Clout of Africa
24 October 2011 | By Dale McEwan
3 April 2011
12 February 2013
3 December 2012
13 December 2012
14 February 2013
African lawyers are feeling the benefit of a boom in the telecoms and minining industries. Dale McEwan reports
New mining legislation, a boom in mining activity in West Africa and a change in the role of telecoms lawyers all mean that these sectors are generating a boost for firms across the African continent.
“What’s been happening in the past 18 months is the re-emergence of gold companies in the acquisition stage,” says Otsile Matlou, director of South Africa-based Edward Nathan Sonnenbergs. “We’ve done three reverse takeovers regarding gold companies. There’s also a concerted effort by the Chinese to enter the market in South Africa. One of the reverse takeovers was driven by the Chinese.”
Matlou adds that the economic meltdown led to an acute decline in resource financing, but there are signs of a reversal in this trend.
“That’s obviously linked to new M&A activity,” he says. “We’re seeing banks moving into that space again.”
Mine the gap
A wealth of advisory work is also stemming from the introduction of South Africa’s Mineral and Petroleum Resources Royalty Act last year. Companies are still getting to grips with this legislation, according to Matlou.
The amendment to the country’s mining charter in September 2010 has carved out a new area of work for firms. The charter introduced the concept of a social development fund, into which multinational suppliers of heavy-duty machinery for the sector must contribute a minimum of 0.5 per cent of their annual income generated from local mining companies.
“Where companies wouldn’t usually come to us, they’re now coming for advice,” adds Matlou.
Perhaps of most significance and controversy is South Africa’s proposed nationalisation of its mines.
“I’ve been asked to address some boards of mining companies regarding nationalisation,” says Matlou. “Should this happen it would change what we do. If it did happen, there’d probably be very little work for mining lawyers.”
With a nod towards other developments in mining across Africa, Matlou believes people are waiting with bated breath to see what will happen in copper-rich Zambia.
“The new mining policy is uncertain,” agrees Charles Mkokweza, managing partner of Corpus Legal Practitioners in Zambia. Following the country’s elections in September the Zambian government has not officially communicated its plans for the sector.
“We can only guess from the rhetoric that came out during the campaign that companies must encourage ownership by citizens,” adds Mkokweza. “I suspect companies may be forced to list on the local stock exchange to allow citizens to participate. The government is saying that too much investment is coming from particular areas of the world. There could be restrictions on how many licences are issued to investors from other countries.”
In addition, the government has been signalling that it plans to increase its stakes in mining projects to at least 35 per cent and revamp the sector’s tax regime. However, there is nothing to suggest a move towards nationalisation.
“If taxes are increased some mining companies, if not all, may decide to leave,” says Mkokweza, suggesting that outfits such as Glencore, First Quantum, Vedanta and Vale might rethink their operations in Zambia.
State comes into play
Over in Namibia, the government announced earlier this year that a state-owned company, Epangelo Mining, was to take control of all future exploration and mining rights of strategic minerals on a commercial basis. This includes copper, gold, zinc, uranium and coal.
“I suppose we’ll be looking to accommodate the state-owned company,” says Peter Koep, founder of Koep & Partners. “There may be finance deals because I doubt the government will create cash in the amounts required for being a shareholder. It might increase our work.”
A mining boom in West Africa has led to unprecedented activity, according to Shearman & Sterling partner Christophe Asselineau. He was recently in Ivory Coast where he spoke about how the country can relaunch its mining industry.
“From an investor’s point of view renegotiating contracts can be offputting,” says Simmons & Simmons partner Yves Baratte. “It doesn’t create an image of legal stability. Most mining investors recognise that sharp increases in metal prices could justify some renegotiations, but it depends on the process and what’s being given to investors. Investors won’t invest in a country if they think there’ll be renegotiations every two years.”
Like the mining industry, activity in the telecoms sector shows no sign of slowing.
“Telecoms is obviously a hot area because it has been underserviced historically on the continent,” says partner Christo Els of South African firm Webber Wentzel.
“If you’d asked me a year ago I’d have said telecoms was the poor cousin of mining in West Africa,” says John Ffooks, founder of Madagascar firm John W Ffooks & Co. “There’s just so much going on now, assuming you take a broad view of telecoms.”
The firm also works in countries including Mali, Niger and the Central African Republic, and is currently working on a tower-sharing deal across six jurisdictions.
“It’s not just the hardcore trading of mobile phone licences,” adds Ffooks. “The firmware providers are looking at rolling out their services. It’s not six-figure billing stuff, but it shows there’s real interest in the region.”
Ffooks admits that the range of issues his firm is dealing with has been challenging.
“We need to get up-to-speed with a lot of the things that were once reserved for the specialist technology department,” he says. “There’s a range of clients.”
Sydney Chisenga, senior associate at Corpus Legal Practitioners, explains that most operators in the telecoms sector, especially mobile operators, are trying to diversify into areas other than voice services. This includes using mobile phones to carry out financial transactions. This, combined with the enactment of the Zambian Electronic Communications and Transactions Act in 2009, has radically changed the role of the telecoms lawyer.
“These days we’re advising clients on compliance issues with regard to innovation,” says Chisenga. “Before, it was more general legal advisory work on normal legislative issues.”
“It does call for a greater regulatory role and great scrutiny,” agrees Greg Nott, director of South Africa’s Werksmans.
“It’s almost like the proliferation of telecoms has been designed for Africa,” adds Norton Rose director Gabriel Meyer, pointing to the continent’s young population, large distances, remote areas and lack of infrastructure. His colleague, director Bradley Scop, explains that telecoms lawyers working in Africa are no longer simply regulatory experts.
“We grew up as regulatory lawyers,” explains Scop. “Telecoms lawyers are moving away from regulatory work and towards antitrust, and, more importantly, M&A. Our practice is evolving into pure M&A.”
Scop explains that this shift is due to consolidation in the market, infrastructure-sharing and the exploitation of existing licences by established operators.
“M&A is the backbone of a vibrant economy,” adds Nott. “There’s a lot of work to be done in the regulatory fields, but quite a lot has been done to create opportunities for M&A work.”
Norton Rose director Glenn Stein says clients are now expecting telecoms lawyers to operate on a management consultancy level. “We do a lot of trouble-shooting for those investing in Africa,” he says.
“We advise clients on practical issues rather than specific legal issues,” adds Meyer. “For example, in the context of HP’s Africa expansion project, much of our advice was based on our practical understanding of how things get done in a specific jurisdiction rather than the letter of the law.”
It’s good to talk
Smaller and less-developed jurisdictions in Africa have recently undergone tremendous growth in telecoms. According to the World Cellular Information Service, subscriber growth over the 12-month period ending at the second half of 2011 was 80 per cent for Zimbabwe, 60 per cent for Mali and 55 per cent for Burundi. Nine of the world’s top 20 markets by subscriber growth are in Africa.
Skadden Arps Slate Meagher & Flom partner Rossie Turman says the East Africa region, covering Uganda, Kenya, Rwanda, Zambia, Tanzania and Burundi, is busy in telecoms. He explains that one driver of this activity is the Eastern African Submarine Cable System (EASSy) that went live in 2010. EASSy is an undersea high-speed internet cable system connecting 21 African countries with the rest of the world. The EASSy consortium is composed of operators MTN, France Telecom, British Telecom and Zambia Telecom, among others.
“I’m hearing about a flurry of small to medium-sized ICT investments, or chatter regarding investments from various sources including multinational corporations, private equity funds and others, over the past couple of years in the East Africa region,” adds Turman.
Nonetheless, one other trend that is expected soon is consolidation in the market, says Stein. There are seven operators in Tanzania and five each in Ghana and Sierra Leone. Despite the plethora of opportunities available in telecoms, surprisingly few lawyers practise in the sector, says Nott.
“It’s such a highly regulated, specialised field,” he says. “More liberalisation of the markets and more mobile operators entering the market would provide more opportunities for the legal fraternity.”