Wednesday, November 11, 2015

How 30% Kenyan Shareholding of Foreign Companies was Conceived

For the last few weeks there's been talk about the 30% rule. Yesterday the CS for Industrialization said it was a mistake, and the team at Anjarwalla & Khanna said they heard that it had been introduced late in the process and that they flagged it and written immediately to the Attorney General on it. 

Anjawalla & Khanna briefing
But how did it come about? The talk was that it was introduced late in the third reading of amendments to the Companies Bill which was a voluminous bill - almost 800 pages and with 1,000 clauses - that was discussed in parliamentary sessions over a period of 5 days.

The Hansard of one session (from Mzalendo) shows that the clause that specified that foreign companies should demonstrates that at least thirty per cent of the company’s shareholding is held by Kenyan citizens by birth may have been introduced by Wesley Korir, the MP for Cherangany - and this led to a long debate late in the evening for parliament (the sitting time had been extended).

It was supported by some MP's and opposed by others including: 

For the amendment
  • Nicholas Gumbo:  If you go to some neighbouring countries in East Africa, you cannot be allowed to register a company unless you give 50% to locals. Why should we be apologetic about this?
  • James Nyikal: The reason is that as Kenya is growing richer, the majority of Kenyans are getting poorer.. The reason is basically that a lot of the wealth we have is actually owned by foreigners and a few people who pretend to be businessmen but are basically agents for principals who are abroad. In South Africa, immediately after their independence, there was serious effort and companies had even to give shares to local people, so that ownership became local. So, 30% is acceptable and we should support it for the sake of Kenyans.
  • Sammy Mwaita:  I support because I remember when we were discussing the Public Procurement and Disposal Bill in this House, we pegged the local content at 40% , so that citizens may benefit from business. This is timely. We should initiate it from the time of registration. This is a very good move. 
  • Robert Pukose: I support this amendment of 30%. This is because when you compare us with our neighbouring countries--- In Tanzania and Ethiopia it is 50%. Ethiopia makes it very positive because companies are not allowed to employ a foreigner who has qualifications which local people have. So, we should accept this 30%. 
Against the Amendment
Hansard page from Mzalendo
  • (Senator) Gideon Moi: ..Number two is the fact that imposing 30% local shareholding on any foreign company is very extreme. People who want to put their money in a venture are going to be extremely wary of just picking on any shareholder. If I were to support the Member, the local shareholding would be less than 30% or none at all.
  • James Oyoo: When Kenya attained Independence, it was a prerequisite for any company to give shares to local Kenyans. The immense greed of Kenyans made us reduce it to 10% (when it) started going to individuals’ pockets. It is a good idea but it is ill conceived.
  • Aden Duale: The history of Mobitelea and Safaricom is very clear. Some brokers would sit somewhere and this meant we would increase brokers on the streets.. We will make Kenyans who are brokers in the village to say that if you cannot give them 30%, you will not do business. That is not what happens in most--- President Obama says, “Take Kenya where South Korea has reached.” That law does not exist in South Korea and Malaysia...You must allow engineers to have companies but you will have people who have not gone to school. 
  • Samuel Chepkonga: .. I was a regulator at the Communications Commission of Kenya (CCK). We provided a policy in which we said that for you to invest in the telecommunication sector you had to have a Kenyan partner with 30%..They kept amending the policy in the telecommunication sector to where it is now; there is 0% requirement for a Kenyan to invest in the telecommunication sector..Let me tell you Members, foreign direct investment comes in huge amounts such as US$500 million. Which Kenyan will produce US$150 million? Let us be serious. Secondly, we are a very poor country. We are seeking to attract foreign direct investment. You are now telling those companies which are seeking to invest in Kenya that this is not an attractive destination. This law is seeking to encourage and make Kenya a friendly investment country. If you are going to bring things such as these, you are going to chase direct foreign investment out of this country.

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