President Uhuru Kenyatta assented to the Business Laws Amendment Act on March 19. The new law is aimed at enhancing the ease of doing business in the country.
The World Bank’s Ease of Doing Business Index 2020 ranks Kenya at number 56. This is an improvement from 2019, 2018, 2017 and 2016 where Kenya was ranked 61st, 80th, 91st and 108th respectively. Rwanda (38th) and Morocco (53rd) are the only African countries ranked ahead of Kenya.
Kenya owes its improvement in the ranking primarily to its spirited effort to digitise its registries and government offices.
Online tax systems and registries have resulted in efficiency gains for the economy. According to the World Bank Index, Kenya’s ease of doing business profile was strengthened because of improved access to credit by the introduction of online registration, modification and cancellation of security interests, and public online searches of the collateral registry.
Additionally, property registration was made faster by moving consents to transfer and payment verification online thus improving Kenya’s ease of doing business profile.
Kenya’s ranking also improved due to the easier process of obtaining construction permits and reliability of electricity supply. Further, debtors are assured about continuation of business during insolvency proceedings.
One of the most significant changes brought about by the Business Laws Amendment Act is the digitisation of transactions, including land transactions. Various statutes have been amended to permit electronic signing of documents and the creation of electronic registries. This signals Kenya’s intent to move higher up the World Bank’s rankings.
Contracts can now be entered electronically. The law now provides for electronic signatures for documents. The electronic signatures should be able to identify the signatory and indicate the signatory’s approval to sign the document.
The use of electronic signatures will do away with the requirement to have documents printed, delivered, signed and returned. This will be particularly helpful in cross-border transactions.
Land transactions can now be performed electronically. Amendments to the land laws allow electronic processing and execution of instruments relating to land.
Consequently, any instrument relating to land can be processed electronically and signed electronically thereby negating the need for paper in land transactions. This may, however, take a while to implement as land registries around the country are yet to create electronic records and become fully digitised.
The Act has also done away with the need to obtain land rent and land rates clearance certificates before dealing in land.
Therefore, one will not require land rent and land rates clearances before selling their land or obtaining a loan using it as security. This reduces the number of documents required for purposes of registration of instruments relating to land. As such, the timelines for completion of land transactions will reduce.
Survey of Kenya documents can be processed electronically. The seal of Survey of Kenya can now be embossed electronically on survey plans and surveyors can now submit plans to the Director of Survey of Kenya either physically or electronically. This will bring about accountability and significant efficiency at the Survey of Kenya.
Companies are no longer required to affix their common seal in executing documents. The Companies Act has now been amended to do away with the requirement of companies to affix their common seal when executing documents. This will enable directors of the companies sign contracts by way of electronic signature.
This amendment is in line with the current efforts towards fully digitising the Companies Registry which has already been significantly digitised and is accessible on the e-Citizen platform.
Stamp duty assessment, payment and franking could be a fully online process. Amendments to the Stamp Duty Act provide that documents could be franked electronically.
Given that the process of stamp duty payment is done online, through the iTax portal, we anticipate that measures will be implemented by the Kenya Revenue Authority (KRA) and the registries to ensure that the entire process could be done electronically.
The digitisation of transactions is a timely introduction in Kenya. In times like these when the coronavirus pandemic has driven several countries to a standstill, the use of electronic signatures would do away with the need to have persons deliver printed documents for signature.
Moreover, it will reduce the need for persons to manually lodge documents for stamping, registration and filing, thereby making business easier.
The enactment of the Business Laws Amendment Act is also geared towards easing insolvency proceedings for creditors. It will allow courts to take into account the perishability of an asset and whether or not it is used to maintain a company as a going concern before lifting the moratorium imposed under the Act to protect secured creditor’s rights.
We anticipate that this favourable insolvency law will entice international and local financiers to invest in Kenya because of lender protection in the event of apparent borrower insolvency.
Rwanda has been highly ranked because it has one of the lowest costs of starting a business in the world. Moreover, the World Bank recognised that Rwanda eased the process of starting a business by exempting newly formed small and medium-size enterprises from paying the trading licence tax for their first two years of operation.
Through the Business Laws Amendment Act, Kenya attempts to catch up with Rwanda. Workplaces with less than 100 employees are no longer required to register and obtain a certificate of registration from the National Council for Occupational Safety and Health.
In effect, such workplaces will not be required to pay for the requisite fees which should make it cheaper and easier to start businesses in Kenya.
While we may be making important steps towards bettering our economy through improving the ease of doing business, it may be a tall order to overtake or at least catch up with countries like Rwanda and New Zealand (which is ranked 1st in the World Bank’s Ease of Doing Business report).
New Zealand enacted its Electronic Transactions Act in 2002 while Rwanda incorporated electronic signatures and electronic transactions into their legal space in 2010. As such, it may take a while for Kenya to adapt to the new measures which seem to have already been fully integrated in these countries.
Security questions surrounding electronic signatures seem paramount. While Kenya’s new laws around electronic signatures seem to be in line with best practices around the world (including New Zealand), it is not clear whether Kenya has implemented measures to deal with fraud.
Kenya has been rife with fraudulent practices particularly in relation to land transactions. The digitisation of land transactions presents an opportunity to reduce fraud. However, lack of proper security measures could bring about more fraud thus presenting a conundrum in a fight that Kenya is already struggling to deal with.
The risks could affect some industries such as banking, where the consequences of fraudulent transactions are more severe, more than others.
The new law could also present uncertainty in cross-border transactions. Some countries permit electronic signing of documents while others are yet to amend the laws to permit such arrangements.
This could present difficulties in concluding transactions.
While the new laws seem well intentioned, more needs to be done to create an enabling environment and ensure the potential benefits are realised. This will require proper capacity building initiatives and clear-cut public-private solutions.
Indokhomi is Partner while Khan and Adier are Bowmans Associates.