Legal Alert | Amendments to the Local Ownership Requirement for Licensees under the 2020 National ICT Policy Guidelines
In March 2021, the Ministry of Information Communication and Technology (MoICT) published amendments to the equity participation requirement contained in the National ICT Policy Guidelines, 2020 (ICT Policy) that was gazetted in August 2020 (the Amendment Notice) that are aimed at providing clarity to the initial policy.
The ICT Policy introduced a rule stipulating that only companies with at least 30 percent substantive Kenyan ownership would be licensed to provide ICT Services (the Equity Participation Rule). This increased the local ownership requirement from the previous 20 percent.
The term “ICT Services” is not defined under the Kenya Information and Communications Act 1998 (KICA) or the ICT Policy although “information and communication technologies” is defined under KICA as “technologies employed in collecting, storing, using or sending out information and include those involving the use of computers or any telecommunication system”. This is a broad definition that could cover all services that require a license under KICA. Any ICT entity that falls under the ambit of KICA and requires licensing for their operations will be required to comply with the Equity Participation Rule.
The applicability of the Equity Participation Rule to existing licensees and applicants for new licenses together with the period for compliance has been clarified by the Amendment Notice as follows:
- Existing licensees with less than 20 percent local equity ownership who are yet to exhaust their 3 year grace period are required to meet the Equity Participation Rule by the end of their grace period. Under the previous requirements, the 3 year grace period for licensees ran from the date of gazettement of the 20 percent local equity ownership requirement, which was 27 July 2007, or the date of issuance of their license. Therefore, existing licensees whose 3 year grace period is yet to expire such as those that obtained their licenses after the second quarter of 2018 will have the remainder of the 3 year period to comply with the Equity Participation Rule.
- Existing licensees that had met the 20 percent local equity ownership requirement prior to 7 August 2020 have until 6 August 2022 to meet the Equity Participation Rule.
- Existing licensees that had a waiver from the Equity Participation Rule granted under the ICT Sector Policy Guidelines, 2006 have until 24 March 2024 to comply with the Equity Participation Rule from the date of the Amendment Notice, 25 March 2021.
Applicants seeking a license to offer ICT Services in Kenya will have 3 years from the date of the issue of their licenses to comply with the Equity Participation Rule.
Business Process Outsourcing Providers
The Amendment Notice exempts companies registered to exclusively provide Business Process Outsourcing (BPO) services from complying with the Equity Participation Rule and they may therefore obtain a license from the Communications Authority without meeting the ownership threshold. BPO refers to outsourcing business-related operations such as payroll or customer support to third-party entities.
Extension and Exemptions
The Amendment Notice further provides that licensees may apply to the Cabinet Secretary for MoICT for an extension or exemption under the ICT Policy. The Amendment Notice does not provide any criteria the Cabinet Secretary would use in determining whether to extend a licensee’s compliance period or to exempt them altogether. It is therefore likely that such applications would be determined on a case-to-case basis.
The Amendment Notice maintains the provision that listed companies should adhere to the equity participation rules of the Capital Markets Authority in addition to the requirements under the ICT Policy and Amendment Notice. At present, there are no local ownership requirements on listed companies in Kenya. The Capital Markets (Foreign Investors) Regulations, 2002 was amended through Legal Notice 113 of 2015 to abolish the 75 percent foreign ownership cap that previously existed for listed companies.
Continued inconsistencies with existing regulations
In our previous alert on the ICT Policy, we highlighted some inconsistencies between the Equity Participation Rule and the existing regulations. While the Amendment Notice has clarified the applicability of the Equity Participation Rule and the compliance period vis-à-vis different categories of licensees, not all inconsistencies have been addressed. Further details are included in our previous alert.
We understand that reforms to KICA are underway with a view to aligning all the legislative requirements of ICT service providers with the Equity Participation Rule. However, with the compliance periods set out in the Amendment Notice, it would be prudent for licensees to pre-empt these legislative changes and comply with the Equity Participation Rule.
ALN Kenya | Anjarwalla & Khanna
ALN Kenya | Anjarwalla & Khanna