Corporate governance, common markets and investor confidence

Kenya has over time proved to be the preferred investment point in the East African region due to its strategic location and free market economy which places no significant restriction on the movement of foreign currency in and out of the market. The Kenyan government has also in the recent past undertaken significant investment in physical infrastructure such as roads, ICT and sea ports to spur economic growth. The country’s future economic prospects have further been boosted by the discovery of profitable oil deposits.

This guide focuses on changes to corporate finance legislation and their implications and potential challenges. The most important changes among others include competition law at a regional level, consumer protection and other commercial statutes.

The capital markets

The Capital Markets Authority (CMA), the country’s capital market regulatory body is in the process of developing the necessary operational and regulatory framework for the establishment of a derivatives and futures exchange in Kenya. Currently, the CMA has published draft licensing regulations and these are available for public comment. The Authority has also launched a trading board on the Nairobi Securities Exchange (NSE) for small and medium enterprises (SMEs) that opens new funding opportunities. The segment is known as the Growth Enterprise Market Segment.

The CMA continues the process of demutualisation of the NSE (Nairobi Securities Exchange) and the Capital Markets (Demutualisation of the Nairobi Securities Exchange Limited) Regulations 2012 have been gazetted. It is however not clear whether the June 2013 deadline for listing the demutualised exchange will be met.

Recently enacted legislation

Regional Competition Law

The COMESA Competition Commission has announced that it is commencing operations. Parts 3, 4 and 5 of the COMESA Competition Regulations, 2004 (Regulations) take effect from January 14 2013 and will likely result in fundamental changes to the regulation of anti- competitive business practice, consumer protection and M&A in the region. Under the Regulations, amongst other criteria, so long as merger transactions have a regional dimension (both the acquiring firm and target firm or either the acquiring firm or target firms operate in two or more Member States) such transactions will be subject to specific regulation in the common market irrespective of their overall size, turnover and impact on competition.

The Consumer Protection Act

The Consumer Protection Act, which came into force on March 14 2013 protects consumers by preventing unfair trade practices in consumer transactions. This Act has a potential impact on lenders as it appears that most loan and credit agreements will be subject to the provisions of the Act. These provisions include disclosure requirements by lenders, prepayment rights and default charges.

The Mining (Local Equity Participation) Regulations, 2012

On October 12 2012, the Minister for Environment and Mineral Resources promulgated The Mining (Local Equity Participation) Regulations, 2012 under the Mining Act which essentially sought to introduce mandatory equity participation of Kenyan citizens in the mining sector amounting to at least 35% of the mineral right. The Regulations are however poorly drafted and may be open to challenge. There have been consultations among stakeholders and the Government on a new Bill for the mining sector, which is intended to replace the current Mining Act.

Limited Liability Partnerships Act

The Limited Liability Partnerships Act came into force on the March 16 2012 and replaces the Limited Partnerships Act. On being registered, a limited liability partnership becomes a body corporate with perpetual succession and a legal personality separate from that of its partners. This model was previously not available for Kenyan businesses.

Public-Private Partnerships Act

The Public-Private Partnerships Act was enacted on January 25 2013 and seeks to harmonize and consolidate the laws relating to Public-Private Partnerships (PPP) in Kenya. The legislative framework for PPP arrangements was previously provided for under the Public Procurement and Disposals Act and the Privatisation Act. This Act is intended to provide suitable structures for state departments, county governments and public entities to enter into various contractual arrangements with the private sector and is expected to reduce the risks for investors and make PPP projects more investor friendly.

Kenya Deposit Insurance Act

This Act was assented to on May 12 2012 and it is meant to provide for the establishment of a deposit insurance system and for the receivership and liquidation of deposit taking institutions. The Kenya Deposit Insurance Corporation established under the Act is however not yet operational.


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