initially introduced with the aim of enhancing Kenyan involvement in the ICT sector. While the Equity Participation Rule and similar local shareholding requirements in other sectors aim to secure economic benefits for Kenyans, they can also hinder the growth of these sectors.
Given the high capital outlays required, foreign direct investment (FDI) into Kenya’s ICT sector is crucial to the sector’s expansion. The mandatory requirement to cede a portion of ownership to local shareholders inevitably makes investment into the ICT sector less attractive to multinationals, whose corporate structures are not easily adjusted to cater for significant local partners. Conversely, in order to take up the local ownership, Kenyans must put in significant capital and investment, thereby limiting the local investor pool. Such shareholders may also not be aligned with the company’s vision and objectives.
A harmonious approach by the Kenyan government is essential, through balancing the support for local interests with the creation of an appealing environment for foreign investors. Access to foreign technologies, expertise and cutting-edge advancements brought in by foreign companies elevates growth and competitiveness within the Kenyan ICT sector and therefore such initiatives that drive investment should be encouraged. The removal of the Equity Participation Rule is therefore a welcome move by the Ministry.
Speaking during a stakeholder forum at which the Equity Participation Rule was discussed, the Principal Secretary for ICT and Digital Economy Eng. John Tanui announced that further reforms are expected in the ICT sector and stakeholders will soon be invited to share their input.
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Read the original publication at ALN.