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Kenya’s Senate Introduces the Startup Bill 2020

7 October 2020
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The Senate on 14 September 2020 proposed the Start-up Bill (the Bill) for introduction to the Senate that is sure to pique the interest of Kenyan entrepreneurs and investors who have an eye on this region. A link to the Bill is available here.

The ecosystem of an innovative start-up sector is based on the fluidity of the applicable legislative framework and the lowering of barriers to entry in the relevant market.  The Bill seeks to govern the interactions between the government, incubators, start-ups, and investors; to foster a culture of innovation and entrepreneurship; and crucially, link start-ups with public and private investment, and research and development institutions.  From our initial reading of the Bill, and in our view, there are some fundamental improvements that could be made to the existing framework of often complicated and cumbersome laws, policies and regulations that would encourage the desired growth and innovation, without the need to enact new legislation as this only adds to the myriad of complications currently faced by start-ups operating in Kenya.

What you need to know

If passed, the Bill proposes to establish the Kenya National Innovation Agency (the Agency) to; create partnerships among local and international business incubators; create online directories of start-ups and incubators; and register and certify start-ups and incubators. Furthermore, county governments will also be able to establish their own incubation programmes.

Under the Bill, the Agency will subsidise the formation of start-ups, facilitate the protection of intellectual property innovations by Kenyan start-ups, provide support to enable the growth and development of registered start-ups and put in place measures for the granting of fiscal incentives, including tax incentives.

The Bill further allows for the establishment of a Credit Guarantee Scheme intended to provide accessible financial support and act as a guarantee for investors in start-ups.

Who is eligible?

A start-up will be eligible for registration with the Agency and eligibility into an incubation programme if certain conditions are met. These include: the start-up must be registered in Kenya; it must be involved in the innovation, development, production or commercialisation of innovative products, processes or services; is headquartered in Kenya; is majority owned by Kenyan citizens; and is the holder or licensee of a registered patent or software.  An entity will not qualify if it is the holding company or subsidiary company of an existing entity which is not registered as a start-up.

The conditions regarding certification of incubators is not as rigid and does not include any foreign ownership limitations.   There are however express obligations that an incubator registered under the Bill must comply with, including support to technological entrepreneurs, determine the applicability of technological innovation ideas, and enhance entrepreneurship in Kenya.

What do we think?

The Bill recognises the rapid growth that the start-up ecosystem has experienced in Kenya and cites Cellulant, Sendy, Twiga Foods and M-Kopa as examples of successful start-ups.

Whilst the aim of the Bill is to be applauded, the conditions for eligibility are far too narrow and constraining.   For example, very few start-ups have enough capital to even register a patent in the first-instance and it ignores the reality that many start-ups in Kenya have only achieved the success that they have because of foreign investment and elements of foreign ownership.  The Bill should not seek to deter foreign investment – unfortunately, Kenyan start-ups have not always been able to rely upon Kenyan investors and have often been forced to look elsewhere.

If the aim of the Government is to foster and encourage growth and innovation in Kenya, we would encourage the use of regulatory sandboxes in the first instance to see what works and what doesn’t and importantly to facilitate and encourage a conversation with the impacted stakeholders.  Through these sandboxes key issues faced by start-ups will become more apparent and more easily addressed.

We will monitor the development and progress of this Bill and provide updates as and when we are able to.