Land use and control and its impact on foreign investment
Secure property rights, efficient land ownership and use are the cornerstone of any modern economy. Kenya has kept up with global trends in recognizing the fundamental role that land plays in sustainable economic growth and has made efforts to ensure that property rights are secured and that the law is clear to foreign investors looking to invest in real estate in Kenya.
The issue of land use was a key theme in Kenya’s Constitution, 2010 (Constitution) which after promulgation introduced changes which ensured that land in Kenya would be used in a manner that is equitable, efficient, productive, and sustainable. The Constitution required Parliament to revise and consolidate land laws that existed prior to its promulgation, which we have seen being implemented over the years. Parliament has recently tabled the Land Control Bill, 2022 (Bill), which aims to replace the Land Control Act (Cap 302) of 1967 (LCA) and align the law on transactions relating to agricultural land with the Constitution, the Land Registration Act and the Land Act, 2012.
Land use control is a useful and necessary tool for ensuring that land is used efficiently. Currently, the LCA provides the framework under which transactions in respect of agricultural land are administratively regulated through land control boards which have statutory powers to grant or deny consent for controlled transactions. Controlled transactions are defined under the LCA as a sale, transfer, lease, mortgage, exchange, partition, or other disposal of or dealing with agricultural land situated within a land control area. A land control board is required to deny consent for the controlled transaction if the land or share would be disposed to a person who is not a citizen, a private company or cooperative society, all of whose members are not Kenyan citizens; a group representative incorporated under the Land (Group Representatives) Act; or a state corporation.
Foreign investment in agricultural land continues to be a topic of great interest in Kenya with two distinct arguments, for and against. On the limitations, Article 65 (1) of the Constitution provides that a foreigner may hold land on basis of leasehold tenure only for a period not exceeding ninety-nine years. The LCA and the Bill also restrict ownership of agricultural land by non-citizens unless such ownership is exempted from their application by the President or Cabinet Secretary for the Ministry of Lands and Physical Planning (CS) respectively.
On the other hand, there is jurisprudence that is interpreting the law to encourage foreign investment. Of significance is the court decision in Malindi Law Society & 12 others v Attorney General & 2 others (Petition 19 & 291 of 2016)  KEHC 168 (KLR) which declared unconstitutional a section of the Land Laws (Amendment) Act No. 28 of 2016 restricting ownership of land by non-citizens in first and second row beach front property and land within twenty-five kilometres from the inland national boundary of Kenya, without written approval of the CS.
The Bill, if passed into law, will replace the LCA. It has largely maintained the position in the LCA (that foreigners cannot own agricultural land in Kenya) unless such a transaction is exempted by the CS.. The Bill has gone further to broaden the restrictions. Some of the noteworthy provisions of the Bill include the requirement for all companies (including public companies which is not the case currently) to obtain the consent of the land control committee to engage in a controlled transaction (which includes disposal of shares in a public company owning agricultural land). This is a key departure from the LCA and an attempt to address the gap that is currently used by foreigners to own agricultural land through acquisition of shares in a public company which owns agricultural land.
Kenya’s economy has and continues to be heavily reliant on agriculture. According to USAID report on food security in Kenya, 2022, the agricultural sector contributes to approximately 33% of Kenya’s GDP. The USAID report estimates that the total land mass viable for agricultural production in Kenya is approximately 20% of its total land mass.
Food security continues to be a major concern in Kenya and the cracks on food security have widened with the war in Ukraine. The former Government under the Medium -Term Plan, ‘Big 4 Agenda’, committed to reduce malnutrition by 27% among children under five years and a 50% reduction in the number of food insecure Kenyans. To achieve this, there is need to channel resources towards the agricultural sector and perhaps, the current legal framework centred on restricting foreign ownership of agricultural land, needs to evolve to a broader debate about the future of the agricultural sector and food security.
Foreign direct investment in the agricultural sector could play a major role in achieving food security. As opposed to a blanket restriction on foreign ownership of agricultural land or leaving the discretion to the CS to exempt transactions from the application of the law, Parliament could consider broadening the scope of the land control board/ committee to authorise ownership of agricultural land by foreigners where the goal is to invest in the agricultural sector. This can be achieved through supporting regulations that stipulate the requirements to be met by foreigners to qualify for consent of the land control board/ committee to acquire agricultural land. Foreign investors in the agricultural sector could also be tracked through tools such as annual reporting to a designated body in order to ensure compliance by with the terms of the land control board consent.
A delicate balance should be established between economic growth resulting from foreign investment, long term sustainability of the agricultural sector, food security and protection of indigenous rights of ownership of land by nationals. This is a dynamic area that changes depending on the country's socio-economic needs. Kenya should consider a regulated environment of foreign ownership of agricultural land to secure its food basket.
The article was published in the Business Daily and can be accessed here.