Kenyan President William Ruto, at a regional business summit in Nairobi targeting US investors, announced that some controversial provisions in the National Information, Communications and Technology (ICT) Policy, which requires tech companies in Kenya to have at least 30% Kenyan ownership to operate in the country, had been reversed. However, this announcement was not supported by official evidence or documents. The policy, gazetted on August 7, 2020, aimed to position Kenya to harness global opportunities and gain global recognition for innovation, efficiency, and quality in public service delivery. Although Ruto’s statement gave hope to foreign investors, the country has published three separate gazettes since the statement with no trace of the policy amendment, signaling that the statement on the review of the policy was merely a promissory remark.

The Kenyan Constitution, under Article 116, requires the publication of new laws in the Gazette as an Act of Parliament within seven days after assent. Furthermore, Section 132(1)©(ii) states that all measures taken and progress achieved in the realization of national values should be published by the President of Kenya in the Gazette. The absence of a published policy amendment is an indication that the 30% local ownership requirement in Kenyan tech companies remains valid (or may be unofficially waived in some cases, not all, according to sources familiar with the matter.)

Provisions of the ICT Policy

The ICT policy sought to change the narrative for startups in Kenya in several ways, including:

New 30% Equity Participation Rule in Favour of Kenyans

The new ICT policy aimed to reserve 30% of ownership stake in every company registered to do ICT-related businesses in Kenya. Only companies with at least 30% substantive Kenyan ownership, whether corporate or individual, would be licensed to provide ICT services. 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 2023 to meet the local equity ownership threshold. Once the three years expire, they may have to apply to Kenya’s Cabinet Secretary for Information, Communications & Technology for a one-year extension with appropriate acceptable justifications.

Read also : Kenyan President Ruto Launches Development Projects

Nairobi Stock Exchange Listing

For ICT companies listed or to be listed on the Nairobi Stock Exchange, their equity participation or distribution would be governed by the extant 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

Pension funds in Kenya were encouraged to set aside 5% of their investments for the local ICT startup ecosystem. This would unlock funding for startups in Kenya. Since 2015, Kenya has allowed private equity and venture capital firms to raise funds from pension schemes. This has allowed pension schemes to invest up to 10% of their assets in private equity and venture capital firms that invest in startups and SMEs. However, the new 5% rule under the new policy would encourage pension funds to invest directly in startups or venture capital firms investing in early-stage startups, out of the permitted 10%.

Implications for Kenyan ICT Firms

• The 30% local ownership requirement in Kenyan tech companies remains valid, despite President Ruto’s statement at the regional business summit.
  
• Existing wholly-owned foreign ICT companies in Kenya have until 2023 to meet the local equity ownership threshold.
  
• Foreign-owned ICT firms must meet the 30% equity participation requirement going forward.
  
• Pension funds in Kenya were encouraged to set aside 5% of their investments for the local ICT startup ecosystem, unlocking funding for startups in the East African country.

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If You Are A Startup In Kenya, Here Is What The New ICT Policy Guidelines Mean For You

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. 
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard