30% Local Shareholding Requirements For Foreign Telcos in Kenya Set To Go

Recently the Kenyan President – after being persuaded by foreign investors from the US – was convinced that the provision that requires foreign telcos to have local partners with at least 30% shareholding should be done away with.

The President is reported to have been convinced that the rule had become a hurdle for large tech firms like Amazon wishing to set up operations in Kenya, denying the growing number of skilled youth decent job opportunities.

Sounds reasonable, but let’s explore a few things; the first being what is the rationale of the rule and whether it has worked for us

The 30% Shareholding Rule

The rule itself is found in the subsidiary Telecom Regulations for licensing telco operators and states as follows:

Generally, all (Telco Operator) applicants for commercial licenses should meet the following minimum conditions:

The entity should be registered in Kenya as a company, sole proprietor, or partnership.
Have a duly registered office and permanent premises in Kenya.
Provide details of shareholders and directors.
Issue at least 30% of its shares to Kenyans on or before the end of three years after receiving a license.
Provide evidence of compliance with tax requirement.

So basically Amazon (and others) find the fourth point above prohibitive and are reluctant or unable to find local partners that would have made them set up operations in Kenya. I would presume this would be in terms of setting up a top-tier, global standard Data Centre.

I would have imagined that the biggest hindrance to setting up a top-tier Data Centre in Kenya would have been our unreliable and high cost of commercial power. Frequent blackouts from a monopolistic provider sometimes called Kenya Power and ‘darkness’ would scare away investors willing to set foot in Kenya.

I think the President would attract much more investors by fixing that elephant in the room called Kenya Power. We had a similar ‘untouchable’ elephant in the room, 25yrs ago going by the name Kenya Posts and Telecommunications (KPTC).

But the moment we liberalized the telco sector and brought competition to KPTC, the rest, as they say, became history. I have never known why or how Kenya Power has continued to enjoy state protection for so long. But I digress…let’s get back to the why 30% shareholding rule was provided.

The rationale for the 30% rule was simply to ensure foreign investors, especially in the high-tech sector like ICT, would be forced to partner with locals for purposes of knowledge transfer. It is assumed that local participation at all levels of ownership, administration and operational levels would equip Kenyans with enough knowledge to spin off similar enterprises.

In the event the original investor decides to exit the scene, Kenyans should be able to continue owning and running the operation as a going concern.

Has the 30% rule worked as per the plan?

Best-laid plans in policy or regulations do not always play out as planned. From my own estimation, the 30% ownership rule has been abused by the political class and other elites to demand ownership in enterprises – without bothering to find out if indeed knowledge transfer is happening as envisioned.

This to me is the bigger problem with the 30% local shareholding rule. Abuse by the political class, rather than the inability of foreign investors to find genuine local partners to partner with.

But is that a sufficient reason to delete this rule?

I honestly do not know.

But perhaps one test to find out is to imagine one very successful Safaricom, a Safaricom that is so deeply integrated into our lives as it is today – but without any local shareholdings.

And then we start our usual election-related jokes of tempting fate every five years with street protests, calls to boycott Safaricom, and regular hits of Safaricom masts in our North Eastern counties due to terrorism, amongst other ‘operational hazards’.

Would a foreign investor without any local shareholding, aka ‘local skin in the game’ really hang around such a business environment?

Easy come, Easy go.