The Kenyan government has suspended a controversial local ownership requirement in the new Companies Act 2015. The confusion regarding how the provision made its way into the law is unsettling for foreign companies that are interested in one of the region’s top investment destinations.
Regarded as an overdue modernization of Kenya’s company and insolvency laws, the Companies Act is a sizeable piece of legislation. Indeed, the main provisions pertaining to foreign companies do not appear until over 680 pages into the law. Pursuant to section 974, a foreign company cannot carry on business in Kenya unless it is registered. Pursuant to section 975(2)(b), registration involves submitting an application that, inter alia, “demonstrates that at least thirty percent of the company’s shareholding is held by Kenyan citizens by birth.”
When President Kenyatta signed the Companies Act into law in September 2015, one of Kenya’s leading newspapers highlighted the provision as a “significant change” that was introduced “at the third reading” of the bill and whose consequences “may not have been fully appreciated.” Notably, the Ministry of Industrialization and Enterprise Development republished this news article on its blog thus putting at least that Ministry on notice about the provision.
Yet, now over three months later, senior government officials are disavowing the provision and claiming that it never should have been in the law in the first place. According to Attorney General Githu Muigai, the provision was not in the original draft of the legislation: “‘From all indications it was inserted at the committee stage. It does not represent the current government policy on foreign investments.’” Similarly, and notwithstanding his Ministry’s blog entry, Minister of Industrialization and Enterprise Development Adan Mohamed has stated that the provision “‘may have been overlooked during the legislation process but is obviously unrealistic’” and is “‘an error.’” Deputy President William Ruto has called the provision “‘toxic’” and has promised to “‘look for a way of correcting the situation so as to create a favourable climate for investments.’”
In the past few years, the Kenyan government has tried and failed to impose local ownership requirements in the construction sector (proposed then removed), the mining sector (passed then repealed) and the telecommunications sector (required by regulations but waived for several major operators). Did a local ownership requirement somehow make its way into the Companies Act and it took over three months for anyone to notice? Or was this actually another attempt to introduce local ownership requirements in Kenya? Neither scenario is particularly reassuring.