KENYA: CLARITY ON LOCAL EQUITY PARTICIPATION REQUIREMENTS IN THE ICT SECTOR
The Ministry of ICT has provided much needed guidance on how the 30% shareholding requirement under the National ICT Policy Guidelines, 2020 (the Sector Policy) will be implemented. We discussed the Sector Policy in depth here, which increased the minimum Kenyan shareholding required for Communication Authority licensees from 20% to 30%. One of the main issues we outlined was the need for clarity on timelines within which existing licensees are required to increase their shareholding to 30%, how existing licensees with waivers are to be treated and specifically how the 3-year grace period granted under the Sector Policy is to be applied.
Through Gazette Notice Number 3192 of 9 April 2021 (the Notice), the Sector Policy has been amended to provide the timelines for compliance. As such:
- An existing licensee with less than twenty per centum (20%) local equity ownership and has not exhausted its three (3) years grace period will be required to meet the thirty per centum (30%) local equity ownership at the end of its grace period. This grace period refers to the initial 3-year period from grant of the licence.
- An existing licensee that had met the twenty per centum (20%) local equity ownership prior to the date on which the Sector Policy was published (7 August 2020) will have two (2) years to meet the thirty per centum (30%) local equity ownership threshold with effect from [7 August 2020].
- An existing licensee that had a waiver granted under the ICT Sector Policy Guidelines of 2006 will have three (3) years to meet the local equity ownership threshold with effect from the date of the Notice (25 March 2021), meaning the deadline for compliance will be 24 March 2024.
- A new applicant for a licence will have three (3) years to meet the local equity ownership threshold from the date of issue of the licence.
- A company registered to exclusively offer Business Process Outsourcing (BPO) Services will be exempt from equity participation requirements.
The Notice also specifies that licensees maintain the liberty to apply to the Cabinet Secretary for an extension or exemption under the Sector Policy. This is an amendment of the previous provisions of the Sector Policy, removing the one (1) year exemption period limitation. Discretion is now left to the Ministry to determine the period of the exemptions granted. In addition, the amendment provides clarity on whether an extension of the exemption can be granted.
In our view, having considered the Notice, the interpretation and application of the new provisions requires careful thought and analysis by licensed entities taking into account the dates when the licences and/or waivers were obtained from the Communication Authority.
The Notice provides comfort to investors in this sector as they continue to explore ways to restructure their businesses in a manner that ensures compliance with the Sector Policy.