Section 27 of the Investment Promotion Act 1992 is how the Act gives effect to its purpose of defining the activities open to a foreign investor.
Section 27(1) — the reservation power
The Regulations may prescribe activities which are reserved for —
(a) citizens; or
(b) national enterprises.
The distinction matters, and it follows the definitions in section 3.
An activity reserved for citizens is the narrower reservation. Only a citizen — which includes the State, a State body, and an enterprise wholly citizen-owned and citizen-controlled — may carry it on.
An activity reserved for national enterprises is wider. A national enterprise is more than 50% citizen-owned, again subject to the control qualification. So an enterprise with a minority foreign shareholding can carry on an activity reserved for national enterprises, but not one reserved for citizens.
In each case, control must remain with citizens. A company 51% citizen-owned but foreign-controlled is a foreign enterprise and can do neither.
Sections 27(2) and (3) — the review obligation
(2) The Authority shall, on or before the expiration of two years from the commencement of the Act, and from time to time as it thinks fit, review the lists of prescribed activities.
(3) Following a review, the Authority shall recommend to the Minister any additions or variations to, or deletions from, the lists.
The lists are therefore not fixed. They are made by Regulation, reviewed periodically by the Authority, and altered on its recommendation to the Minister. Anyone advising on a proposed investment must check the Regulations in force at the time, not a general understanding of what is reserved.
Section 27(4) — no certificate for a reserved activity
Subject to sections 26(1) and (2), a certificate shall not be granted to a foreign enterprise to carry on business in an activity reserved under subsection (1).
Unlike the grounds of refusal in section 28(4A), which turn on the opinion of the Authority, section 27(4) is a prohibition. The Authority has no discretion to certify a foreign enterprise for a reserved activity.
The qualification is the reference to section 26 — the exemption power for activities intended primarily for religious, charitable, educational or other socially useful purposes, or for a non-profit purpose that is socially desirable. An exemption under section 26 may be from any of the provisions of the Act, and section 26(2) requires advance newspaper notice with a 30-day period and a 10-working-day objection window.
Sections 27(5) and (6) — existing operations
An enterprise which is not a citizen and which is lawfully carrying on business prior to the commencement of Regulations made under subsection (1) may continue to carry on business in that reserved activity.
Where a foreign enterprise has been granted a certificate for an activity, or an enterprise which is not a citizen is lawfully carrying on business in an activity, and that activity becomes reserved, the enterprise may continue notwithstanding the reservation.
And no exemption or registration granted under the repealed National Investment and Development Act (Chapter 120) is affected by any such reservation.
The National Investment and Development Act (Chapter 120), now repealed, is not available on PacLII, so no link is given here.
Both subsections turn on the enterprise lawfully carrying on business before the reservation took effect. An enterprise operating without a certificate was not doing so lawfully, and gains nothing from section 27(5) or (6).
That is a further reason why certification matters even where the activity is presently open: the certificate is what preserves the position if the activity is later reserved.
The offences
| Provision | Who | Conduct | Penalty |
|---|---|---|---|
| s 41(1)(b) | Foreign enterprise, and its officers and owners | Carries on business in an activity reserved for a citizen | K100,000 + K10,000/day |
| s 41(1)(c) | Foreign enterprise, and its officers and owners | Carries on business in an activity reserved for a national enterprise | K100,000 + K10,000/day |
| s 41(2) | National enterprise, and its officers, members, shareholders and owners | Carries on business in an activity reserved for a citizen | K100,000 + K10,000/day |
Section 41(3) places on the enterprise the burden of proving that it was lawfully carrying on business under section 27(5) and (6).
So an enterprise relying on grandfathering must be able to prove it — which means keeping the evidence of when it began the activity, and of its lawful status at that time.
Note also section 41(2): a national enterprise commits an offence by carrying on an activity reserved for citizens. Reservation for citizens excludes national enterprises as well as foreign ones.
In practice
- Check the current Regulations before committing to an activity. The lists change.
- Check both tiers. An activity may be reserved for citizens, or for national enterprises — different consequences follow.
- Consider structure. Where an activity is reserved for national enterprises, a joint venture with genuine citizen ownership and control may qualify. Control that remains with the foreign party defeats it.
- Consider Part IVA. A foreign enterprise acquiring an interest in a national enterprise needs a Part IVA certificate, and the interest may itself change the enterprise’s status.
- Keep the evidence supporting any grandfathering claim.
Sources
- Investment Promotion Act 1992 — ss 1, 3, 26, 27, 28, 36A, 41, 44
- National Investment and Development Act (Chapter 120) (repealed)
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.