Kenya’s Stop-Start Startup Bill Finally Gets Big Green Light

Tunisia did it first (with some interesting results), Senegal followed suit, and Kenya could be next.

When it comes to conversations around the enactment of pro-startup legislation, otherwise called “Startup Acts,” Africa’s biggest tech startup hubs — Nigeria, South Africa, Kenya, and Egypt — have been conspicuously missing-in-action perhaps for far too long, as observers would point out.

But for the first time, one of the “Big Four” seems poised to break from the stasis. Kenya, which hosts one of the top-funded and most active startup ecosystems on the continent, appears to be making progress in that direction.

More than one year ago, Nairobi Senator Johnson Sakaja introduced a bill named the Startup Bill 2020 (now Startup Bill 2021), to the senate. As of today, the Kenyan Senate has approved the Bill, which means it can now proceed to the next stage. According to Sen. Sakaja, the proposal received 34 nods and zero objections.

Over a year ago, Startup Bill 2020 was published in the Kenya Gazette, an official publication of the government of the Republic of Kenya. Getting a bill published in the Kenya Gazette is a big, important step in the process of making it part of national laws.

The Kenyan startup bill was expected to go through a number of stages in both the Senate and the National Assembly as it appeared to be on the fast track to be signed into law.

However, the process hit a snag as unexpected and disappointing delays have stalled the process until now. Having finally gotten the approval of the Senate, Startup Bill 2021 has taken a major leap towards actualisation.

The main purpose of the just-approved bill is to provide a framework that encourages and catalyses “a culture of innovative thinking and entrepreneurship.”

Startup Bill 2020 packs various provisions for startups in Kenya, catering to the registration of startups and providing a mechanism for collaboration between startups and the private sector, financial institutions, investors, and research organisations.

According to the Bill, the Kenya National Innovation Agency will shoulder the responsibility of registering startups under the Startup Bill 2021.

The Bill further amplifies the role of the Registrar of Startups, who, among other things, will keep an updated database of all registered startups, register and supervise startups registered under this Act to ensure compliance with the provisions of the bill, and keep all documents and records of registered startups.

Startup Bill 2021 is also proposing the establishment of incubation facilities at the national and county levels of government, as well as guidelines for certification of incubators, withdrawal from an incubation programme, and obligations of an incubator. 

As per the wordings of the Bill, a startup can enter an incubation program if it is:

• registered in Kenya as a company, partnership, limited liability partnership or non-governmental organization – all under the Companies Act, Limited Liability Partnership Act, and Non-Governmental Organizations Coordination Act, respectively;
• is newly registered or has been in existence not more than seven years from the date of its incorporation or registration; and for biotech startups, up to ten years from the date of its incorporation or registration;
• has its human resources, total assets, and annual turnover number as prescribed by the Cabinet Secretary;
• has its headquarters in Kenya;
• is majority-owned by one or more citizens of Kenya;
• at least fifteen percent 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.

The fourth point in the aforementioned requirements, which specifies ownership, resonates with a somewhat controversial ICT policy published in the Kenya Gazette last year.

In August 2020, Kenya’s new National Information Communication and Technology (ICT) Policy dictated that foreign companies doing business in the country’s ICT sector must cede no less than 30 percent shareholding to Kenyans.

In other words, Kenyan individuals or corporations must own at least 30 percent of any tech venture rooted in the country, lest such companies will not be licensed to operate in the country.

This, and the prior-stated ownership requirement in the recently-approved startup bill, could prove challenging for the Kenyan startup ecosystem where foreign-owned startups form the biggest funding magnets.

In any case, the Bill does pack some incentives for startups in Kenya. It dictates that the Kenya National Innovation Agency and executive committee members can initiate measures to support the establishment and growth of startups by subsidizing their formalisation and facilitating the protection of intellectual property (IP) rights of innovation by local startups, and support in terms of research.

The words spelt out in the document point to an attempt to set the standards for the establishment, development, conduct of business, and regulation of startups.

But it might take yet more time before the Bill becomes law and much longer before the impact of the legislation — if it is adopted — can be measured, as was the case with first movers like Tunisia.

Talks about legislation typically spinning into over-regulation in African states is also a growing concern, and watching this development unfold might well be worthwhile.

Featured Image Courtesy: Times of India