The scramble for Africa

Legal work in Africa is no longer just about infrastructure projects. Joanne Harris discovers a continent where natural resources, telecoms and finance are helping create a land of plenty

A number of repeated themes emerge when lawyers get talking about Africa: natural resources, development and the rise of the middle class are all topics that come up again and again.
But those working in Africa are also keen to stress something else.

“At the risk of stating the blindingly ­obvious, it’s a bloody big place,” remarks Nicholas Buckworth, head of the project finance group at Shearman & Sterling.

Mass markets

Africa is the world’s second-largest ­continent, with a combined population of more than a billion people spread ­throughout 54 ­countries, including the world’s newest ­independent state, Southern Sudan. ­Therefore, although most Anglo-Saxon law firms market themselves as ­having ’Africa practices’, the breadth of work included in each varies widely from firm to firm.

“It’s a tremendously diverse place,” explains Anthony Giustini, co-head of ­Clifford Chance’s Africa group. “You can’t compare the type of business you’ll do in smaller ­countries on the continent to the type of opportunities there are in Nigeria or South Africa. Firms are going to need to look over the whole continent and pick and choose where they’re going to devote their efforts.”

But it is worthwhile putting that effort in.

“The continent boasts an abundance of riches,” notes a recent report by ­consultants McKinsey, “including 10 per cent of the world’s reserves of oil, 40 per cent of its gold and 80-90 per cent of the chromium and platinum group metals.

“Demand for raw materials is growing fastest in the world’s emerging economies, which now account for half of Africa’s total trade.

“As trade patterns have shifted, African governments are forging new types of ­economic partnerships, in which buyers from these countries ­provide upfront ­payments, make infrastructure investments and share management skills and ­technology.

“Foreign direct investment in Africa has increased from $9bn [£5.6bn] in 2000 to $62bn in 2009 – almost as large as the flow into China when measured relative to GDP.”
The report predicted that, by 2030, Africa’s top 18 cities could have a combined spending power of $1.3tr. It said the unmet infrastructure needs of the continent required “at least $46bn more in spending per year”.

Cash call

Lawyers say these needs and the way they are currently being met (or not) are evident on the ground.

“There’s no country where there’s no development required in Africa. From the moment you land you’ll see exactly what’s needed,” says SNR Denton Africa committee co-chair Paul Bugingo.

The McKinsey report divided Africa into four different groups: the “diversified economies”, which are already well-­developed, include South Africa, Egypt, Morocco, Tunisia and, to a lesser extent, Namibia and the Ivory Coast; and the “oil exporters”, with high but undiversified GDPs per capita, include Nigeria, Algeria, Angola, Equatorial Guinea, Gabon and – until recent events took over – Libya.

But McKinsey also identified two other groups: first there are the “transition economies”, such as Kenya, Tanzania, Mozambique or Zambia, where the ­economys are growing quickly; and the last group is the “pre-transition economies”, such as Sudan, Mali, Ethiopia and the ­Democratic Republic of Congo, where there are still risks of political instability and where the infrastructure and development needs are greatest.

Four going

Law firms are finding opportunities across the continent in all four types of jurisdiction.

“The real work, as far as we’re concerned, is in Central and West Africa, in particular in the natural resources sector,” reveals Jean-François Mercadier, managing partner at the Paris office of Canadian firm Heenan Blaikie.

Natural resources are also picked out by Norton Rose, which is expanding its Africa presence later this year through a merger with South African firm Deneys Reitz.

The firm is targeting mining mandates in ­particular, bringing together work ­generated through its offices in Australia, Canada and China.

“If you’re a very mining-focused firm and you’re based in China, then you might find that places like Mali, Chad and Sierra Leone are very active for you,” explains Jonathan Lang, Africa group head at South Africa’s Bowman Gilfillan. “If you’re sitting in ­London and doing project finance then there’s going to be more and more of this all over Africa.

“If you’re an oil and gas firm, Equatorial Guinea may be a very important country for you, but if you’re M&A-focused it’s not going to be.”

China light

The China link is highlighted by many lawyers. China’s own rapid development has led to a massive thirst for resources, many of which are being sourced from Africa. Chinese state-owned enterprises are bidding for and winning the contracts for infrastructure projects right across the ­continent, leading to multimillion- and now multibillion-dollar deals.

“The Chinese model is that they go for infrastructure projects and they like ­government-to-government deals,” explains Pieter Steyn, a director at Werksmans ­Attorneys in Johannesburg.
Steyn points to a recent project financing deal in which Chinese mining group Jinchuan Group and the China-Africa Development Fund poured R6bn (£540m) into South African exploration company Wesizwe Platinum.

Linked to the natural resources story is an increase in power and energy-related ­projects. Buckworth says Shearman is ­working on a deal involving a Mozambique coal power station.
Kibuta Ongwamuhana, the managing partner at Clyde & Co’s associated Tanzanian firm Ako Law, says offshore drilling for oil is also on the increase and that his firm is working with “a few companies in this area.

Calling up

But things are slowly beginning to change and diversify away from minerals, metals and energy. The main sector identified is telecoms. Mobile phone usage in particular is expanding rapidly across Africa and this has led to M&A and financing work for operators wanting to get a piece of the action.

The growth in telecoms is linked to the expansion of Africa’s middle class and its desire for consumer goods.

“You’ll find South African-owned ­shopping malls all over the continent,” says Piet Faber, chief executive at South African firm Edward Nathan Sonnenbergs. “Africa’s in need of bringing that kind of merchandise to consumers at best prices. African markets are moving and they’re becoming quite sophisticated.”

Healthy finances

Financial services work also looks likely to expand. Many lawyers point to Nigeria as a source of this work.

“The Nigerian banking sector’s been remarkably reformed. They’ve been getting quite active in cross-border funding,” notes Steyn at Werksmans.

“There hasn’t been much consolidation in the financial institutions sector in Africa as there has in the telecoms sector, so I think there’ll be some growth in that sector; but I doubt it will be as rapid as the growth in mobile telephony,” says Simmons & ­Simmons Paris-based corporate partner Christian Taylor, who works extensively on African deals.

Conyers Dill & Pearman Mauritius ­managing partner Craig Fulton says the ­offshore firm is increasingly advising on the structuring of funds and companies designed to invest in telecoms as well as infrastructure. Investors commonly use Mauritius, which has a growing number of tax treaties with other African nations, as a place to base a holding company, joint ­venture or investment fund, which will then invest in projects in a number of different countries.

Investors gain because Mauritius charges a low corporation tax rate of 3 per cent and the tax treaties mean they avoid paying ­double tax. Fulton reveals that some prefer structures also involving the Cayman Islands to avoid double taxation in countries that do not yet have treaties with Mauritius, although the additional administration costs associated with this do not always make it worthwhile.

However, Mauritius too is seeing a change in the type of work flowing through the jurisdiction. Fulton points to a recent deal in which Conyers provided Mauritian and Bermudan advice on the leasing of South African Airways’ first Airbus A330-200 ­aircraft.

“We’re quite keen that people should see Mauritius as more than just a tax treaty shop,” he adds.

Fulton says Mauritius needs to market itself as the gateway to Africa for a wide variety of transactions, including shipping and Islamic finance, on top of its ­traditional niche.

Firming up

Across Africa lawyers see the market for legal advice developing significantly over the next few years as countries continue to develop, harmonise and become more sophisticated.

Political risk remains a reality and could continue to affect inward investment, although even here lawyers think things are changing.

“You can draw comparisons with Libya,” says Geoff Wynne, who co-heads SNR ­Denton’s Africa group alongside Bugingo. “Up to four weeks ago everyone was piling in to invest in Libya, now they’re not.”

However Wynne says that investors are more likely to hang on in an African ­country when things get unstable for longer than they used to.

“There’s a growing maturity in a lot of countries in Africa, which means they can withstand the sort of problems that five to 10 years ago led to people pulling out very quickly,” he adds.
Faber at Edward Nathan agrees.

“The instability that you’re seeing in North Africa at the moment is just ­symptomatic of the change across Africa. This year’s been a watershed year,” he asserts.

Eversheds Africa co-chair Boris Martor says some African countries are working together more closely than before in an effort to harmonise business legislation and become more sophisticated as a group. This, Martor believes, will help accelerate the pace of development across the ­continent.

Legal advice in all African countries is therefore something that will be ­increasingly in demand for years to come. Law firms are confident that their services will be required for the long term, making it worthwhile to invest in the continent. Indeed, everyone agrees that there is enough work to go around.

“The good news,” stresses Lang at ­Bowman Gilfillan, “is that the amount of work seems to be increasing significantly, so there’s a bigger pie – albeit there’s more people trying to dig their spoons into it.”