
Kenya: Foreign companies to face 30 per cent local ownership rule - based2
http://www.businessdailyafrica.com/Corporate-News/Foreign-companies-to-face-30-per-cent-local-ownership-rule/-/539550/3290444/-/8t15v9/-/index.html
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aorth
I'm American and I lived and worked in Kenya (as a Linux sysadmin) for over
eight years until recently. There were rumors of this sort of "Kenyanization"
happening for years. I think this move is a mistake, and only serves as
pandering to populist politics. Relevant commentary from another American
friend working in cloud startup space in Nairobi a few years ago:

[http://varud.com/kenyanization-and-its-affect-on-
startups](http://varud.com/kenyanization-and-its-affect-on-startups)

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lallysingh
Note: the alternative is a 5 million fine, in Kenyan Shillings. That's a
little under $50k.

~~~
nobodyshere
It might be a bad alternative depending on how often they can repeatedly fine
you for violations of that sort.

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forgotpwtomain
I suspect that every-time something like this is done, it is the triumph of
the combination of stupidity and greed in the government (or those influencing
it and expecting to profit from it). I very much doubt the economics here ever
benefit the average citizen (actually it will likely weaken the economy) - if
anyone has references of similar experiments that point to the contrary, I
would be very interested to know.

~~~
finid
This is really another form of what the Chinese practice - transfer of
technology.

Want to do business here (in China)? Agree to transfer some of that fancy
technology of yours. So far, it's worked so well for the Chinese.

This should be no different. Helps to keep more of the money in the local
economy.

~~~
michaelchisari
Yes. This is nowhere near as catastrophic, especially for an emerging economy,
as people here seem to think it will be.

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mdonahoe
30% of the entire company must be locally owned?

That seems unlikely to work out.

Does any country have local ownership rules of this kind?

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morgante
Yes, the UAE requires 51% Emirati ownership for all companies not located in
free zones.

It's a terrible policy which has significantly stifled entrepreneurship. Most
businesses skirt around it by either funneling their revenue through a free
zone or hiring an Emirati "owner."

These sorts of policies are classic populist maneuvers which seem like a good
idea, but impose a tax on business activity which outweighs any gains to be
had.

~~~
danmaz74
But UAE _has_ free zones - plus lots of oil money going around...

~~~
johndoe34
The EPZ zones (Export Processing Zones) are indeed the best location to set up
factories or warehouses. You can offer jobs to staff typically from India or
so, or why not, from Kenya, to work there. Things tend to be entirely tax-
free, and you do not need to worry about local politics. I would not put down
a factory full of expensive equipment in Kenya. In terms of governance and
risk evaluation, it really does not sound like a good idea to do that. The
staff would have to come over to the EPZ to work from there.

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noobermin
Disregarding the optics of this which is significant, can someone give me an
idea of how difficult 30% ownership is? The closest analog would be like an
ethnic food outlet in the US fully owned by a family who are all residents but
not citizens.

~~~
Redoubts
Hopefully, just making the business a partial coop would be satisfactory.

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hectorxp
well, it can be worst, in Cuba is 50%, "if" they allow you to create your
company

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johndoe34
The rule is not that simple to apply. Can a company be owned by another
company? I would assume so. If yes, what the "localness" status of a local
company? Is it also "local"? If it is, the rule can easily be circumvented:

Imagine the ownership structure of company A1:

A1 = { X:70%, local:30% }

Imagine a chain of ownership that looks like this:

A1 = { X:70%, local:30% } A2 = { X:70%, A1:30% } A3 = { X:70%, A2:30% }

In that case, A3 the compounded ownership for local is: 30%^3=2.7%. Hence, the
compounded ownership of A3 is:

A3 = { X:97.3%, A2:2.7% }

Therefore, if you want to restrict local ownership to a maximum of M, you will
need a chain of ownership with n nodes, with:

n >= ln(M) / ln(0.3)

Therefore, if they want the rule to be more difficult to circumvent than that,
they will have to either prevent chains of ownership and/or beef up initial
incorporation charges and/or periodic incorporation maintenance fees.

For large business activity, it could still be worthwhile to set up a 25-node
chain or so.

Another way to make the rule ineffective, is to accept local ownership but
only if the local owner deposits a sufficiently large amount in escrow in a
third country, say, South Africa. Of course, you would have to pay the local
owner for doing that, but if he ever misbehaves, you can repossess the amount
escrowed in South Africa, where both of you are foreigners, and where being a
local Kenyan has no particular advantage over being a non-Kenyan.

~~~
smallnamespace
> they will have to either prevent chains of ownership and/or beef up initial
> incorporation charges and/or periodic incorporation maintenance fees.

Not really, this sort loophole is trivial to avoid while writing the law: just
calculate by local ownership percentage of total shares and/or total
capitalization.

In your example, A3 would have 2.7% of its shares be owned by Kenyans and so
wouldn't be local.

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meira
Well done

