Doing business in Africa provides unique challenges and endless opportunities and the ongoing growth, development and ensuing opportunities mean, no doubt, that global business leaders will continue to seek rewarding opportunities on this continent. With fewer conflicts, and economic growth rates that are competitive with those of other developing regions, Africa has seen positive change and has a substantial amount to offer in all sectors. However, the business environment, including social, economic, legal and political, is complex and doing business in this rapidly expanding region requires expertise and a different set of skills. To start with, it takes significantly more personalised approach than gaining entry into a more mature market as, for example, connecting with people is important - sitting down and sharing a meal is the African way of building relationships. Other countries do not necessarily understand this way of doing business. However, it is not necessarily more difficult than anywhere else; it simply requires a different set of skills and understanding, and often a large dose of patience and tenacity. Creativity is also needed to adapt to local conditions and demand, and this comes from experience and local know-how. Having the right business partner is a certain way to alleviate the potential pitfalls, and being adequately aware of the conflicting legal, regulatory and taxation requirements ensures success in this exciting and, as yet, unsaturated emerging market.
World Bank, Africa's leading financier, continues to offer substantial support, making a difference in many areas such as poverty, agriculture, health systems, education, infrastructure and climate change. Progressive development in Africa is already being seen as is evident in merger & acquisition (M&A) activity which is currently at its highest 3 year level with reports issued in July, by information and analysis provider mergermarket, of the total deal value reaching $8.2bn in the first half of 2010. In comparison to the same time period last year, this proved to be more than double the deal value and was mainly as a result of two large deals, namely, Gold Reef Reports’ acquisition of Tsogo Sun Holdings ($2.7bn) and Momentum Group and Metropolitan Life’s merger ($2.4bn). Edward Nathan Sonnenbergs (ENS), Africa’s largest law firm, were legal advisors in both deals. The leisure sector made up the largest proportion of deal value activity with the Tsogo Sun Holdings deal and the financial services sector was the most active in deal volume with 19.5% activity.
When one considers the position of the traditional and more developed markets internationally, where confidence continues to wane and major world economies are very much ‘touch and go’ as to whether they will fully recover from the recent dramatic financial crisis with its devastating effects, Africa’s progress is particularly impressive. Additionally, talk north of the equator is dominated by austerity measures, and civil unrest is becoming a daily occurrence in countries where it was almost previously unheard of. With this challenging environment it is perhaps not surprising that the mergers and acquisitions market is struggling to get back to where it was three years ago and levels of confidence amongst investment bankers in Europe and North America is at an all-time low.
“Africa is therefore doing particularly well for itself and, as the world’s last emerging market, the opportunity to acquire assets at attractive valuations is a key factor. Many of these assets are in the Oil & Gas and Mining sectors and therefore attract the interest of nation states, not only private enterprise, given the need for countries to secure their energy production capability and mineral requirements for the years ahead.
Project Mthombo, an energy development of huge economic significance in the Coega Industrial Development Zone near Port Elizabeth, South Africa (SA), is a noteworthy indication of this. This Project will impact on all spheres of Government, and will establish SA as a global supplier of clean fuels and take a significant step towards beneficiating natural resources
within the African region and from other parts of the world. It is expected that a cost saving of an estimated US$1.68 billion per annum in energy costs will be enjoyed by SA once the project is up and running in 2016. Port Elizabeth is an area with the lowest economic activity in SA resulting in immense poverty and Project Mthombo, a mega crude oil refinery and PetroSA initiative, will enhance job creation by an estimated 18,500 permanent positions. In addition, the consortium is being led by ENS who has been elected as lead counsel. It is very unusual for a local law firm to act in this capacity and is an excellent example of the importance of utilising local knowledge and expertise when doing business in SA or the rest of Africa.
Africa represents an enormous consumer economy which in many respects is underserved by the very most basic attributes of such an environment, from retail banking, communication, health care, transportation and infrastructure. As the challenges of transacting in more developed markets remain, capital will naturally flow in the path of least resistance and to environments where it can be more efficiently deployed. Ironically, for a continent which was for many years largely considered too difficult to do business with, Africa is now seeing an explosion of interest that is set to continue. Many African nations have endeavoured to create significantly greater business-friendly environments and engender confidence in the stability of government and the independence of the judiciary. While Africa might not reach China and India’s heights overnight, the compelling market dynamics and opportunities appear to instill confidence that there will very likely be a pot of gold at the end of the African rainbow.
An interesting factor, which is underscored by the results shown in recent market survey data such as mergermarkets’ results, is the extent to which Africa is able to implement and facilitate this growth from within, and that the skills needed to excel in deal activity can be found on the continent. Foreign investors are realizing that to deploy the skills of M&A professionals in Africa makes sound business sense given the available world class skills and higher level of ‘local knowledge’. In mergermarkets’ league tables of Legal Advisors for Africa & Middle East M&A, four South African law firms ranked in the top ten according to volume of deals completed, with ENS coming second to Linklaters, one of the UK’s magic circle law firms.
All of this offers a potentially bright future for Africa, a burgeoning market being driven by the local skills and talents on offer, and it is with good reason that we look ahead with optimism at the ongoing development and success of this fascinating and increasingly accessible continent.
SA, with its fast growing economy and greater international integration, is the most obvious entry to the rest of Africa and it is here that international companies have found appropriate partners when wanting to do business on the rest of the continent. The World Cup, of course, raised SA’s focus worldwide and foreign investors seeking acquisitions and partnerships in SA and the rest of the African continent continues to gain momentum. SA’s sound fiscal position has allowed the government to sustain public service delivery while increasing spending on fixed capital investment to boost economic growth and create employment. Despite the global recession, SA has emerged as a key market for global investors and it is particularly interesting that emerging market economies, on the back of the continued high growth and market size of China and India, outperformed those of developed countries last year.
The transition from apartheid to constitutional democracy has generally been an impressive path of peaceful negotiation for SA. The African National Congress (ANC) has won landslide victories in each democrative election held since the end
of apartheid in 1994 and, in the country’s last general election in April 2009, the ANC obtained a 65.9% majority with Jacob Zuma being sworn in as President in May of the same year.
Robust economic growth since apartheid’s abolition has seen a favourable decline in income poverty despite inequality still existing between race, gender and location. However, Government continues to instill initiatives to eradicate these problems and build a greater future. In 2009 it targeted five key areas for improvement over the next 3 years, namely, job creation, education and skills, healthcare, rural development, and the fight against crime and corruption. The state is expected to spend R841.4 billion in total in 2009/2010 with the biggest allocation being for economic affairs, education, social protection, healthcare and public safety.
Former British Prime Minister Gordon Brown recently stated that Africa could lead the world to a new economic growth and encouraged investors to turn to this continent with its huge potential and talent. The skills and expertise found in South Africa, with its 11 official languages and diverse and interesting population, makes it an obvious gateway to doing business in the rest of Africa.