A rule requiring foreign firms to allocate 30 percent  shareholding to local investors in Kenya has slowed down inflows from international investors into the East African country and could hurt the country’s improved level of doing business.

The punitive rule, which was passed in a recent company law review, has drawn criticism from international firms and the World Bank. They say it would discourage investment in the largest economy in the region, stifle job creation and cut growth.

In a recent economic update, the World Bank cited the regulation among other frustrating business processes as a reason why the business environment in Kenya is  worse.

“The long delays in resolving disputes in the Judiciary and other cumbersome compliance items have discouraged foreign direct investment (FDI),” the World Bank said in the report.

“In addition, the regulations that require foreign firms to enter into mandatory joint ventures partnerships (30 per cent share) with locals in order to invest in Kenya, makes it a less favorable investment destination.”

Kenya has introduced a regulation requiring foreign firms in the mining sector to have at least 35 percent local shareholding.

Investors in the industry have widely opposed the rule, with latest indication from government being that the government could reverse the rule.

Adan Mohamed, Kenya’s minister for enterprise and industrialization, told Reuters that requirement for all foreign company to have 30 percent local shareholding was being reviewed.

“That is being reviewed at the moment and we have made our position very clear that the way it has been drafted needs to be relooked at,” Mohamed said. “Certainly the way it is at the moment is not in the spirit that we have been doing business in this country.”