Suspension of mining firms' shareholding rule timely

 

By Jaindi Kisero
 

 

Mining secretary Najib Balala deserves praise for suspending the rule requiring that all foreign investors sell 35 per cent of their shareholding to locals.

I am not against the idea of getting foreign investors to allow local investors own a stake in mining companies.

The spirit of the requirement is not wrong. But you just don’t start building a house from the roof. You have to put in place a comprehensive legal framework with details on how shares can be sold to locals in a transparent manner.

If the intention is to sell shares to the local community where the mining activity is taking place, you have to develop the correct investment vehicles and instruments to allow locals to share a piece of the action.

If you don’t approach it correctly, rules stipulating local-shareholding thresholds only serve to allow the political elite- ministers and their cronies- to grab shares in foreign mining companies.

As far back as 1984, the government introduced a rule requiring foreign insurance companies to sell 30 per cent shares to locals. It was all done in the name of what used to be known as the Africanisation policy.

Yet when it was finally implemented, it only allowed the political elite of the regime of former president Daniel arap Moi to grab the shares in insurance companies. The trend has also been observed in the granting of telecommunications licences.

As the government liberalised the telecommunications sector and as foreign investors started moving in- the government introduced a 30 per cent- local- shareholding threshold for telecommunications licences and companies.

The elite of the Moi regime grabbed the shares. The shady company, Mobitelea, whose beneficial owners remain secret today, came about in this manner. Then there was a time in 2000 when the government floated international tenders for licences of what was known as Regional Telecommunications Organisations (RTOs).

Foreign investors were told to form consortia with locals so as to meet the 30 per cent local shareholding threshold.

The licences all went to companies which had established consortia with well-connected operatives. When it came to implementation, the middlemen were not able to produce the capital to roll out. The upshot was that due to delays, new and more efficient technologies caught up with the RTO concept.

But the middlemen continued to hoard valuable telecommunication frequencies. I need not belabour the point. When you introduce rules demanding that foreign investors must sell part of the business to locals, under circumstances where there are no laws and transparent procedures of doing so, you are more or less engaged in confiscation.

The decision by former minister, Ali Mwakwere, to introduce the 35 per cent local shareholding threshold for foreign mining companies, was clearly ill- thought out and arbitrary.

Investor interest in the mining industry in Kenya is at an all-time -high. But the truth of the matter is that Kenya has had little mineral production beyond soda ash, fluorspar, small-scale gold and cement.

The most serious investment in this sector is in Kwale where major production of titanium ores from mineral sands is being done by the Australian company- Base Titanium. Plans to extract niobium and rare earths in Taita-Taveta County are at an advanced stage.