Kenya mulls cutting Sh10m capital cap for foreign firms

Kenya is considering lowering the blanket $100,000 (Sh10.89 million) minimum foreign investment requirement for international firms seeking to venture into less-capital services sector such as ICT to spur growth in foreign direct investment (FDI) flows.

The Kenya Investment Authority (KenInvest) says it is seeking an international consultant to help draw conditional incentives for foreign investors.

“There are many people who were thinking $100,000 is high and others were saying when people were innovating something like M-Pesa, they wouldn’t have needed that minimum capital. There are some types of businesses where you require human resource or knowledge more than capital,” KenInvest managing director Moses Ikiara said.

“The thinking is to allow innovative investments that are not capital-intensive not to be locked out.”

This will see the cost of investment certificates varied in line with sectoral capital requirements, opening up the door for foreign small and medium enterprises to set up shops in Kenya.

Foreign investors are presently required to have a minimum of $100,000 to obtain an investment certificate, which qualifies them for incentives such as investment deductions and tax rebates under the Kenya Investment Promotion Act, while local firms are required to invest a minimum of Sh1 million.

The move, the investment promotion agency says, is informed by feedback from stakeholders during engagements that led to the development of Kenya’s first investment policy, launched in November 2019.

However, investors looking for opportunities in capital-intensive sectors such as construction, energy, oil and gas will be required to invest as much as $300,000 (Sh32.68 million) to get investment certificates if the plan by KenInvest is approved.

Kenya’s FDI flows as a share of gross domestic product (GDP) have remained low, falling 18 per cent to $1.33 billion (Sh142.16 billion), or just over a percentage of GDP, in 2019, according to the latest World Investment Report by the United Nations Conference on Trade and Development.

“Our wisdom was to say if we have to increase (the minimum foreign investment) we take a sectoral approach so that if it’s construction or investments that take a lot of brick-and-motor, that one you can increase minimum capital to a higher level,” Dr Ikiara said. “But other areas like the ICT that are not capital-intensive, you can retain what we have or even lower it.”

The agency says the best pick for consultancy role will be informed “by experience in investment around the world so as to sniff out areas of contradiction and nuances”.

A number of consultancies have shown interest in developing Kenya’s conditional incentive packages and harmonisation of various laws touching on investment for approval by legislators, Dr Ikiara said.

Besides Kenya Investment Promotion Act, KenInvest is also looking to amend Immigration Act, Land Act, Mining Act and Aviation Act, among others, with a key focus on multiplying foreign investments.