OBG talks to Karim Anjarwalla, Managing Partner, Anjarwalla & Khanna

Intterview: Karim Anjarwalla

What sort of legal and contractual challenges do firms face in cross-border deals in East Africa?

KARIM ANJARWALLA: The foremost challenge faced in closing cross-border deals is the competition regulations promulgated under the Common Market for Eastern and Southern Africa (COMESA) Treaty . COMESA is a regional trade bloc of African countries brought together to promote regional trade and development among other broad objectives. COMESA has recently begun to regulate competition concerns between member states, including for deals between member states and non-member states. The time and fees required to comply provide an ongoing challenge especially for smaller transactions – merger filing fees are up to a maximum of $500,000 and the commission can take up to 120 days to analyse merger notifications. Another difficulty faced in regional deals is the lack of harmonisation in legal regimes.

What reforms might best improve the attractiveness of Kenya’s legal code to foreign investors?

ANJARWALLA: The Investment Promotion Act No. 6 of 2004 incentivises foreign investment in Kenya by allowing investors who propose to invest a minimum amount of $100,000 to benefit from an investment certificate which facilitates the issuance of all necessary licences and permits required for the investor’s operations. Further incentives could be offered by way of specific tax relief for investment in specific sectors or through limited reductions on withholding tax and value-added tax (VAT). The biggest concern relates to the administration of taxation. Investors can face delays in obtaining refunds of VAT, while withholding taxes and Customs clearance can take time with goods subject to a multiplicity of inspections. It would open up opportunities if Kenya were to increase its double-tax agreements. Additionally, tariffs should also be harmonised among the East African Community, COMESA and Southern African Development Community to create a tripartite free trade agreement covering 26 countries.

What are the strengths and weaknesses of the existing frameworks for new extractive industries?

ANJARWALLA: The extractive industry is becoming a major area of growth in Kenya making up around 3.2% of the country’s economy and creating some 11,000 jobs. The legislative framework includes the Constitution of Kenya, the Mining Act, the Trading in Unwrought Precious Metals Act and the Diamond Industry Protection Act, while a new Mining Bill before parliament seeks to overhaul the extractive sector replacing all of these acts. The extraction of oil and gas is covered by the Petroleum (Exploration and Production) Act. The legislative framework has weaknesses, chief of which is the fact that it is outdated and in need of reform. For instance, the current Mining Act has an uncertain licensing regime with little standardisation across different categories of rights, licences and mining leases. Special licences and leases that permitted exemptions from the Mining Act and applicable regulations were granted at the discretion of the commissioner of mines and geology, with little oversight, prescribed procedure or coordination with other government agencies. The Act did not adequately deal with land rights vis-à- vis mineral rights, and prospecting rights and licences granted in respect of land remain subject to multiple consents and regulatory hurdles.

On the upside, the draft Mining Bill 2013 does provide some relief to the confusion of the current legislation by way of streamlining the process of granting licences and approvals with forms, timelines, procedures and consents for application for licences being standardised. Similarly, the bill proposes an expansion of licence categories to cater for large and small-scale operations while extending the life of mining licences to 25 years. The Mining Bill establishes a National Mining Corporation to simplify the government’s participation and holding of carried equity in firms engaging in mining activities. In addition, the Mining Bill proposes the establishment of a Minerals Commodity Exchange to develop a market for trading in minerals and futures.