Kenya’s President William Ruto has reversed the equity participation clause in the National Information, Communications, and Technology (ICT) Policy that mandated only companies with at least 30% substantive Kenyan ownership, either corporate or individual, to be licensed to provide ICT services in the nation.
The National Information, Communications, and Technology (ICT) Policy was introduced in 2019 to promote universal access to ICT infrastructure and services in the country. The policy’s goal was to give local stakeholders an enabling environment and privileges to realize the potential of its digital economy.
In addition, it aimed to actualize various objectives like establishing infrastructure for high-speed internet access, supporting data centres and machine learning, heightening ICT contributions and benefits to the economy, fostering an innovation ecosystem, and improving public service delivery.
Equity participation clause in Kenya’s ICT Policy
The Equity Participation clause was included to encourage the participation of Kenyans in the ICT and Science and Technology sector through equity ownership.
Most tech startups in the East African nation are owned or co-owned by foreigners. In 2019, Forbes surveyed 1,079 co-founders across 788 startups in Kenya, Ghana and Nigeria. It reported that Kenya had the highest concentration of foreign expatriates (37%) in its tech space, compared to Ghana’s 10% and Nigeria’s 5%.
Foreign-owned companies largely receive more funding than their indigenous counterparts. This is due to the foreign cultural bias and local founder apathy from investors who favour foreign owners over local ones. In 2019, startups in the country raised a venture capital of $428.9 million in total. Foreign-owned startups received 87.8% of that amount to the tune of $376.7 million.
In the same year, more than 40% of foreign-owned startups were funded, less than 10% down from the previous year.
The revised ICT policy tried to level the playing field in the ICT sector by providing equity distribution which extends to local owners and co-owners and also ease the entry barrier.
Licensees would have had three years to reach the local equity ownership requirement and could request a one-year extension from the Cabinet Secretary of ICT with good cause. The Capital Markets Authority’s regulations are considered to be followed by the equity participation requirements for listed businesses.
Over the years, many Kenyans have expressed their worry that the clause hindered the growth of startups in the country because it made it harder for startups to set up shop by increasing regulatory requirements.
Further, it made it harder for existing startups to raise funding beyond that equity threshold.
Techweez, a local news outlet, now reports President William Ruto vetoed the rule at a regional business summit in Nairobi targeted at US investors. The latest decision is to make it easier for foreign companies to set up in Kenya without worrying about their ownership status.
Airtel Kenya is possibly the greatest beneficiary of this decision. For instance, it would lessen the demand that Airtel Kenya sells a portion of its ownership to regional investors. On the other hand, Amazon reportedly persuaded President William Ruto to waive the foreign ownership restrictions so that the tech titan could create a foothold in Nairobi.
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