Startup Bill 2020 To Benefit Startups With Majority Kenyan Ownership

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The Kenyan parliament has published a Startup Bill in its National Gazette. Among several interesting provisions, the government wants to create a number of incentives for startups as well as protection for intellectual property.

The Startup Bill 2020 is sponsored by the Nairobi County Senator, Johnson Sakaja, and provides a framework for the development of innovative entrepreneurship, the establishment of incubation hubs, and for building a network of local and foreign investors.

With this in the works, Kenya looks set to follow the likes of Tunisia and Senegal in enacting a Startup Act. It will also be the third East African nation, after Rwanda and Ethiopia, that is working on a Startup Act.

Other countries — Mali, Ghana, Ivory Coast, the Democratic Republic of the Congo (DRC) are reportedly working to implement their respective Acts this year.

Like Tunisia and Senegal, Kenya’s Startup Bill has a number of progressive policies and interesting incentives, but when put against its previous policies, there’s reason to be cautious.

IP protection

The Kenyan government wants to introduce intellectual property protection for startup innovation and also aid the registration of international patents.

Intellectual property rights have long been a major cause for worry across most African countries. As revealed in our previous piece, there’s a lacuna when it comes to IP laws, lawyers, courts, and even judges to handle cases of intellectual property theft.

According to PricewaterhouseCoopers (PwC), there’s a positive correlation between countries with strong IP laws, and economic growth and innovation.

Incubation programmes

In what seems to be an exhaustive process, the Startup Act also seeks to create startup incubation programmes at both county and national levels through a partnership with local and international business incubators.

The national and county governments are to promote the linkages between universities and research institutions, and the business community.

A registrar of startups will be recruited by the Public Service Commission of Kenya and appointed by the Kenya National Innovation Agency to register startups that will enter these incubators.

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Other incentives for startups

The Act is currently proposing a number of incentives for startups which include plans to:

  • Subsidise the formalisation of startups
  • Provide fiscal and non-fiscal support to startups admitted into incubation programmes under this Act
  • Provide support in the form of research and development activities; and provide such other support to enable the development and growth of startups registered under this Act.

Startups that stand to benefit

Startups to be registered under the proposed Act must be registered as a company in Kenya.

The Act also states that it must

  • have its headquarters in Kenya
  • be majority-owned by one or more citizens of Kenya
  • at least fifteen per cent of the entity’s expenses can be attributed to research and development activities
  • and
  • is a holder, depositary or licensee of a registered patent or the owner and author of registered software.

This policy is similar to its current ICT policy which states that Kenyans must have at least 30% ownership in a startup. This time, no percentage is given, just a definitive statement that Kenyans must have the highest equity share in a startup.

Why this is important

Image by Daniel Bone from Pixabay

Before this move, none of Africa’s biggest regional markets and tech hubs — Egypt, Kenya, Nigeria, and South Africa — had moved to create a bespoke law for startups.

In Nigeria, for example, regulations for startups come from different bodies, and in some cases, startups have to self-regulate by adapting existing laws to fit their current business model.

As Titi Akinsanmi, Policy and Government Relations Lead, West and Francophone Africa at Google, put it at Techpoint Build 2020, the fact that regulations keep having to catch up with innovation has both positive and negative side effects.

The negative side effects come to the fore if there is little or no deliberate engagement on the part of startups.

However, startups have to engage with regulators that are used to more traditional ways of doing business. Sometimes, startups can exploit loopholes, but more often than not, regulators do not always enact policies that promote innovation in a sector.

Kenya’s Startup Act is distinctly different as it mandates companies to have a majority Kenyan ownership.

While this seems like a move to protect local investment, it might represent an issue in fundraising considering the fact that most investments in African startups are from foreign sources.

It remains to be seen if this policy encourages more local investors, or brings unwanted friction to Kenya’s thriving tech ecosystem. More stories are still to come.

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