What you need to know:
- Private sector players had termed the rule as draconian in Kenya’s liberal market economy.
Treasury secretary Henry Rotich has bowed to pressure from the private sector to revoke a law requiring foreign companies setting up shop in Kenya to cede a third of their shareholding to locals.
Mr Rotich has changed a provision in the Companies Act that compelled all foreign companies registering in Kenya to reserve at least 30 per cent of their shareholding to Kenyans.
The change is contained in the Finance Bill 2016 which has been cleared to become law from this month. “Section 975 of the Companies Act is amended in subsection (2 by deleting paragraph (b),” reads Section 85 of the Finance Act (2016).
Private sector players had termed the rule as draconian in Kenya’s liberal market economy, while Industrialisation Cabinet Secretary Adan Mohamed admitted in November last year that the rule was an “error” and would be rectified.
The repeal of the local ownership rule comes as a great relief to foreign investors who faced a fine of Sh5 million for non-compliance.
“This quiet repeal of the 30 per cent local ownership rule will be very welcome to foreign investors wishing to invest in Kenya,” Shitul Shah, a partner at Daly & Inamdar Advocates, told the Business Daily.
The government’s U-turn comes after Attorney-General Githu Muigai chose June 15, 2016 as the date to totally enforce the Companies Act, which was being implemented in phases, effectively ushering in the ownership clauses.
Kunal Ajmera, chief operating officer at consultancy firm Grant Thornton, said even though the clause was meant to promote local investors, it “was not simply feasible.”
“It baffled most foreign businesses and created unnecessary confusion among prospective investors. In today’s global economy where people, money and ideas flow freely such restrictive practice was never going to work,” said Mr Ajmera in an interview.
Analysts had expressed fears that Kenya’s local ownership rule would spur the activities of government wheeler dealers and corrupt power brokers to acquire stakes in foreign firms coming to Nairobi using taxpayers’ cash.
The local chapter of American Chamber of Commerce, a lobby of US investors in Kenya, had termed the rule as “expensive, if not impossible.”
The process of carrying out due diligence in a company from another jurisdiction to effect a share sale or allotment is not only time-consuming but also expensive, warned the club of American investors in Kenya.