From Morocco to Mozambique, navigating African markets remains a complex affair prone to high levels of risk yet with the possibility of equally high rewards. These disparate markets, while at varying levels of sophistication and different stages of maturity, are providing opportunities for foreign investors across a broad range of industries that require capital investments, including mining, oil & gas, healthcare, infrastructure, and consumer goods.
Stronger economic performance coupled with democratic consolidation in some of the leading African economies have emboldened new investors and reassured existing players about the region’s ability to realize its economic potential. For instance, six of the top ten performing economies in the world this year to date are in Sub-Saharan Africa—Ghana (8.8% growth in 2018), South Sudan, Rwanda, Ethiopia, Ivory Coast, and Senegal.
For those doing business in the region, the pressure to succumb to “business as usual”—based on outdated impressions of the operating environment and a limited appreciation of the potential consequences of engaging with businesses tainted with corruption or unethical behavior—can be intense. These actions can have a far-reaching impact on a company’s local and global reputation, as well as on its ever-important bottom line. However, the proper intelligence, local resources, and expert analysis can help investors confidently make strategic business decisions that will protect and grow their investments.
Preparation, precautions, and the appropriate level of due diligence need to be top-of-mind through the entirety of the investment process, particularly when operating in Africa and other rapidly evolving emerging markets – as open sources and public records will rarely provide adequate insight. We have developed some key check-points to incorporate into the investment cycle:
Understand the players
- Conduct due diligence assessments of your potential partner to establish and confirm who is really in control. K2 Intelligence has seen the military, politically connected relatives, and professional criminals behind commercial partnerships and in each case the client was unaware.
- Ensure that your local partners, advisers, employees, vendors, and other service providers are operating within the law. Once the investment is made, the conduct and reputation of the business in a particular location can reverberate throughout the wider organization.
- Analyse the scope, depth, and size of your agent’s prior business deals. You don’t want to rely on a specific local agent only to learn the hard way that they are out of their depth.
Know your investment
- Check that all licenses and permits required to do business have been (or can be) obtained. If they are already in hand, examine how they were obtained and test whether they stand up to additional scrutiny. Use specialists to be sure you’re actually buying what you think you’re buying.
- Research the assets surrounding a transaction or deal to confirm that they indeed exist and are owned by the correct party. Conducting a discreet review of the assets owned by principals and the management team can often be revealing.
- Familiarise yourself with the competition. By understanding who the market leader is and why, you may discover they have strong—perhaps suspiciously so—relationships with people that make things happen.
- Investigate the management team when investing in an on-going business. It is crucial to the viability of a deal to understand what other deals they have been involved in, whether any of their prior businesses have gone awry, or if there is a past pattern of fraud or corruption involving them or the companies they’ve worked for.
Learn the environment
- Don’t negotiate from afar. Being on the ground and interacting in person can have a significant positive impact. Particularly in these emerging markets, personal relationships are essential.
- Stay informed about political stability in the region. This is particularly pertinent in mineral-rich jurisdictions, where resource nationalism and expropriation continue to inform policy discussions and a change in political climate could have a critical impact on your investment.
- Understand the local cultural norms that influence how people do business. This includes knowing what you’re not being told by your prospective partner, how do they influence and negotiate, and what other outside interests they have.
- Evaluate the internal controls and go beyond tick-the-box exercises. The investment will need adequate controls and policies to minimize the risk of bribery or other insider behavior that could cause reputational harm to your business. This includes ensuring that the corporation accepts and promotes a culture of compliance as well as being prepared to implement robust policies and procedures along with regular training to minimise the risk of illicit behaviour.
- Prepare for the worst-case scenario. Whether you are engaged in extractive industries, infrastructure, consumer industries or service delivery, consider inserting a dispute resolution clause in your contracts and be clear on the form and forum of any arbitration process, should the dispute escalate. Having a strategy for an exit plan, that you routinely revise, can help ensure that any losses are mitigated or minimized while also minimizing the possibility of legal proceedings.
K2 Intelligence has used these techniques to conduct market intelligence alongside investment, reputational and commercial due diligence across many countries in both North and Sub Saharan Africa for a range of investors, corporates, and development finance institutions. We have also successfully supported clients engaged in domestic and cross border disputes and have overseen complex asset tracing projects in multiple jurisdictions across Africa. K2 Intelligence acts as trusted advisor to clients looking to put their money to work in emerging markets, leveraging our experience in the region mitigating and managing risk to allow their investments to prosper.