‘We own the time’ – the Africa 2020 vision

‘I’m standing saying that those who miss the boat now, will miss it forever. So if you want to be in Africa, think about investing,’ said Nigerian finance minister, Ngozi Okonjo-Iweala, earlier this year in a public speech.

Before most foreigners had become bullish on Africa, Stephen Jennings, founder of Renaissance Capital, who successfully bet on the opportunities in post-Soviet Russia, put it more pithily when he was quoted in 2007 as saying: ‘If Russia was a once-in-a-lifetime opportunity, sub-Saharan Africa is a second once-in-a-lifetime opportunity.’

It’s a call that a growing number of multinationals, banks, investors and advisers have been heeding in recent years as the 54-nation continent’s growth has for the last 15 years shrugged off the economic sickness that for so long blighted the region.

But answering the call to invest is more complicated than it seems. Once businesses just looked to South Africa as by far the largest and most Westernised economy. However, with the country struggling with political tension, social unrest and a sluggish economy, an increasing array of African states are challenging its position as Africa’s powerhouse.

Indeed, much of Africa’s robust growth since the 2000s has been driven by inland economies, helping to lift more of the region’s billion-strong population out of poverty and bringing a greater measure of peace to a continent still struggling with wealth inequality, poor infrastructure and internal conflict.

A young, increasingly urban population – Africa’s fast-growing cities are rapidly creating a collection of five million plus hubs to rival Western equivalents – is seen by optimists to be forging an entrepreneurial, bustling business culture.

Perhaps most striking in this group is the ascent of oil-rich Nigeria, once a byword for corruption, but now expected by some to soon overtake South Africa as the largest economy in the region.

Imagining Africa in 2018, a growing band of other states look positioned to be among the key markets in a multi-polar continent, which the bullish see as building not only on improving infrastructure, but a growing middle class and an expanding inter-state trade.

With growing political stability and an improving reputation for ease of doing business, states vying with Nigeria for investors’ interest include Kenya, Mozambique, Ghana, Rwanda and Tanzania, as well as Botswana, Mauritius, Morocco and even Ethiopia.

For many African lawyers and long-time observers of the region, economic opportunity is more than just return on investment, it is a chance to help the continent to escape from a prolonged period of decline and poverty.

As Elikem Nutifafa Kuenyehia, managing partner of Ghana practice Oxford & Beaumont Solicitors, says: ‘It is a duty of Africa to have a stable economy.’

The Legal 500 2013: Africa* Recommended firms

Firm	No of 2013 recommendations
Norton Rose Fulbright	16
Bowman Gilfillan	12
Baker & McKenzie	11
Webber Wentzel	11
CMS	10
ENS (Edward Nathan Sonnenbergs)	10
Gide Loyrette Nouel	9
Werksmans Attorneys	9
Al Kamel Law	8
DLA Cliffe Dekker Hofmeyr	8
Allen & Overy	8
Fasken Martineau DuMoulin	7
Ibrachy & Dermarkar	7
Shalakany Law Office	7
UGGC Avocats	7
Zaki Hashem & Partners	7
Clifford Chance	6
DLA Matouk Bassiouny	6
Eversheds	6
Glyn Marais	6
Kettani Law Firm	6
Lefèvre Pelletier	6
Dentons	6

Top-tier Recommendations

Firm	No of 2013 top-tier recommendations
Norton Rose Fulbright	9
Webber Wentzel	8
Bowman Gilfillan	8
Baker & McKenzie	8
ENS (Edward Nathan Sonnenbergs)	7
Allen & Overy	6
Zaki Hashem & Partners	5
Gide Loyrette Nouel	5
Shalakany Law Office	4
Kettani Law Firm	4
Ghellal & Mekerba	4
Clifford Chance	4
Bentsi-Enchill, Letsa & Ankomah	4
Al Kamel Law Office	4
AELEX	4
Source: The Legal 500
* Countries included: Algeria, Egypt, Ghana, Kenya, Libya, Morocco, Nigeria, South Africa, Tunisia

Still the biggest

Despite the strides made over the last decade in many regional economies, South Africa remains by some way the largest market in Africa, accounting for over 15% of the continent’s economy. Aside from its Western links, Johannesburg has a well-established position as a regional finance hub with 47 of the top 50 companies in Africa currently listed on the Johannesburg Stock Exchange.

The market has long had some of the largest and most sophisticated law firms in the continent, among them ENS (Edward Nathan Sonnenbergs), Webber Wentzel and Bowman Gilfillan.

However, South Africa has in the last decade struggled to build on its legacy, with crime, inequality and corruption, together with a relatively subdued rate of growth compared to many neighbours, leading some to question its potential.

With the effective one-party rule of the African National Congress widely regarded as having fostered corruption, there are many concerns of social unrest when the unifying figure of Nelson Mandela passes away.

Despite such concerns, the last two years have seen intense interest in the market from foreign firms, with Baker & McKenzie, Norton Rose Fulbright, Linklaters and DLA Piper all making well regarded and substantive moves in the local market (see ‘Into Africa – international firms’). In October, White & Case bolstered its Johannesburg office with three new partners hired from the largest local firms. Joz Coetzer and Craig Whitley will join the banking and project finance group next year from Bowman Gilfillan, while Johan de Lange was head of banking at Linklaters’ ally, Webber Wentzel.

Scott Nelson, an executive at ENS, is surprised that it has taken foreign firms so long to focus on the market. He characterises the attitude of foreign law firms to Africa thus: ‘People think: “It’s all likely to be too difficult. We don’t know much about it. It also probably carries disproportionate amounts of risk, and corruption issues are likely to be very tough to manage. There are still a sufficient number of more developed markets where an acceptable return on capital is available, without our having to further explore the opportunity that Africa may present at this time.” Then your own backyard goes on fire and you start looking for new places.’

Nelson is unsurprisingly upbeat on the prospects of South Africa, which benefits from a much wider economy than neighbours that rely on mining and oil.

ENS has a leading client list and advised Nestlé on the intellectual property (IP) issues that arose from its $11.9bn acquisition of Pfizer’s infant nutrition business. IP partners Jocelyn Katz and Lizel Blignaut led on this deal. Aside from big ticket M&A and mining, the firm advised Gold Fields on the listing of Sibanye Gold on the Johannesburg Stock Exchange and New York Stock Exchange this year, valued at $17bn. The firm has bulked up significantly with five lateral hires since October 2012, including the head of corporate and commercial at DLA Cliffe Dekker Hofmeyr.

International advisers are likewise seen to have made considerable ground in a market that was once dominated by a handful of local players. Particularly notable is Baker & McKenzie, which has greatly increased its offering there in a year. Since the firm opened in May 2012 with 31 lawyers and staff, it has more than doubled in size to 67 lawyers and staff in just over a year. It was bolstered by an eight-partner team recruited from domestic firm Werksmans Attorneys, which included well regarded Wildu Du Plessis and Chris Moraitis. (There was some fortune in this as the team had initially signed up to join Dewey & LeBoeuf just months before the Wall Street firm imploded.)

Norton Rose Fulbright’s tie-up with top-tier practice Deneys Reitz in 2011 is also generally viewed as successful, as is Linklaters’ surprise alliance with leading local practice Webber Wentzel.

Amid this unusually welcoming mood from local law firms, there has been much speculation that another leading local player, Bowman Gilfillan, is considering some form of tie-up with Clifford Chance (CC) (a potential move CC is not denying, though Bowman says that it will not merge with a foreign firm).

Judging South Africa’s potential a few years in advance, the jurisdiction looks certain to benefit from its tradition of well-trained lawyers and a critical mass of international advisers working alongside local counsel, even if the domestic economy and political climate is relatively inhospitable.

Power players

While the interest of investors in Africa has broadened from the traditional focus on natural resources, Richard Tromans, head of research at Jomati Consultants, who last year authored a report ‘Africa’s Turn: Law and the Last Great Emerging Market’, says that legal conversations remain dominated by energy.

As such, it is unsurprising that Nigeria, Africa’s largest oil exporter, is seen by many as the most likely challenger to South Africa’s regional dominance. Nigeria – once the global butt of jokes about scam artists and dodgy e-mails – has other assets including a 175 million population and a 6%+ economic growth track.

‘Nigeria will be the strongest economy in sub-Saharan Africa in the next few years, driven mainly by the growth in its oil/gas and financial services sectors. You really are seeing a changing landscape on the continent,’ says Paul Bugingo, co-chair of Dentons’ Africa practice.

‘There is a lot of interest from firms outside Africa,’ says Ladi Taiwo, managing partner of leading African firm Abdulai Taiwo & Co.

Rising levels of investment have ushered in plenty of work on infrastructure and projects. In addition, Taiwo is advising the Nigerian government on its continuing privatisation programme, such as with the national telecom company Nitel, the Aluminium Smelter Company of Nigeria and Nigeria Machine Tools.

Kenya is another country widely predicted to be a dominant force in the region. Despite the high-profile terrorist attacks in Nairobi in September – in which Islamic extremists killed at least 67 individuals in a shopping centre – it is the largest economy in East Africa and has recently benefited from significant oil and gas deposit finds.

Part of the East African Community comprising of Burundi, Kenya, Rwanda, Tanzania and Uganda, the county’s stock exchange is one of the largest in Africa. Patrick Deasy, co-head of SJ Berwin’s Africa practice, cites Kenya alongside Nigeria as the biggest growth opportunity in the region.

While there is no doubting the impact of longstanding civil divisions – a fraught international campaign continues to bring senior politicians before the International Criminal Court for allegedly orchestrating political violence five years ago – development of oil has substantially boosted the economy. Leading local firms include Anjarwalla & Khanna, Coulson Harney, Hamilton Harrison & Mathews, Kaplan & Stratton and Walker Kontos.

Iberian advisers are unsurprisingly positive about the two dominant ‘Lusophone’ African states, Angola and Mozambique, but such high hopes are widespread given the rapid development of both markets.

Angola has been in the global energy market since the 1970s and is set to produce two million barrels of oil a day by 2015. ‘We’ve been working in Angola for 13 years. We started a long time before the rush of firms to the area,’ says Miguel Castro Pereira, managing partner of Abreu Advogados, who works in association with local firm FBL Advogados.

Despite the upbeat mood regarding Angola, advisers concede that red tape and the pressure on foreigners to operate via joint ventures with the Angolan government deter investment, as do restrictions on capital flows.

Mozambique represents an even more dramatic success story. It has an annual GDP growth rate of 7.4% and the recent discovery of mineral wealth is seeing advisers flood into the country.

‘Mozambique is seen as a success case among African economies and has been playing a role of increasing significance in southern Africa, especially because of its potential as a supplier of energy to the region,’ says Tomás Timbane, international partner at GLM – Gabinete Legal Moçambique, in association with Portugal’s PLMJ.

Although African markets are moving away from an overwhelming focus on natural resources, Mozambique is a country with abundant natural resources and its hydro-electric potential, natural gas reserves, coal and minerals – including gold, precious stones, titanium and bauxite – make it one of the most attractive jurisdictions for advisers.

Emerging hubs and the Singapore of Africa

Koen Vanhaerents, head of EMEA for Baker & McKenzie, says there are parallels between Africa now and Asia in the 1970s. For Africa to truly be on the legal map, it will need credible finance centres, probably comprising one or two internationally-focused hubs and a smaller series of national centres to challenge finance and build trade in the region.

There is some debate regarding where those hubs will emerge. Some promote Mauritius with its network of double tax treaties, while others say Rwanda will be ‘Africa’s Singapore’. Deasy at SJ Berwin is optimistic about Mauritius, but realistic as well. ‘The fund management centre is in Mauritius as it is Africa’s local offshore financial centre. But it is not an economic hub for Africa compared to Nairobi and Lagos,’ he says.

Nelson is a proponent of fast-growing Rwanda as a financial centre. The state has no major natural resources and concentrates on being a business-friendly jurisdiction, which is likely to attract business to the country.

Morocco has attempted to project itself as an offshore financial centre for some time in a bid to attract financial services companies, including corporate and investment banking, private equity, asset management and insurance companies. The ‘Francophone’ country also benefits from its traditional status as a stable bridge between Europe, the Middle East and Africa, a status that has generated launches in recent years from CC, Norton Rose Fulbright and Allen & Overy.

Botswana is another potential contender according to Bayo Odubeko, a corporate partner at Norton Rose Fulbright with a focus on African private equity funds. It has a reputation for stability and fiscal incentives and is already attracting global players to the country’s capital, Gaborone, such as Aon.

Unlike some other aspiring finance centres, Botswana is rich in natural resources, including diamond reserves. De Beers, which mines diamonds in a 50:50 partnership with the government, is moving its London-based international sorting and marketing operations entirely to Gaborone by the end of the year.

Due to some onerous restrictions on capital flows, Ghana has been held back in attracting investment, but is cited as an increasingly attractive gateway for investors into West Africa.

As far as its position in the African legal league tables, Kuenyehia of Oxford Beaumont, comments: ‘Ghana is behind Kenya and Nigeria [but] there’s a growing middle class and money is coming in to support growing business.’

African M&A trend

Period	Value (€m)	No of deals
1 Sep 2010 to 31 Aug 2011	24,150	178
1 Sep 2011 to 31 Aug 2012	17,342	208
1 Sep 2012 to 31 Aug 2013	33,549	175

Structure and infrastructure

There is clearly more to Africa than just natural resources. For many advisers, Africa’s huge demand for better infrastructure – spanning transport, telecoms and utilities – is hugely attractive.

‘The main problem in Africa is thelack of infrastructure. If you look at a map of the railways for example you will see the only railways are the ones going to the mines,’ says Stéphane Brabant, the Paris-based head of Herbert Smith Freehills’ (HSF’s) Africa practice.

Shearman & Sterling has made inroads here. The firm is advising Sundance Resources on the Mbalam-Nabeba iron ore mine rail, worth $4.5bn, which links the Republic of Congo to Cameroon. The convention with the government of Cameroon was signed late last year and Shearman’s team is being led by Christophe Asselineau, head of its Africa group. The firm is also understood to be considering an Egyptian office launch as arbitration grows in the region. Absence of infrastructure has obviously contributed to the traditional lack of intra-African trade, which most advisers see as a major stumbling block.

’The volume of trade intra-Africa is not the same as the European Union. Most countries don’t rely on intra-Africa trade,’ says Taiwo of Abdulai Taiwo & Co.

Rather, the capital flows come from Europe, Asia, Latin America and some US investment. China is a major investor in the continent due to its demand for resources. Once seen as a great friend to Africa, the hard-nosed tactics of state-backed Chinese firms in securing natural resources has led to increasing ambivalence and even outright resentment towards the world’s second largest economy.

‘China has helped fill the investment gap in Africa over recent years, and has been able to obtain mineral rights and offtake arrangements in return. Some investors feel crowded out of the market, unable to compete with the size of investments that Chinese institutions are able to offer,’ says Daniel Metcalfe, a banking partner at Norton Rose Fulbright with a focus on natural resources. But the infrastructure deals that were promised in return for mineral rights sometimes failed to materialise. ‘Six or seven years ago, Chinese money appeared a godsend for African governments. While still welcomed, there’s now a bullish attitude from the Chinese – they are bringing in their own workers for instance,’ says Asselineau. There is also talk of deals being struck in return for votes in the UN.

But with the Chinese still hungry for resources, deals are being revisited and terms are said to be improving. One partner said that 60% of natural resources are put on to a boat to China straight away.

For a continent with oil and gas, you would assume that Africa has all the power it could ever need. This is not the case. ‘There is a power shortage in almost every sub-Saharan African country, including South Africa and that’s good for law firms and other advisers as it creates opportunities to advise on new power projects,’ says Bugingo at Dentons. One lawyer speaking from his office in Lagos says that he has to use a generator to get his power. ‘When we have power, people will come,’ he says. Even in South Africa, the most developed of African nations, there are problems with energy, so there has been a concerted effort to push the renewable sector.

Baker & McKenzie is one of the most prominent advisers driving through the renewable strategy. Its South African team advised a range of lenders and sponsors on 13 of the 28 projects selected in the first round of deals under the South African Renewables Initiative last year. It won four deals in round two and is representing lenders and borrowers in over 20 bids in round three. ‘There is a huge need for more power in South Africa and that need translates into huge opportunities. Margins in the system are incredibly tight. A number of power-intensive industries, including mining, smelting, and pulp and paper, make a key contribution to the economy. New renewables projects will play a vital role for industry and in keeping the lights on,’ says Scott Brodsky, co-managing partner of Bakers’ Johannesburg arm.

The future and diversification

‘I think that seeing Africa purely in terms of natural resources is a bit of an old-fashioned view. Natural resources are still very significant, but there is a lot of other activity,’ says Andrew Jones, co-head of the Africa group at Linklaters.
Although energy is always going to be a big part of the African legal market, the growth of the middle classes has led to a rise in varying types of work. ENS has a top private equity practice. Private equity is spreading through the region with the rise of fast-moving consumer goods and Nelson, head of the Africa practice, counts among his clients not just African funds such as Helios Investment Partners, but global giants Kohlberg Kravis Roberts & Co as well.

SJ Berwin acted for private equity firm Aureos last year when it was bought out by Middle Eastern fund Abraaj to create a fund with over $7bn in assets. Deasy and private equity partner Richard Lever acted on the deal. The fund got to work quickly buying West African dairy company Fan Milk this summer. The deal was worth $300m, with Freshfields Bruckhaus Deringer’s Middle East and North Africa head Pervez Akhtar advising Abraaj, while Norton Rose Fulbright’s Odubeko advised Fan Milk.

There has also been an uptake in capital markets work, with a host of African states issuing bonds. Nigerian financial institutions have grown exponentially, with three banks now listed on the London Stock Exchange. In Morocco, BMCE Bank serves West Africa, doing investment work, funding the telecoms industry and moving into project finance. While BMCE gets mandates because it’s on the ground, there are two or three other banks also doing this according to Asselineau at Shearman & Sterling.

Corruption

Once brazen and part of doing business on the continent, Asselineau says the days of suitcases full of cash are over. ‘Corruption is definitely a problem, although this is changing due to the US Foreign Corrupt Practices Act and the UK’s Bribery Act. African laws do have an impact. There has also been a change in culture of some people who run things. A younger generation seems to be interested in getting their countries richer in the long term,’ he says.

 

Other advisers are far more reticent when it comes to discussing the problem. Many said that these issues arise in all emerging markets. Norton Rose Fulbright’s Odubeko says that corruption is still an issue and advisers are aware of it. Part of advising international companies is now about making them aware of risk. CC’s Africa co-head Kem Ihenacho says: ‘Many investors are taking a more informed approach to risk in Africa. They look at the sector, the country and the counterparties involved, as opposed to trying to take a generic view on “Africa risk”.’ A fellow private equity practitioner, Baker & McKenzie’s Marc Fèvre concedes: ‘There is a risk perception with Africa that makes private equity funds reluctant to invest, but this is definitely changing.’

As much as some committed African specialists claim it has gone away, corruption remains a major issue. As Tromans at Jomati Consultants comments: ‘Corruption is a very real daily problem and you’d be very naive to ignore that.’

Timbane at GLM – Gabinete Legal Moçambique agrees, saying that the rapid growth of Mozambique’s resources sector means that ‘corruption is a problem’.

However, tougher international anti-corruption enforcement and the hard-nosed tactics of some African states seeking to bolster foreign investment in cracking down on bribery has curbed the worse excesses of previous decades. Or, as Nelson says when talking about the absence of corruption in Rwanda: ‘The effective management of corruption issues is due, in large part, to the “zero tolerance” approach adopted by government, over and above the role that external legislation and regulation play in the increasing awareness of nation states across the continent, of the need to create and foster a stable environment, to encourage the inbound flow of foreign capital.’

But perhaps more important than attempts to curb corruption – important though that has been – is a growing sense of confidence and self-possession among Africa’s business sector and a greater willingness among foreign companies to accept local practice.

As HSF’s Brabant points out, Africans have a saying when confronted by complaints about a less regimented way of doing things that shows their understanding of what foreign companies increasingly want from Africa, be it resources, growing economies or just huge opportunity: ‘Never forget: you may have the watches, but we own the time.’ LB

david.stevenson@legalease.co.uk