As part of efforts aimed at improving its internet access, Kenya has launched its sixth submarine internet cable worth $400-million that will offer high speed, lower latency, and broader bandwidth internet services in the country.
The cable will connect Africa to France and Pakistan through the Europe-Asia route, providing direct connectivity to Asia, which is expected to reduce communication delays between Africa and Asia. The launch is also a partnership between Peace Cable and Telkom Kenya.
ICT Cabinet Secretary Joe Mucheru
The global Mobile Data Index reveals that Kenya has the most expensive mobile data in East Africa. However, the 15,000-kilometre cable is expected to create more flexible digital connection options, including high speeds of 200 Gbps per single wavelength with a total capacity of 192 Terabits per second, as well as stable and secure data access possibilities.
ICT Cabinet Secretary Joe Mucheru said that the country is inside the Fourth Industrial Revolution (4IR) where fast internet speed is in high demand.
“Right now, you can enjoy 5G data speeds at Uhuru Gardens. 5G smartphone penetration in Kenya is growing. More online business opportunities will be unlocked by this cable,” Mucheru said, speaking at the launch.
“Peace will bring more diversified digital connection options and provide high-speed, large-capacity, and stable data access opportunities to Kenya,” Peace Cable’s chief operating officer, Sun Xiaohua said.
Peace and Telkom rely on fibre optics to transmit light signals which are encoded with data over long distances.
Telkom Kenya CEO Mugo Kibati said that contributing to Kenya’s strategic evolution to turn into a digital economy is important, especially through the use of the internet.
“This ultra-high capacity cable will assist Kenya and the region in meeting its current and future broadband capacity requirements as well as assist carriers in providing affordable services to Kenyans,” Kibati explained.
“This is in line with our long-term goal of effectively addressing the digital transformation being witnessed in Kenya and the region, as we seek to become the technology partner of choice in these markets,” Kibati said, according to Biztech Africa.
Currently, Telkom Kenya maintains five to six internet cables already in the East African country.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
Airtel subsidiary in Kenya is facing fresh huddle with the country’s communications authority as it has been ordered to pay $20.025 million (Sh2.15 billion) for its expired licence to be exempted from a rule that requires telecoms operators to sell a 30 percent stake to local investors within the next three years.
According to Joe Mucheru, the ICT Cabinet Secretary, Airtel must first renew its licence that expired in February 2015 before entering talks with the government for a waiver of the local ownership rule. Airtel Kenya has been locked in a court stalemate with the Communications Authority of Kenya (CA) over the renewal of its operating licence, with the regulator insisting that the firm must pay the permit fee of Sh2.1 billion to stay in business.
Joe Mucheru, the ICT Cabinet Secretary
Meanwhile, Airtel is operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded in 2014.
“If they are operating without a licence, how do we even grant them an exemption? We are still in court with them. I cannot give permission if they have not paid the licence fee,” Mr Mucheru said.
“They (Airtel) have to go to the regulator to get a licence. The regulator will have to show that they have met all rules except that they are not able to find local investors if that are the case. Then the Communications Authority of Kenya can write to me for exemption.”
This looks set to escalate the licensing row that has dragged in court for the past six years. Airtel maintains that the CA had agreed to merge its operating licences with the ones it purchased from Yu Mobile in 2014 for the $6.976 million (Sh752 million) it paid to acquire the rival firm. The Yu Mobile licence is to expire on January 27, 2025.
Airtel claims that upon its purchase of Yu Mobile spectrum and frequencies, the CA changed its earlier position and demanded an additional Sh2.15 billion as a condition for renewing its operating permits.
Airtel earlier told the court that it would have abandoned the Yu Mobile deal had the regulator disclosed it would demand separate spectrum fees of Sh2.15 billion. The row moved to the Court of Appeal. The CA maintains that the Yu Mobile licence Airtel is currently operating under was not automatically transferable.
The tough stance by the government signals that India’s Bharti Airtel must pay the Sh2.1 billion or sell the 30 percent of its stake in Kenya’s second largest telecoms operator to a local to avoid getting into trouble with the regulators.The mandatory share sale is to bring the firm in full compliance with ownership regulations that require telecoms companies to maintain at least 30 per cent local shareholding.
Mr Mucheru on April 9 unveiled a licensing policy that has given telecoms firms up to March 2024 to comply with the rule meant to encourage local ownership of ICT firms.
He also increased the local ownership threshold from a minimum of 20 per cent, a cap that has been in place since 2008.
A few firms, including Airtel, have been exempted from the shareholding rule, a window that let billionaire investor Naushad Merali to sell a significant portion of his shareholding in the firm worth billions of shillings without contravening the law. Mr Mucheru has directed firms that had secured waivers on the local ownership rule to comply within three years.
Airtel, which has remained in losses since launching Kenya operations in 1999, considers the Sh2.1 billion licence fee too high. Its losses in the year to March last year stood at Sh5.61 billion. Safaricom recorded a net profit of Sh74.6 billion in the same period.
Airtel’s difficulties in finding a buyer for the stake has been linked to the mismatch between the company’s valuation and local investors’ assessment of its worth based on the position that the business remains in the loss-making territory. This position is what prompted the State to offer Airtel an open-ended waiver on the local ownership rule.
Mr Merali, who initially owned 40 per cent of Airtel, has used the waiver window to sell his shareholding in the firm. Airtel has signalled its intention to seek a waiver to the latest order on the 30 per cent local ownership rule.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
For startups in Kenya, it appears government is finally attempting to change the status-quo. The newly launched National Information, Communications and Technology (ICT) Policy spells out a new set of policy guidelines intended to assist the East African country achieve its Vision 2030, which among many things, is anchored on helping Kenya attain the status of an industrialized information society as well as a knowledge-driven economy by 2030.
Joe Mucheru, Kenya’s Cabinet Secretary for Information, Communications & Technology
“This review of the Information and Communications Technology (ICT) Policy of March 2006 is inspired by, first, the need to align the Policy with the new constitutional dispensation in Kenya, and Vision 2030. This review specifically aims to incorporate the lessons learned from the Vision 2030,” Joe Mucheru, Kenya’s Cabinet Secretary for Information, Communications & Technology said in a statement.
“By providing local and international connectivity across the country and region, and developing in-country solutions, the Government will enable creation of online and digital jobs, markets, and quality skills allowing Kenyans to embrace the shared economy. In this way, citizens will transition from traditional ways of working to innovative, digitally enabled forms of work,” he added.
Below, we discuss how these policies would attempt to change the narrative for startups in Kenya.
A New 30% Equity Participation Rule In Favour Of Kenyans
Against the backdrop of increasing foreign participation in the Kenyan startup ecosystem, which has also seen more foreign-owned startups in Kenya funded than locally owned ones, the new ICT policy attempts to reserve 30% of ownership stake in every company registered to do ICT-related businesses in Kenya.
By the terms of the new rules, only companies with at least 30% substantive Kenyan ownership, whether corporate or individual, will be licensed to provide ICT services. In other words, foreign companies doing any ICT-related businesses in Kenya would have to give at least 30% of their ownership stakes to Kenyans. This applies immediately to foreign new comers to the Kenyan tech startup landscape. However, existing wholly-owned foreign ICT companies in the country will have until 3 years from now to meet the local equity ownership threshold. Once the three years (until 2023) expires, they may have to apply to Kenya’s Cabinet Secretary for Information, Communications & Technology for a one year extension with appropriate acceptable justifications.
To be sure that the 30% rule is not misunderstood, the rules further state that all ICT companies without majority Kenyan ownership will not be considered Kenyan. Consequently, they may not be calculated as part of the 30% Kenyan ownership calculus because they are not owned by Kenyans. Simply put, all foreign-owned ICT firms must, going forward, meet the 30% equity participation requirement.
For ICT companies listed or to be listed on the Nairobi Stock Exchange, their equity participation or distribution will be governed by the extant rules of the Capital Markets Authority of Kenya. This simply means that even though all foreign-owned startups in Kenya will have to comply with the new 30% rule, once they desire to do IPOs (Initial Public Offering) or list in any way in Kenya, the initial 30% rule will be jettisoned in favour of the prevailing rules of the Capital Markets Authority of Kenya.
Pension Funds In Kenya To Set Aside 5% Of Their Funds For Investment In Local Startup Ecosystem
This is a deal breaker, which if properly implemented, will unlock funding for startups in Kenya. By the new rules, pension funds in Kenya are encouraged to set aside 5% of their investments for the local ICT startup ecosystem. Although the language of this rule is not compelling, this will most definitely be the right push for pension funds in Kenya willing to invest in early startups.
However, it should be noted that, already Kenya has allowed private equity and venture capital firms to raise funds from pension schemes after amending the Retirements Benefits Authority (RBA) Act in 2015. Since then, this has allowed pension schemes to invest up to 10 per cent of their assets in private equity and venture capital firms (firms which, most times, invest in startups and SMEs). The new 5% rule under the new policy, however, will encourage pension funds to invest directly in startups or venture capital firms investing in early stage startups, out of the permitted 10%.
Nevertheless, it should be noted that even though the rules aim to encourage pension funds to invest in startups, under a proposed amendment to the Capital Markets Act (Cap 485A), Kenya’s Capital Markets Authority will, (once the bill is passed into law), be authorised to license, approve and regulate private equity and venture capital companies that have access to public funds. Analysts have criticized this amendment for duplicating responsibilities and multiplying the cost of running an investment firm in Kenya. For instance, Section 5(a) of Kenya’s Retirement Benefits Act already empowers the country’s Retirement Benefits Authority to regulate and supervise the establishment and management of retirement benefits schemes.
It is hoped, however, that the new 5% rule will encourage pension funds in Kenya (once valued at over KES1trn ($9.8bn), to invest in the country’s early-stage startups.
Apart from the 5% rule, there are other funding plans considered under the policy, such as a proposed “anchor fund” that will invest in qualifying Kenyan ventures for a proportionate equity consideration on a first-loss basis, thereby motivating co-funders to commit significant capital to qualified entities.
Also to be created is “a rotating venture capital fund” to be chaired by a person to be determined by the Cabinet Secretary for ICT with membership of a representative of the Kenya Sovereign Fund; the Kenya Private Sector Alliance; the CEOs of the three largest private sector pension funds at any one time; and four other members with ICT expertise as the Cabinet Secretary for ICT may from time to time determine
In as much as these are commendable, it is hoped that, like other promises and projects scattered across Africa, they are not abandoned or completely forgotten, a year from now.
Kenya ‘s ICT Policy will be a game changer given that startups founded by expats in the East African country get more funding than locals year-on-year. Source: AVCA
Increased Preference For Local Startups In Award Of Government Contracts
Kenyan startups aware of this opportunity need to show to relevant authorities the relevant portion of the new policy each time they bid for government contracts. By the terms of the new rules, government ICT procurement will now consider awards of tenders to tech startups to permit greater participation by emerging enterprises, and adopt home grown solutions. Consequently, the rules state that where there is a Kenyan solution that meets up to 70% of stated requirements, the Kenyan built solution will be accepted in preference to any other solution from anywhere else. In government defined priority areas, a 50% solution will be accepted in order to grow Kenyan capacity in those areas.
For owners of startups who are also young, this is a double advantage. Kenya’s Access to Government Procurement Opportunities (AGPO) presidential directive further guarantees that 30% of government business goes to youth and Persons-With-Disability-owned businesses. Under AGPO, all the startups need to do is to ensure that they are registered under the relevant government body and that at least seventy percent of their members are youth, women or persons with disabilities. Their leadership shall also be one hundred percent youth, women and persons with disability, as the case may be.
Encouragement Of Crowdfunding And Access To Innovation Grants And Funding
Startups in Kenya seem to have a go-ahead order to crowdfund. Under the new ICT policy, startups in Kenya are encouraged to crowdfund as well as build or participate in mentoring networks. This will be a major boost for a startup ecosystem still dependent foreign-owned venture capital firms.
There are other steps to make funding easily accessible to startups under the new policy, such as plans by government to encourage early Initial Public Offerings in the Growth Enterprise Market Segment (GEMS) of the Nairobi Stock Exchange as well as support for the growth of Permanent Listed Vehicles that build a bridge between investors and businesses that need investment to grow, but until these are executed, they remain inoperative wishes.
One other remarkable incentive under the new ICT policy is the rule that all innovation hubs and maker labs in Kenya will now be provided with grants to acquire additive manufacturing capabilities. The new rule also makes room for the protection of physibles (that is, data objects that are capable of being manufactured as a physical object using additive manufacturing processes) as intellectual property. Similarly protected is the physical realisation of physibles.
Again, all designated ICT incubation centres in each county in Kenya will now be duty free zones under the new rules. Initially also, the Kenyan government will establish 290 constituency innovation hubs which will provide work and maker spaces for the host local community.
Another incentive introduced by the policy is research grant. To that effect, the policy states that every two years, the Kenyan Government will set five (5) research priority areas and provide funding to private enterprises in the form of research grants, equipment purchase grants in the priority areas.
The Bottom Line
The new ICT policy is going to be game-changing for startups in Kenya, especially as it relates to funding available to them. For instance, according to Roble Musse in his book “Un-Silicon Valley,” 70 percent of startups in Kenya that received a million dollars or more of Venture Capital (VC) investment in 2018 were led by white expatriate founders. This is notwithstanding the fact that the expatriate community in that country make up only 0.15 percent of the population. Nevertheless, while the new rules will entirely alter the startup landscape in Kenya if fully implemented, the ball is in the yard of Kenyan entrepreneurs to play. One thing is, however, clear in all these: you can lead a horse to water but you can’t force it to drink.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
