In the past many Western investors have viewed Africa as simply too high risk -- perceived as a potentially volatile cocktail of political and economic turbulence, shaken with climatic and geographic challenges, with a twist of corruption risk. However, for an increasing number of African countries, this investor reticence is rapidly dissipating in the face of opportunity and an improved investment landscape.
It has been some time since only bad news was came out of Africa. In fact, since the credit crunch, some of the highest economic growth rates in the world have been found in African countries and the continent is increasingly seen as a serious long-term opportunity by international investors.
In the last 10 years, six of the top-ten fastest-growing economies have been in sub-Saharan African and many commentators predict this trend will continue. Average gross domestic product growth rates in the region for 2011 have been estimated as higher than 5 per cent with certain counties, such as Nigeria, significantly higher than that. (Indeed, Nigeria is estimated as having GDP growth of between 7.3 per cent and 7.8 per cent in 2011).
Africa's recent successes have been attributed to the surge in prices of the natural resources with which Africa has been blessed, and the appetite of emerging nations such as Brazil and China to access them. Yet this is only part of the story. Improved political and macroeconomic stability and microeconomic reforms in many countries have led to growth in other sectors including, banking and finance, retail, agriculture, transport and telecommunications. There are also initiatives to improve infrastructure, update legislation and regulation in core areas and promote corporate governance programmes.
There has been a surge of private investment from the African diaspora and from global and Africa-based corporations, banks and investment houses and Western investors from the US, UK and continental Europe, who previously regarded the African continent as an unpromising and high risk landscape. Now they are reassessing.
A new scramble
As a result, a new ‘scramble for Africa’ is underway. However, this time the rules are being redrawn. Several countries within the continent are proactively adopting initiatives to seek to ensure that, while welcoming outside investment into Africa, programmes are put in place to encourage indigenous ownership and provide in-country job creation and training, so that the local population shares in the benefits of the investment.
Structuring and documenting the strategic equity and debt investments, joint ventures and acquisition activity to appropriately capture the commercial relationship between the parties is important in any inward investment or cross border transaction. London and Paris are often key conduits for cross-border investment into Anglophone and Francophone Africa, in part arising from their historical colonial links with large parts of the continent. Consequently the legal systems of many countries in the continent have roots in English common law or the French civil system.
A recent example is the case of an indigenous Nigerian company that financed and acquired oil mining leases from Shell Oil, TOTAL and Eni -- all in line with the local government’s initiatives to encourage indigenous ownership in key areas of its economy. Similar initiatives are also under way in Angola and in newer resource-rich countries such as Ghana and Uganda. Such regulatory reform can only help to increase both local and international investor confidence in the continent, which is a crucial factor in ensuring the continued growth of African economies.
Zoe Ashcroft is a partner and head of the corporate department at the London office of Chicago-based global law firm Winston & Strawn. Norah Mugambi is an associate at the firm