Lex Mundi Client Briefing

24 The Lawyer | 11 July 2016 Africa report in association with Lex Mundi A report from The Lawyer Research Service and Lex Mundi Africa – the great opportunity African countries offer enormous potential for overseas investors, but there are also some serious challenges to overcome frica is rapidly becoming the global eco- ies by the World Bank indicate that doing business nomic growth engine. Half of the world’s in many African countries is no more difficult A burgeoning A 25 fastest-growing nations are in Africa than in many Latin American or Asian markets. middle class and almost 40 per cent of the continent will This article, which is an extract of an upcoming achieve GDP growth of more than 5 per cent in larger report, summarises discussions at Lex is catalysing 2016. The population is set to grow by 50 per cent Mundi’s Emerging Africa Conference in Cape growth to 1.5bn by 2030, and by 2040, Africa’s work- Town in March 2016. The wide range of topics ing-age population will rise to 1.1bn from about discussed included underlying growth drivers and across a About the research 500m today – greater than the working-age pop- investment trends, implementing growth strate- range of This article summa- ulations of China and India combined. gies in line with local development objectives, rises the discussions A burgeoning middle class is also catalysing changing regulatory frameworks and structuring sectors” at Lex Mundi’s growth across a range of sectors, including finan- transactions to satisfy broad stakeholder interests Emerging Africa cial services, telecommunications, retail, residen- and public concerns. Conference in Cape tial and transportation. Participants came away with insights from busi- Town in March These developments have caught the attention ness leaders and legal experts on how to manage 2016. For more of international investors and multinational com- opportunities, challenges and risks when expand- information on the panies, many of which are rushing for alternative ing in the region. conference, please investment opportunities in response to dimin- contact Eric Staal, ishing growth prospects in BRIC (Brazil, Russia, Understanding the opportunity director of business India and China) and other emerging markets. The continent’s jaw-dropping rates of population development at Lex But despite the enormous potential, there are growth certainly capture attention. But during the Mundi, at estaal@ serious challenges to investing in Africa. Business- conference, Patrick Mweheire, chief executive lexmundi.com. es are vulnerable to risks ranging from commod- officer of Uganda’s Stanbic Bank, outlined some ity price fluctuations and exchange rate volatility other factors underpinning Africa’s allure. to weak regulatory institutions and emerging se- Firstly, the rapid rate of urbanisation that is ex- curity threats. This creates misconceptions about pected to accompany population growth, coupled doing business in Africa. with the emergence of a middle class with more Perhaps the most obvious misconception is the disposable income, creates an enormous market belief that the difficulties of doing business are for companies investing in the region. uniform across the continent. In the words of Dr By 2030, it is expected that about half of Afri- Donald Kaberuka, former president of the Afri- ca’s projected 1.5bn population will live in cities, can Development Bank and senior representative and by 2050, the number living in cities will hit for the African Union’s Commission for Peace 1.2bn. To put this into context, Johannesburg was Fund, “Africa is a complex mosaic which is very the only African city with more than one million often misunderstood”. inhabitants in 1960; now there are 35. Another misconception is that the risk environ- Population growth aside, Africa’s vast natural ment is more challenging than in other emerging resources make it a compelling investment desti- economies in Latin America or Asia. In fact, stud- nation. For example, about 60 per cent of the The Lawyer | 11 July 2016 25 world’s available arable land is in Africa. Beyond minerals, oil and gas, the continent also has nat- Africa’s vast Managing risk ural advantages for investments in renewable en- natural ergy, particularly wind and solar. The challenges to investing in Africa mean According to data compiled by Clean Energy resources it is vital to have a clear risk management Pipeline, $29.9bn has been invested in renewable make it a strategy in place. A panel of leading Afri- energy projects in Africa in the last five years. can companies discussed this at the Lex Mweheire also stressed that improvements in compelling Mundi Emerging Africa Conference, and governance and regulation in the past decade have investment the following recommendations emerged: created a more stable investment environment. Importantly, 70 per cent of sub-Saharan Africans destination” 1. Devise a process for identifying risks now live in free or partially free democracies. Nine and implement policies to mitigate and elections were held in 2014 and five in 2015. monitor exposure. There have also been significant improvements 2. Take action early when responding to in financial regulation, with a number of African adverse events. countries establishing independent central banks 3. Get a local perspective to assess each with liberalised current and capital accounts. risk situation accurately, rather than Many central banks have been given responsibil- relying on observations from abroad. ity for monetary policy and have been instructed Employ as many local people to man- to implement inflation targeting policies. agement positions as possible. But despite these vast improvements, there re- 4. A no-tolerance approach to corrup- mains a strong perception that macroeconomic tion bears fruit in the long run, even uncertainty, corruption and unstable regulatory if it takes longer and costs more to get and governance structures prohibit doing busi- things done. ness in Africa. 5. Invest in relationships with political This was a point debunked by a range of speak- leaders to understand their goals and ers at the conference. According to the World demonstrate how your business oper- Bank’s 2016 ease of doing business rankings, Af- ations contribute to the community’s rican countries compare well with BRIC nations development. on factors including dealing with construction Samuel Ayim, group general counsel permits, getting electricity, registering property and enforcing contracts. Eight African countries are ranked among the top 100 for ease of doing business. Russia was ranked 51st, China 84th, Brazil 116th and India When we go to a new 130th. Relative to other emerging economies, Af- rica is not a harder place to do business. That is country, we look around not to say there are no challenges, but they can be for professional people overcome with careful planning. who are well connected Four major investment trends and know the territory Foreign direct investment (FDI) in Africa is in- who can sit on the board” creasing. But which countries and industries is it flowing to and who is providing capital? Dr Mar- Samuel Ayim tyn Davies, managing director for emerging markets and Africa at Deloitte, spoke to the conference about four main trends that currently define foreign investment. at Ecobank Transnational, a pan-African The first is Africa’s evolving relationship with retail and commercial bank, underlines China. Since the introduction of China’s Africa the importance of appointing local people policy in 2000, China has become Africa’s biggest to the management team when expanding trading partner. The majority of African goods into new African countries. exported to China are raw materials. “We have learnt that it is absolutely criti- This has brought significant wealth to Africa, cal to have local people in the management but in some circumstances has resulted in coun- team,” he says. “Lots of outsiders look at tries being over-reliant on commodity exports. Africa as one country, but it is actually 54 China has also provided various economic aid countries. There is lots of commonality, programmes and loans. but many differences and nationalistic The second main trend concerns the decline in tendencies within countries. commodity prices and exports. Reduced demand “For this reason, we have a local board and, in some cases, increased supply, particularly in each country. When we go to a new of metals and crude oil, have triggered devalua- country, we look around for professional tion of some African currencies against the dollar. people who are well connected and know Countries such as Angola and Nigeria have the territory who can sit on the board. been hit particularly hard and have had to rene- “This helps us with the interaction with gotiate debts with China. the local authorities and with cultural A third trend is the bifurcation of the conti- integration.” nent’s growth prospects into east and west. East 26 The Lawyer | 11 July 2016 Africa report in association with Lex Mundi A snapshot of Africa’s legal market By 2025, it is anticipated that Africa will be infrastructure and M&A work around this, account for 12 per cent of global legal spend, Oil-producing countries which is good for law firms.” according to Citibank’s annual law firm such as Nigeria and Angola But on the flipside, the volume of work in study. This is a significant increase on 2011, other sectors is decreasing. “A couple of years when Africa accounted for only 4 per cent of are really suffering, and ago, we expected there to be lots of work in global legal spend. so are the law firms that mining and commodities, but this is not the “A lot of work the international firms do in case given where we are in the commodities Africa is based around power,” says Jona- are based there” cycle,” says Lang.

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