Laying the foundations – lawyers scramble as demand for African infra booms

As the world’s largest continent, Africa covers 20% of global land area and 16% of the global population – currently 1.27 billion people, according to the latest United Nations estimates. By 2050, the addition of a further 1.3 billion Africans will be greater than the population growth in the rest of the world combined, pushing the continent’s total numbers above 2.6 billion citizens. In what is termed the biggest human transformation of our age, that figure is projected to reach four billion by the end of the century.

Accordingly, the infrastructure challenge is immense and some law firms are more alert than others to the long-term growth opportunities. Those with a short-term perspective see only problems: weak commodity prices, underdeveloped legal systems, corruption, currency issues and unstable or unreliable political regimes. They also focus on Africa’s still-modest aggregate GDP of $2.19trn (2016) – less than France – and compared with $1.6trn (2010), a slight decline in percentage terms over six years from 3% to 2.9% of the global total.

The short-termists tend to forget that the continent comprises 54 countries, each with unique characteristics, and what unites all of them is a significant need for infrastructure. ‘Africa is an exciting place to be, and despite the challenges there have been with commodity and oil prices, infrastructure and energy markets are still performing well,’ says Richard Laudy, head of global infrastructure at Pinsent Masons, which opened its first African office in Johannesburg last year. ‘You’re seeing population growth, so infrastructure needs to be improved,’ he adds.

Head of Hogan Lovells’ Africa practice, Andrew Skipper, adds: ‘It has been a challenging year, particularly for those countries which depend to a large extent on commodities, even though the price of some, including oil, has crept upwards. There are grounds for optimism in several countries that things could get better. Africa remains a medium-to-long-term play for most major international companies.’

Across the continent

In South Africa, where Hogan Lovells combined with local Johannesburg firm Routledge Modise four years ago, Skipper identifies significant challenges: ‘The country has been downgraded and the results of the December choice they are making over the leadership of the ANC [African National Congress] will be very significant in how the international markets react. It’s still an important market with good infrastructure compared with others. Most investment still goes into South Africa, so it remains an obviously strong place to be. We are there for the long run.’

Johannesburg has become an increasing draw for international firms. By general consensus, the local South African market is over-lawyered and under extreme competitive pressure, not least because of the weak rand and concerns over political uncertainty. But most of them are not looking to compete in the domestic market, instead focusing on project and infrastructure outside the jurisdiction.

In addition to its longstanding African presence in Cairo, Dentons also added an office there in 2015, supplementing its Cape Town and Morocco offices, which opened the previous year. However, the firm has been present in Africa through a network of associate firms across the continent for nearly 20 years. Says Stephen Shergold, chair of Dentons’ Africa executive committee: ‘That can be quite a challenge because you’ve got 54 countries with a range of legal services sectors from the highly mature through to countries where you don’t even have law firms.’

‘There are grounds for optimism in several countries. Africa remains a medium to long-term play for most major international companies.’
Andrew Skipper, Hogan Lovells

In September, Dentons announced that it will form a combination with Kampala Associated Advocates (KAA) in Uganda, with 26 lawyers, including 12 partners, the largest law firm in the country. ‘We want to be Dentons in different countries but we must be local there,’ says Shergold. ‘What we’ve done in Uganda is our first step of implementing that strategy in Africa: KAA will become Dentons Uganda.’ He points out that Uganda is attractive ‘because of the commitment of global oil companies to produce oil there in 2020’.

By that time, he hopes that Dentons will also be in Kenya, Tanzania and Rwanda. ‘That would be a pretty good job. East Africa is the most vibrant place to be developing business. We have been looking at the transition very much in East Africa to local law firms starting to lead M&A in the region. I’d really like Ethiopia involved in that conversation. That’s a place that lots of clients are interested in – it’s got massive market potential.’

Building blocks

East African countries are increasingly committed to a spread of long-term infrastructure projects, many of them based on the public-private partnership (PPP) model. Following the Rwanda Logistics Programme, the first publicly-procured PPP in East Africa, Kenya National Highways Authority and Uganda National Roads Authority announced flagship road PPP projects this year: Nairobi-Nakuru-Mau and Kampala-Jinja Expressway.

‘PPP legislation has been introduced in a number of jurisdictions over the last couple of years,’ says Eric le Grange, head of ENSafrica’s project development and project finance department. ‘This includes Uganda, Tanzania, Namibia and Kenya. Implementation is, however, slow and the primary issue is around the alignment of historical regulation relating to public infrastructure procurement with PPP regimes. In many instances, such as Namibia, the primary legislation is promulgated but the establishment of the regulations remains outstanding and is sometimes mired in controversy as a consequence of the political protection of vested interests.’

‘There’s a long history of the London office doing PPP projects across the continent but with an emphasis on East Africa,’ says Shergold.

‘Commodity prices have been depressed, so traditional income streams aren’t as strong; therefore governments need to look to different forms of funding and that takes you down the PPP route,’ adds Laudy. ‘I expect to see PPP projects increasing in East Africa and perhaps elsewhere. Governments need to make sure that they create a regulatory regime that investors can trust, because what they hate is uncertainty. That will create the right climate for PPPs.’

‘We’ve got about 300 live transactions in Africa. That surprises clients: even very big corporates say they’d like 300 transactions on the go in Africa.’
Martin Kavanagh, HSF

Among its PPP-related work, Hogan Lovells has been advising on a Senegalese toll motorway project, the Abidjan Metro project in Côte d’Ivoire and solar projects in Kenya, Nigeria, Ghana and Senegal. Meanwhile, Dentons identifies two recent PPP deals: advising on the development of the new $418m Bugesera International Airport in Rwanda and acting for the IFC on the implementation of its Scaling Solar programme in Ethiopia.

Although she has been involved in the PPP expansion of the Gautrain network in South Africa, Brigette Baillie, Herbert Smith Freehills (HSF) project development partner in Johannesburg, is circumspect. ‘We’ve seen a number of failed PPPs in Kenya, Tanzania, Uganda, South Africa and Zambia. Now Kenya seems to be launching their road PPP project and I hope this time that they stick with it. If the PPP takes longer than the current term of government, which was the case in Mauritius, then the new government may decide they don’t want to do this project.’

She points to Zambia coming out of the $6bn Batoka Gorge hydro project as a potential PPP. ‘Zambia’s had a few stabs at PPP. They haven’t got it right, but they’re still flirting with the idea.’

Caroline Miller Smith, infrastructure and project finance partner at White & Case, has been advising on the Nacala Corridor project, involving a railway and coal terminal, which will be one of the largest infrastructure deals in Africa. ‘We have been acting for Vale and Mitsui & Co in respect of a 900km rail project and a coal terminal, which were originally procured under five different PPP concessions in Mozambique and Malawi,’ she says. ‘They are now going to be financed by a combination of commercial banks supported by export credit agencies, direct lending by an export credit agency and lending by a regional multilateral.’

Providing local law advice alongside White & Case is Pimenta & Associados, the Mozambican member firm of the Miranda Alliance, a network of independent firms covering mostly lusophone jurisdictions. Miranda & Associados managing partner, Diogo Xavier da Cunha, says: ‘Because these projects are long term, they cannot really stop and there is always an expectation by the sponsors that the downturn is temporary and that things will resume.’

‘We have gone from Africa representing single-digit turnover to around 30%. In Portugal if you grow 3-4% in a year, that is a stellar result.’
Rui Amendoeira, VdA

Acting for the lenders on Nacala is Andrew Jones, head of Linklaters’ Africa group. ‘PPP means different things in different countries,’ he says. ‘If you look at the Kenyan PPP Act, it includes everything including power, whereas in most of Europe, PPP specifically means just transportation, social infrastructure and a few other things. One way or another, with the exception of oil and gas and mining, in most countries everything we do in Africa is PPP, even if we don’t label it that way.’

Beyond Nacala ‘we are doing power deals everywhere’, he says. ‘So if you go around the continent, it’s non-stop.’ In order, he catalogues Ethiopia, Eritrea, Madagascar, Kenya, Tanzania, South Africa, Mozambique, Namibia, Nigeria, Ghana, Mali, Côte d’Ivoire, Cameroon, Senegal, Zambia, Zimbabwe and Botswana. ‘Recently, we’ve seen an increase in other forms of transportation infrastructure,’ he adds. ‘We’ve been doing airports in West Africa, particularly, as well as ports and roads. We’re looking at a couple more East African roads.’

As for power projects, Linklaters is advising on Lamu in Kenya, ‘which is the very big (1GW) coal-fired power deal, and the Economic Commission for Africa and commercial bank lender group on Morupule B in Botswana, a large coal-power deal with Japanese and Korean sponsors’, he adds. Announced in August, China Power Global is set to construct the Lamu power plant as part of the African Development Bank’s New Deal on Energy, which is providing $10bn for Africa to deliver universal electricity access by 2025.

HSF is also awash with African deals. ‘We’ve got about 300 live transactions in Africa on the go,’ says Martin Kavanagh, co-head of the firm’s global Africa business. ‘That statistic is the one that most surprises clients: even very big corporates say they’d like 300 transactions on the go in Africa.’

‘We decided to invest in Ethiopia and Egypt because they represent the most appealing investment opportunities in Africa.’
Stefano Simontacchi, BonelliErede

He points to oil and gas, mining and energy projects making up a significant part of their work with infrastructure – roads, railways, ports – as well as social infrastructure, making much of the balance. ‘Our Africa revenue last year was double what it was about three years ago, up from £30m to £60m now. This is partly due to the growth in other sectors, such as consumer goods, private equity and financial services.’

An interesting trend, he suggests, has been the involvement of private equity. ‘We have done three very large transactions recently where private equity firms have been the acquirers of assets in West Africa from Shell and ENGIE. They spent a lot of money and they won very competitive processes against dozens of other bidders. They brought with them the private equity way of doing business to the African market, which hadn’t always gone terribly smoothly. It’s a pretty major change in the market.’

In the mix

Working with HSF, among other law firms, on a number of Africa deals has been Harneys BVI partner Greg Boyd. ‘There’s still quite a lot of appetite for investing in Africa,’ he says. ‘In equity financing, investors are taking a stake in the company, using their standard subscription and shareholding agreements. We customise the constitutive documents of the BVI company that they invest through to align with the agreements and make for a fairly robust structure.’

There is, he concedes, ‘a fair amount of competition with Mauritius: they have positioned themselves very well. Mauritius did an excellent marketing campaign across Africa. The African Development Bank, for example, will only invest through an African entity and Mauritius is regarded as being part of Africa. However, on the legal and commercial merits, the BVI is often a better fit.’

In Africa’s lusophone countries, Portugal’s Miranda has a long history: ‘Taking Africa as a whole, about 60% to 70% of our revenues relate to the continent,’ says da Cunha. Referring to Mozambique’s PPP legislation, he says that ‘it tries to place everything in the same basket without really taking due regard to sector-specific needs and legislation’. The firm is currently advising several international investors on Mozambican gas-related projects.

Valued at $8bn, this year Mozambique saw Africa’s largest-ever project finance deal: the floating liquefied natural gas (FLNG) project financing, supporting the Coral South FLNG project. This was led by Italy’s Eni, alongside a range of oil producers aiming to exploit Mozambique’s gas resources in the Rovuma Basin. The producers were advised by Linklaters, while the consortium of lenders was advised by Allen & Overy. Among the local advisers was Portuguese firm Morais Leitão, Galvão Teles, Soares da Silva & Associados.

While Miranda has targeted Africa for many years, the major Portuguese firms have also made big inroads into lusophone jurisdictions. PLMJ Advogados partnered with GLA – Gabinete Legal Angola in 2010 followed by TTA in Mozambique the following year. Combined, the operation in Africa provides roughly 10% of overall revenues, according to PLMJ’s managing partner, Luís Pais Antunes. ‘We’ve enlarged our Africa operation with partnerships in São Tomé, where we’re involved in a major infrastructure project, in Cape Verde and in Guinea-Bissau,’ he says.

‘In Angola, many projects using PPP have been renegotiated, their values reduced and deadlines extended to give relief to projects that now have a lower financial flow.’
Nelson Raposo Bernardo, Raposo Bernardo

In Angola, PLMJ is advising the consortium that has been contracted to build the $4.5bn hydroelectric project, Caculo Cabaça, and Heineken, which is building a new factory in Mozambique.

Says Nelson Raposo Bernardo, managing partner of Raposo Bernardo: ‘In Angola, many infrastructure projects using PPP have been renegotiated, their values reduced and their deadlines extended for several years, in order to give financial relief to projects that now have a lower financial flow.’

Rui Amendoeira, partner at Vieira de Almeida (VdA), spends much of his time in Angola. ‘Five years ago, at the peak, there were almost 20 drilling rigs operating in Angola; by January 2018, there will be only two or three,’ he says. But despite the energy downturn, VdA’s African revenues have surged. ‘We have gone from Africa representing single-digit turnover two-and-a-half years ago, to around 30% now,’ says Amendoeira. ‘Whereas in Portugal if you grow 3-4% in a year, that is a stellar result.’

VdA has been advising many international oil companies and oilfield contractors in Angola, and is also involved in the restructuring of Sonangol, which oversees oil and natural gas production in Angola. It also had a key role in the negotiation and settlement of a large tax dispute, involving the Angolan Ministry of Finance and several oil companies.

Interest in Africa comes from a variety of countries. Prominent among newer arrivals is Italian powerhouse BonelliErede, which has two offices in collaboration with local law firms. ‘We decided to invest in Ethiopia and Egypt because they currently represent the most appealing investment opportunities in Africa for international companies,’ says Stefano Simontacchi, the firm’s co-managing partner.

He points to Egypt’s market size and close historical ties with Italy. Ethiopia, he adds, ‘is one of Africa’s most important countries, due to its increasing openness to international investment, the growing European business community and one of the highest GDP percentage growth rates. Ethiopia is another linchpin for our development in East Africa.’

While there exists natural cultural and language ties between established law firms in Europe and certain African jurisdictions, it is clear there are many opportunities for specialists in infrastructure, particularly in East Africa, as demand continues to increase. An old African proverb says: ‘If you want to know the end, look at the beginning.’ The beginning is happening now for many significant projects in a number of key African countries and those firms there at the start should remain in place at the end. LB