Kenya’s govt mandates 30% local ownership of foreign tech companies
Kenya’s government has gazetted a new ICT policy, the National Information, Communications and Technology (ICT) Policy 2019, which mandates that foreign ICT companies facilitate 30% local ownership.
The policy document reads in part: “It is the policy that only companies with at least 30% substantive Kenyan ownership, either corporate or individual will be licensed to provide ICT services. For purposes of this rule, companies without majority Kenyan ownership will not be considered Kenyan, and may thus not be calculated as part of the 30% Kenyan ownership calculus.”
These companies will have three years to comply with the policy directive, and listed companies will be subjected to conform to the rules of the Capital Markets Authority.
Local ownership aims to encourage Kenyans to take control of the ICT and Science space through equity participation.
According to Huston Malande, CEO of Skyline Design, the new policy may force companies to create local subsidiaries. These subsidiaries will then be subjected to all the local tax in Kenya, creating revenue for the exchequer.
“Now, if a foreign organisation still wants to enter the market, what are they most likely to do? In order to comply with the 30% rule, the companies will almost certainly have to set up Kenyan subsidiaries in order to create a degree of separation with their original companies,” he stated on his Twitter account.
“Well ... what the government doesn't seem to realise is that you cannot contain the beast called capitalism. A proven strategy is for the international company to charge the local subsidiary up to 99% of revenue as ‘management fees’. Tax, gone,” Malande added.
Growing local enterprises
Kenya’s government will also seek to grow local companies in the tech space, a move that was envisioned with the now defunct Ksh 1-billion Enterprise Kenya start-up investment scheme.
The new ICT policy outlines the need for government to fund early start-ups and offer venture capital investment to growing companies in the tech space.
According to the policy, this will lead to a vibrant technology sector, employing millions of Kenyans.
“It is the aim of this policy to ensure that in the next 5 years, there are new firms: 20 Kenyan Multi-national ICT Companies; 300 Mid-sized Companies; 5000 Small and Medium Enterprises; 20,000 Start-ups,” the document stated.