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, 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 mar- kets and Africa at Deloitte, spoke to the confer- ence 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. than Lang, a partner and head of Africa at “Oil-producing countries such as Nigeria Africa Group. “The power and Angola are really suffering, and so are capacity gap means this will continue, wheth- the law firms that are based there. There are er it be work related to traditional power or “Work will also be driven by the growing very tough trading conditions.” renewables. middle class. In Kenya, you can see this very Traditionally, the lion’s share of corporate “The total power capacity for sub-Saharan visibly in terms of new residential develop- legal advice in connection with Africa-related Africa is less than that of Spain. ments and increased consumption of things matters has been performed in major foreign has population of 50m but a peak capacity like cell phones and soft drinks. There is a capitals such as London, Paris, New York or of 43,000MW. Nigeria has a population that young, rapidly urbanising population and Washington DC. However, in recent years is three times this but has a peak capacity of financial services and telecoms companies are local and international firms have both built only around 4,000MW.” looking to take advantage of this. There will their capabilities in African jurisdictions.

The table below shows some of the most active local African law firms

Firm Country Offices

Aelex Nigeria Abuja, , Lagos, Port Harcourt AF Mpanga Advocates Uganda Ajumogobia & Okeke Nigeria Abuja, Lagos, Port-Harcourt Aluko & Oyebode Nigeria Abuja, Lagos, Port Harcourt Armstrongs Botswana Gaborone ATZ Law Chambers Tanzania Dar es Salaam Banwo & Ighodalo Nigeria Abuja Bentsi-Enchill Letsa & Ankomah Ghana Accra Bookbinder Business Law Botswana Antananarivo, , Dar es Salaam, Gaborone, Johannesburg, Kampala, Lagos, Bowman Gilfillan South Africa Cape Town, , Sandton Collins Newman & Co Botswana Gaborone Coulson Harney Kenya Nairobi Couto Graça e Associados Limitada Mozambique Maputo Engling Stritter & Partners Namibia Accra, Alexandra, Cape Town, Dar es Salaam, Durban, Johannesburg, Kampala, , Mitchells Plain, ENSafrica South Africa , Stellenbosch, Swakopmund, Walvis Bay, Windhoek Hamilton Harrison & Matthews Kenya Nairobi, Mombasa Helmy Hamza & Partners Egypt Cairo Kaplan & Stratton Kenya Nairobi Koep & Partners Namibia Windhoek MMAKS Uganda Kampala Perchstone & Graeys Nigeria Abuja, Benin, Lagos Templars Nigeria Abuja, Lagos; Oghogho; Akpata TRLP Law Nigeria Abuja, Lagos, London, California Udo Udoma & Belo-Osagie Nigeria Abuja, Lagos, Port Harcourt, Uyo Walker Kontos Kenya Nairobi South Africa Cape Town, Johannesburg South Africa Cape Town, Johannesburg, Stellenbosch, Tyger Valley

Source: The Lawyer Africa Elite 2016 report supplemented with additional recent data The Lawyer | 11 July 2016 27

Africa is relatively less dependent on oil and gas in Africa if they are not confident that the regula- exports, and so has been less severely affected by tory environment will not change suddenly? When we the decline in commodity prices. Certain east Af- In the past, the main regulatory risk was nation- went on our rican nations have also invested in critical infra- alisation, asset confiscation or dividend repatria- structure, undertaken political and economic tion. Now weak institutions are the main problem. big African reforms and diversified trade links across the In South Africa, for example, tariff policies for expansion Middle East, India and Africa. energy are clear, but the regulator underpinning These efforts are bearing fruit. Ethiopia’s econ- the market is not independent. drive, we omy is growing at double-digit rates while Rwan- Apart from measures in the 17 countries that had a clear da is growing at 6.3 per cent and Kenya at 6.2 per belong to OHADA (Organisation for the Harmo- cent. There is also renewed confidence in Tanza- nisation of Business Law in Africa), national reg- policy of no nia’s economy. ulatory frameworks are not consistent. Inward bribery or In contrast, Africa’s western nations are gener- investors therefore need to become au fait with ally more reliant on oil and gas exports, which are multiple regimes. corruption” declining. Also, FDI in some west African coun- The level of corruption in some African coun- Samuel Ayim tries has been stifled by adverse regulatory con- tries also causes issues when it comes to comply- ditions. But within these regions, investment is ing with the international reach of the US Foreign particularly strong in certain countries and cities. Corrupt Practices Act, the UK Anti-Bribery Act This was the fourth major investment trend and similar laws from other countries. Davies highlighted at the conference – the emer- “When we went on our big African expansion gence of four countries and cities as investment drive, we had a clear and uncompromising policy hubs where international companies are establish- of no bribery or corruption,” says Samuel Ayim, ing platforms to expand to other parts of Africa. group general counsel at Ecobank Transnational. These are Johannesburg, Lagos, Morocco and Africa “In some countries, this practice was so ingrained Nairobi. that it was hard, but it was a fundamental princi- For example, Lagos state government reported 1.5bn ple for us. FDI of N5bn (£13m) in the city of Lagos in the Population by 2030 “Ecobank has a culture that is total compliance. first quarter of 2016, which is 50 per cent more Every central bank knows this. It is critical to en- than the total volume of FDI in 2015. 1.2bn sure discipline and compliance with this. We have Last year, the city established the Office of Living in cities by 2050 some written rules of business ethics and all di- Overseas Affairs & Investment to boost interna- rectors are required to sign a code of conduct.” tional investment in Lagos. This is just one of a 70% Over time, such an unyielding commitment to series of measures to encourage inward invest- of sub-Saharan Africans compliance can become a valuable asset and even ment. Lagos state has already created inves- live in free or partially a competitive business advantage. tor-friendly legal and regulatory frameworks, such free democracies The last challenge, but certainly not the least as the land reform act, double taxation treaties, important, relates to security. True, the continent limited liability reviews and free trade zones. 8 is politically more stable than it ever has been over African countries rank the past 20 years, but high-impact terrorism inci- Four key challenges in global top 100 for dents still occur. These not only take a heavy hu- But investing in Africa presents a wide range of ease of doing business man toll, but also knock investor confidence. challenges, and Kaberuka cited four major prob- Foreign companies must consider a range of lems that are inhibiting FDI in Africa. $29.9bn issues, including liability as well as providing ad- The first is the macroeconomic climate. Many invested in renewable equate training and protection of staff. It should African nations have made great strides to imple- energy projects in be remembered that the level of security risk var- ment economic reforms in the past three decades, Africa in last five years ies within countries and across Africa. The secu- including the formation of independent central rity threats in Africa are also not dissimilar to banks, financial market liberalisation and budget those in other emerging markets. deficit management. That said, many African economies have not reformed sufficiently and are Conclusion still over-reliant on commodity exports. These Rampant population growth, urbanisation and a nations have been particularly vulnerable to the burgeoning middle class make Africa an attractive fall in commodity prices. continent for foreign investment. But despite the Kaberuka called for countries that still depend continent’s obvious potential, important challeng- on natural resources to swiftly carry out further es and risks remain part of the landscape. reforms, including cutting expenditure, identify- Although significant progress has been made in ing new sources of revenue, managing exchange recent decades, unemployment rates remain very rates and removing import controls. high, economies are still over-reliant on commod- The second challenge relates to a lack of eco- ity exports and regulatory institutions are not yet nomic transformation, which means Africa’s as effective as in developed economies. And that’s strong rate of economic growth over the past dec- not to mention ongoing security concerns. ade has not been matched by corresponding in- Yet risks can be mitigated with astute planning creases in employment, equality and productivity. and adaptation to local conditions. Detailed risk To achieve true economic transformation, Kabe- management strategies, employment of local ruka advised African countries to invest in infra- managers and advisers, zero tolerance policies structure, cross-border market integration and against corruption and alignment of company the development of mid-level skills. goals with local development requirements are all The third challenge is institutional and regula- easier said than done. But get them right and Af- tory risk. How can companies invest significantly rica offers rich rewards.