The land of plenty

Africa has always been a place of opportunity. While the continent has historically been on the radar of multi-nationals, banks, large private equity funds and government development institutions, we are seeing a new wave of private businesses, local private equity funds and other international investors such as philanthropists, becoming deeply involved in the 'Africa Rising' story.

The continent has become more accessible due to a good track record of historical investors, the return of the African diaspora to the continent and also, the extraordinary economic growth of countries such as Côte d'Ivoire, Tanzania and Nigeria, all of which increase the number of investment opportunities.

It is unhelpful to think about Africa as one homogenous place; this is a common problem for many people doing business there for the first time. It is made up of 54 countries, homes approximately 15 per cent of the world's population, and has over 1,000 spoken languages - so broad generalisations can be misleading.

However, we are seeing a shift towards modern urbanisation in the fastest growing economies in Africa, for example Lagos (Nigeria), Dar es Salaam (Tanzania), Luanda (Angola) and Abidjan (Côte d'Ivoire). This has allowed us to focus on the needs of our clients, who have increasingly common challenges in light
of the growing middle class across Africa, as a result of the fast growing economies.

There are a number of platforms, vehicles and investment managers giving investors the ability to get exposure to Africa from a more passive standpoint, through pooled investment products or funds of fund structures. For investors wanting to make a direct investment into an African business or project, the considerations are different because of the proximity to the actual deal.

On one level, the same rules apply
in Nigeria or Rwanda in terms of investment appraisal, risk mitigation
and deal execution, as would apply in the Netherlands or the UK. However, greater care should be taken on some
of the things that may generally be taken for granted. Issues such as validity of title to assets, enforceability of contracts and judgments and protecting rights of ownership need to be considered carefully.

While working in the region with private individuals, development institutions, listed companies, banks and private equity funds over the last two decades, we have identified the following key considerations:

• Know your partners - carry out a detailed research on your potential business partners/counterparties and understand the dynamics, particularly if the company is family run. Emotions often run high in these transactions, so understanding the personal and business aspects is essential. There are organisations in the market that can carry out more detailed and specialist due diligence on individuals and companies in Africa.

• Choose your advisers in the country carefully and make sure that they have the right experience, qualifications and track record in the sectors you are keen to invest in.

• Understanding currency issues - the process by which money should flow into a country and can flow out should be thoroughly understood before investing. Currency certificates, any exchange controls, thin capitalisation rules, and withholding tax are examples of potential pitfalls.

• Be ready for 'different' - each country we are active in Africa has slightly different local issues (whether emotive or business) and peculiarities around deal structuring and execution. In Uganda, for example, ownership of real estate can be in four different forms; customary, mailo, freehold and leasehold. In addition, only citizens of Uganda are entitled to own land under freehold tenure.

• Using the enormous expertise and leverage of the African diaspora community can help in any investment process. They are also responsible for remitting vast amounts of money into Africa, and are highly educated and experienced.

• Careful thought is required on how to structure your investment in Africa as corporate and tax laws differ from country to country. There are certain holding structures which are commonly used by clients investing from overseas into African businesses. For example Mauritius has favourable double tax treaties with a number of African countries, but each investment needs to be considered individually. 

Clive Hopewell and Adrian Mayer are partners at Charles Russell Speechlys