Restrictive shareholding regulations have been one of the biggest stumbling blocks for foreign direct investment (FDI) in Kenya. In a move that has reverberated through Kenya's business landscape, the Government of Kenya has decided to scrap the 30% shareholding rule for Information & Communication Technology (ICT) companies. This decision is expected to have far-reaching implications for the country's technology sector.
What precipitated the 30% shareholding rule?
The 30% shareholding rule, was introduced as a protective measure for locally-owned ICT companies through the Kenya Information and Communications (Licensing and Quality of Service) Regulations 2010. Regulation 9(1) of the 2010 regulations required all companies licensed to operate in Kenya’s ICT industry to comply with the prevailing periodical communication sector policies. Section 6.2.4 of the National Information Communication and Technology Policy Guidelines of 2020, which are the prevailing guidelines, provide a mandatory 30% local shareholding threshold for all such licensees.
While the specific regulations were initially aimed at promoting local participation and safeguarding national interests, over time, it has become a double-edged sword to the growth of the industry. It protected local interests on the one hand whilst, on the other hand, it was a deterrent to foreign investment and limited the inflow of capital that the growing technology sector desperately needed.
Key implications
The recent scrapping of the mandatory shareholding requirement, which was undertaken following stakeholder engagements by the Ministry of Information, Communication & The Digital Economy, spells the following for Kenya’s ICT industry:
Influx of foreign investment: one of the immediate benefits of scrapping the 30% shareholding rule is the anticipated increase in FDI. Foreign investors are now expected to confidently explore opportunities in Kenya's tech scene, injecting much-needed capital and expertise into the sector;
Innovation and collaboration: with the doors now flung wide open for international players, local ICT companies can now engage in meaningful collaborations with global giants. This exchange of ideas, technologies, and practices is expected to accelerate innovation and drive the development of cutting-edge solutions;
Competitive edge for the local ICT industry: the removal of the 30% shareholding rule positions Kenya as a more competitive destination for tech companies considering international expansion. The country can now compete on equal footing with other tech hubs around the world. This opens up the potential of attracting regional headquarters and research and development centers;
Job creation and scramble for the local ICT talent: as the ICT sector flourishes, job creation is likely to follow suit. Ultimately, the setting up of new companies, or the wholesome acquisition and expansion of existing ones, will precipitate a surge in employment opportunities across various skill levels. In the same breath, it is also expected that the entry of global giants into Kenya’s ICT sector will spark healthy competition for local ICT talent.
Please note that this is not legal advice and is intended primarily for information purposes. If you require tailored advice or further information, please contact us on sarinke@mckayadvocates.com and kantai@mckayadvocates.com.