Foreign firms to cede 30% share in big tenders to Kenyans in new law

Kenya is seeking to amend the law to have local companies have a share of at least 30% in all big government contracts that are worth over Ksh1 billion ($7,751,937 at current exchange rates).

The Public Procurement and Asset Disposal (Amendment) Bill, 2024 that has been introduced in the National Assembly seeks to increase the participation of local firms in big-ticket government contracts that are currently dominated by foreign firms.

Should the law be passed by Parliament, any foreign company that wants to do a government contract in Kenya with a value of more than Ksh1 billion will have to enter into a joint venture with a local company that should have a share of at least 30%.

Further, the law proposes to restrict all State tenders with a value of less than Ksh1 billion to be awarded to local companies.

A foreign firm shall be eligible for procurement of contracts of more than Ksh1 billion shillings where the foreign firm has entered into joint venture procurement with a local firm for not less than 30% of the value of the procurement

Public Procurement and Asset Disposal (Amendment) Bill, 2024

It will be interesting to see how this plays out should the law be passed considering that most big-money government tenders in Kenya are often given to foreign firms.

This is more so in some specialized sectors where local companies have no expertise or capacity to deliver the goods or services that are being procured.

Government tenders are a big business in Kenya, with the World Bank estimates for 2020 indicating that the value of public procurement hit Sh3.146 trillion in that year.

The proposal is a fresh protectionist by the Kenyan government that wants to keep a share of the trillions of shillings that the government spends on procurement annually in the local economy.

Such protectionist measures have however failed in the past. For instance. Kenya last year revoked a controversial law that required companies providing ICT services in Kenya to have a local shareholding of30%.

The law, which had been in place for 10 years, had spooked investors some of whom had opted to stay away from investing in the Kenyan market.

 In an analysis, ALN noted that the law had failed as it inevitably made investment into the ICT sector less attractive to multinationals, whose corporate structures are not easily adjusted to cater for significant local partners.

ALN further observed that such shareholders may also not be aligned with the company’s vision and objectives.

A harmonious approach by the Kenyan government is essential, through balancing the support for local interests with the creation of an appealing environment for foreign investors

aln

brian@theenergyreview.com