CS Owalo Rolls Out Red Carpet For Big Tech

In a rather nondescript Gazette Notice No. 11079 published on 22 August 2023 by the Cabinet Secretary for Information, Communications and Digital Economy, Eliud Owalo, lies an amended policy. Specifically, the National Information Communications and Technology Policy Guidelines, 2020. In it, Owalo indicates paragraph 6.2.4 under the heading “Equity Participation,” has been deleted and the requisite authority, the Communications Authority of Kenya (CA), duly notified of this change.

As part of the tech ecosystem, the Communications Authority of Kenya plays a critical role in creating an environment that fosters the growth, innovation, and responsible development of the communications and ICT sectors in Kenya. Its regulatory oversight aims to balance industry growth with consumer protection and public interest.

Without taking you through the intrigues and the rigmarole of policy change in Kenya, the deleted paragraph makes Kenya an open door complete with a red carpet and traditional dancers inviting Big Tech into the country. How? The deleted paragraph partly read that “It is the policy that only companies with at least 30 per cent substantive Kenyan ownership, either corporate or individual will be licensed to provide ICT services. For purposes of this rule, companies without majority Kenyan ownership will not be considered Kenyan and may thus not be calculated as part of the 30 per cent Kenyan ownership calculus.”

Describing It With The Fewest Of Words

What is this beast, Equity Participation anyway? In law, you must clearly define and identify something before actioning and alas! There is no definition to be found in our local books.

Investopedia describes Equity Participation as “The ownership of shares in a company or property. Equity participation may involve the purchase of shares through options or by allowing partial ownership in exchange for financing. The greater the equity participation rate, the higher the percentage of shares owned by stakeholders.”

Law Insider convolutes it a smidge. “An ownership position in an organisation or venture taken through an investment, in which returns on the investment are dependent on the profitability of the organisation or venture.”

Equity Participation involves having a stake in a business’s ownership, entitling one to a portion of the company’s profits, assets, and decision-making authority. It is an effective way to raise capital without incurring debt, and it aligns the investors and stakeholders.

For Kenyans, By Kenyans, With Kenyans

Drafted as a means of encouraging Kenyans to take advantage and partner with or invest in ICT businesses that were not homegrown, the occupation was set to last three years. That would then meet the local equity ownership threshold with room for a one-year extension should justifiable need be. The listed company’s equity participation rules are in turn governed by the Capital Markets Authority (CMA).

With Equity Participation requiring that a minimum of 30 per cent ownership belong to Kenyan individuals or corporate entities, ownership needs to be substantial and significant. It allows Kenyan stakeholders enough equity to control and benefit from the company in their hands.

Of course, this meant companies without a majority (more than 50 per cent) ownership by Kenyan entities wouldn’t be considered Kenyan-owned. To calculate ownership, only shares owned by Kenyan individuals or companies were to be considered. One more advantage was that Equity Participation 6.2.4. allowed for companies to be shaped by the Kenyan community. So, what does deleting it mean?

In Praise Of The Local Agenda

First off, the 30 per cent rule need not apply anymore and there would be nothing to enforce in this arena. And believe it or not, there are apparently valid reasons behind this logic.

The government might be aiming to open the ICT and Science & Technology sectors to greater competition and investment by removing ownership restrictions to attract foreign investment and promote innovation. This will likely attract multinational tech companies aka Big Tech. Repealing equity participation also encourages more foreign companies to invest in the country’s technology sectors, potentially bringing in new technologies, expertise, and capital.

It is possible that international trade agreements or negotiations might require the removal of ownership restrictions to promote fair and equal treatment of domestic and foreign companies. At the same time, the government must trust that removing ownership restrictions will stimulate economic growth and create jobs by facilitating the entry of more companies into the market. Equity participation repeal could also simplify and streamline the licensing process.

The overall plan, though, has to be investor confidence, signalling that the country is open to international collaboration and investment without overly restrictive regulations. It is also evident that the government’s priorities have evolved over time. This notice, coming a year into the new administration, reflects a shift in focus from protecting local ownership to encouraging broader economic development.

But What If?

Let’s be honest. Repealing the equity participation policy in the ICT and Science & Technology sectors could also introduce several risks and challenges. A reduced level of local ownership and control in these sectors allowing foreign entities to dominate the market, potentially influencing decision-making, strategic direction, and technology priorities.

A sector with few big players means they could easily dominate the sector, potentially reducing diversity and competitive options for consumers. Without ownership requirements, profits generated by the ICT and Science & Technology sectors might flow out of the country to foreign owners, rather than remaining within the local economy. This could impact the country’s balance of payments.

With limited local ownership, there might be reduced opportunities for knowledge transfer, technology sharing, and skills development from foreign companies to local entrepreneurs and professionals. What if foreign companies bring their own workforce? What happens to local talent?

Again, too much foreign ownership could result in technology and innovation priorities as determined by external entities, potentially hindering the development of indigenous innovation and technological advancements.

We could become overly dependent on foreign technology offerings which will in turn hurt our data security and technological sovereignty as well as introduce the potential for foreign influence over critical ICT infrastructure. Local start-ups and SMEs can’t compete against Big Tech which will basically squeeze out their ability to thrive and innovate.

Repealing 6.2.4. ought to take into account the maturity of our ICT industry. Are we ready to go toe-to-toe with Big Tech when they finally arrive? There will have to be checks and balances weighing local versus foreign interests with regulatory frameworks in place to promote healthy competition, lock out monopolies and protect the consumer.