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Africa business and finance investment tips

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Momodou Camara (Acca)

Time kills deals
The lack of speed of project implementation can kill transactions. Dealing with onerous government policies and complex legislative frameworks can add considerable time to deals, and even stall them. To ensure local compliance, it is vital for investors to partner with advisors who have knowledge and experience in navigating the specific policies and legal frameworks of target investment locations. Investors also expect their advisors to be able to offer the latest in legal technology (legaltech) and innovation to ensure speed and efficiency when they are closing deals in Africa.

Africa is technologically advanced in many ways as it lacks the legacy IT systems that encumber other countries, and this has allowed it to leapfrog a number of traditional technologies. This encouraging environment for technology, media and telecommunications (TMT) investment has meant that the sector in Africa is predicted to show impressive growth in M&A in 2019, with transactions exceeding US$ 5.9 billion, according to Baker McKenzie’s Global Transactions Forecast (GTF).

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While many smaller law firms are finding the costs of implementing legaltech to be prohibitive, the solution lies in partnering with the large global firms who are able to share access to their technology. Baker McKenzie has long been known for its forward thinking approach to innovation. The Firm has adopted a design thinking model for the delivery of its innovative legal services – by asking its clients what they need and then building solutions with them. This has led to the implementation of, for example, a global e-discovery and investigations platform which has dramatically reduced lawyer time on transactions, while improving the insight, judgement and predictability of outcomes that clients expect from their legal advisors.

The firm also employs document analytics tools, which use machine learning and natural language processing to improve the accuracy of documents and extract relevant data from large sets of documents. This tool speeds up due diligence exercises and clients are able to get quick insights from large suites of contracts and achieve greater cost efficiency as a result. Tools such as these can enable the effective implementation of multinational projects spanning 60 or 70 countries at a time at a surprisingly rapid pace – an incredibly useful tool in a continent with so many different legal systems.

The right business partners in Africa
Despite numerous global and regional challenges, investment in Africa is predicted to grow this year – the GTF predicts that African M&A values in 2019 will be valued at around US$ 13 billion in total. To take advantage of this positive investment climate, investors must form close working relationships with the best legal counsel, as well as due diligence experts and local advisors on the ground in Africa who have specialist knowledge and understanding of the particular commercial challenges within their investment locations. To maximize deal certainty and secure the intended value of transactions in Africa, Baker McKenzie’s focus has been to grow its Africa transactional practice. The Firm has 2 500 transactional lawyers (globally and in Africa) with expertise spanning banking and finance, capital markets, corporate finance, funds, M&A, private equity and projects.

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The transactional team works closely with its cross-practice, advisory and contentious legal teams should a dispute arise that requires litigation. In addition to over 100 lawyers with boots on the ground in its African offices, investors are supported by global Africa specialists from across the Firm’s 77 offices, and local legal experts in its extensive network of African Relationship Firms, which comprise the best law firms across the continent. The team’s deep-sector expertise and ability to work seamlessly across borders, means they can help investors to shape, negotiate and close complicated deals and projects in unusual contexts, across multiple jurisdictions in Africa.
By-Morne van der Merwe, Managing Partner, and Wildu du Plessis, Head of Africa at global law firm Baker McKenzie in Johannesburg.

6 Reasons to invest in Africa
The conversation about Africa is shifting from one of “deficits” and “gaps” to one about opportunities, prospects, ventures and creativity. That’s not news to companies that have paid close attention to the continent and invested there. The fast growing youth population, the urbanization expected to drive over 50% of Africans to cities by 2050, and Africa’s formalizing economy are all well known.

These trends and other developments have driven a half century or more of growth in Africa, and will continue to do so. It’s important to acknowledge that Africa tests an investor’s patience. Time horizons and return models that fit other markets don’t always work in there. Even the most experienced, sophisticated companies can be forced to recalibrate, as Nestlé did last year when it announced a 15% cut in its workforce across 21 African countries. Deficits remain. What’s important is that investors now realize there is money to be made for those bold enough to help close the gaps. As that takes place, the promise of greater prosperity for Africans and African businesses will be realized. Why is it a good time to invest?
1. Africa needs ‘connectors’
Missing across much of sub-Saharan Africa are the roads, rails, ports, airports, power grids and IT backbone needed to lift African economies. This lack of infrastructure hinders the growth of imports, exports, and regional business. Companies that can connect Africans and markets can prosper. Sub-Saharan Africa is plagued by power outages – almost 700 hours a year on average – sapping productivity, adding cost and leaving businesses captive to back-up and alternative power options. Massive investment is leading to major upgrades and expansion at African ports and airports, but much of Africa’s growth potential depends on in-country and intra-African road, rail and air connections. Roads and rail lines are sparse, decrepit and over-burdened.

A lack of aviation agreements has limited intra-African air connections. Africa’s lack of efficient storage and distribution infrastructure hinders businesses, entrepreneurs and farmers. Up to 50% of African fruit and vegetables spoil before reaching markets. There’s a soft infrastructure deficit, as well. Outside of South Africa, the data and information critical to decision-making by businesses is missing or hard to obtain – credit and risk information, market data, consumption patterns, you name it. Lessons from Dubai and Singapore tell us that once an infrastructure race is on in a rapidly expanding market, being the first-mover is a significant advantage for investors.

2. African trade barriers are falling and intra-African trade holds enormous potential
With the 54-nation Continental Free Trade Area – Africa’s own mega-trade deal – even the smallest African economies could see a lift. If duties are lowered and incentives introduced, manufacturers could see benefit from setting up production and assembly operations in multiple African countries. That could lead to development in electronics, machinery, chemicals, textile production and processed foods. As a first step, free trade between and within the African economic blocs would make a huge difference. Africa’s share of global trade – a meager 3% – can only increase if the continent’s commodity and consumption-led economies begin to produce a broad array of goods for home markets and export. And an increase in local beneficiation in the commodities sector could be a driver of growth – processing local commodities (such as minerals, coffee, cotton) in country rather than exporting them in raw form. That said, it will continue to be a challenge for regions with poor power and infrastructure to compete as global manufacturers.

3. Customers are changing
With the growth of Africa’s middle class, we’re seeing development of new expectations. Educated, urban professionals are young, brand-aware and sophisticated in terms of their consumption. Retailers and consumer brands want to anticipate and drive buying preferences in fashion, home and lifestyle products, but they know they need international standard supply chains if they are to meet demand. The largest economic forces in Africa are small to medium enterprises, working to meet this new demand and competing with global brands.

4. Digital transformation
Africa leads the world in mobile adoption, which continues to offer the biggest cross-sectoral economic opportunities. Mobile payment networks, pioneered in East Africa, opened the wired, global economy to poor, unbanked city and rural dwellers. Companies such as Novartis are using mobile communications to manage their supply chain; Olam has used mobile to reach out to new African suppliers and farmers. These mobile initiatives have achieved huge successes. To illustrate: In 2014, Ethiopia set up a telephone hotline allowing small farmers immediate access to advice from agronomists, with over 3 million calls done in the first six months of the pilot programme. Mobile is the area where Africa has pushed beyond the boundaries in the developed world, and African tech incubators are pushing to innovate. So what’s next?
***to be continued
*** These are indicative figures as per the 2nd. January, 2020.
*** Market prices are as at 4th. March, 2020

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