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THE LEGAL 500 > EVENTS > DUBAI AS A GATEWAY TO AFRICA - THE ROLE OF LEGAL COUNSEL IN CROSS-BORDER TRADE

The Scramble for Africa

With an increasing number of businesses migrating their Europe and Middle East (EMEA) counsel to Dubai, we team up with Simmons & Simmons to ask some of the region’s leading in-house lawyers about their Africa-facing work.


You wait 30 years for a new leader then several come along at once….

For businesses accustomed to dealing with Africa’s typically long-standing governments, the pace of political change has brought many challenges. Just ask the mining companies based in Tanzania – one day they are fined hundreds of millions of dollars, the next day opposition leaders are jailed. And this is from a government that was brought in to clean up corruption. With an estimated $148bn lost to corruption across Africa each year, it is no surprise that international businesses have adopted a cautious approach. But the old story of corruption is being displaced by positive news in a number of jurisdictions across the continent. Côte d'Ivoire has seen its transparency rating improve significantly and is now ranked above Spain, Senegal has established a court for the restitution of illicit proceedings, and Nigeria has shown investors they can get a judgement against local champions. The increasing commercial opportunities across Africa have seen an increase in regional hubs pitching themselves as the new ‘Gateway to Africa’. The Dubai Chamber of Commerce and Industry in particular has thrown considerable resources into its bid to make the Emirate a preferred hub for regional investment. With that in mind, we brought together a number of the region’s leading counsel to ask how they are helping their businesses to capitalise on the opportunities and mitigate the risks in a number of African markets.

Legal 500: Is there any particular ‘Africa strategy’ legal counsel should follow?

Paul Bugingo, Simmons & Simmons: Throw away your rulebook. Many investors come to Africa on the back of a business plan that focuses on the upsides and end up sorely disappointed. Investors read a market has 8% growth and think it is the greatest place to do business. When they get there they find it is one the most investor unfriendly places they have ever encountered.

Salah Mostafa, Takeda Pharmaceuticals: When multinationals enter a market on the back of a business plan that looks only at its potential for growth they tend to exit a couple of years later. You need to think about how you are going to engage with external stakeholders, particularly those in government. When you get letter from the government that says “you must manufacture here or we will stop your scientific office from operating in the country” you need the ammunition to go and engage in a meaningful dialogue with them.

Paul Bugingo: But at the same time it is important to be as far away from government as possible so you are not tainted or accused of gaining an unfair advantage. The biggest mistake, and one which even some of the most sophisticated companies have made, is partnering with the wrong person simply because they felt this person was closely connected to the president.

Salah Mostafa: It is advantageous to have this expertise embedded in-house as well. I am currently lobbying to appoint a government relations officer for the region. It is what I call the fourth pillar of engagement. As lawyers, many of the challenges we face in Africa are related to compliance. Having a dedicated government engagement officer will help address these challenges at an early stage. Until that role exists then we as in-house lawyers really play the key role in doing business in Africa. You have to step totally out of legal and help the business map and engage with all stakeholders.

Francois Leblanc: To build on that point, if your business is regulated you need to have the right person at the forefront. I emphasise the right person. It is not easy - there are a lot of cultural issues you must pay attention to but this is where we can leverage external lawyers. Saying, ‘this is the advice we have been given and this is where we need help’ will help us get the attention of the business on certain issues and allow legal to steer the discussion. If you have something on paper that is threatening enough it is more likely to get picked up.

Madhavi Ramachandran, MTN Group: I would add a cautionary tale here. Having the right person is important, but the right person may change over time. Connected with that is the need to understand what the regulators are focusing on, because that seems to be moving around a lot across Africa, especially on issues such as exchange control tightening, data sovereignty and protectionism. This comes back to the need for businesses to accept it is not able to make quick gains in this type of market. If you have a long-term horizon then you are better able to manage the risks.

Yasser Abo Ismail, Schindler Middle East and North Africa: It is all about how you present these risks to the business. We as lawyers are not going to surprise anyone if we start talking about risk. We need to frame that discussion of risk as part of the business case for or against a particular action. Business does not want to hear what the law says. As GCs we need to understand the business plan and what the business wants to do, and then of course suggest the best way to do this. At the heart of all this is the need to show a nuanced view of risk that relates specifically to the business’s objectives. For example, do they want to be on the ground or do they want to act through a distributor or as a reseller? Only once you understand those commercial objectives will you be able to go deep into the details and conduct a risk assessment to find the right partner.

Firas Oggar, Zain Group: Definitely - to be heard we need to find a way of explaining risk that speaks to management. There is always risk when entering a developing market, but if business has decided it needs to be in that market you can’t just talk about the risks. Besides, people find ways to mitigate risk all the time.

Rahul Sharda, Ecolog International: As GCs we are not driving the business, it is true. But if we are convinced that there are certain risks or that the legal framework is not stable then we have to find a way to convince business of this, or at least to act in a way that minimises those risks as much as possible. Otherwise we have to accept a certain degree of responsibility if things go wrong.

Martin Hayward, Ciena: In a former role I was in a situation where we had to unwind a deeply compromising joint venture in a market that had just undergone fundamental governmental change. There was no legislation that mandated the sort of joint venture we were engaged in so we could not give clear-cut legal advice. We had to work with other government authorities in that country to extract ourselves and move to a situation that put us at arm’s length from what was going on. That taught me to think of mitigating risk in terms of looking forward to see how we can extract ourselves out of these ventures if necessary.

Yasser Abo Ismail: We can also help business colleagues to adjust their expectations to something more reasonable. I am sure we have all sat in management meetings where people say, ‘Our ambition is to be number one in this country’. We have to tell them, ‘forget it, you can never be number one in this country. It cannot happen because of compliance, because we cannot be too close to the government, and because of any number of other things that prevent us from really becoming the dominant player in the market.’ It comes back to the earlier point about not entering a market on a business plan that only considers the potential up-sides. Business colleagues are always eager to do new things. I see my role as helping them to be realistic about what can be achieved.

Roula Khaled, Etisalat: You need to manage expectations. Business may be under political or economic pressure to be in a particular country so they need to be there even though it is risky. For many businesses their relationship with the government is pushing them to be there. There is no sense in listening to the counsel if the driver for the decision to be in a country is political.

Philip Norman, Simmons & Simmons: We are talking a lot about investment and opportunity but there are a number of businesses here that have actually shrunk in Africa. Martin has just given a good example of unwinding a joint venture, Etisalat has withdrawn from Maroc Telecom, Zain was the beneficiary of Bharti going in with $10bn to acquire its assets in 2010. There are other examples. In essence, many of you have been on the other side, telling a partner that it is a rosy picture and a good business to buy. What are your experiences from that? And also, if you have hired a person to handle government affairs, does that person go across when the business is sold and extol the virtues of the asset?

Firas Oggar: I would say Zain did a good deal. We bought the asset for $3.5bn and sold it for $10bn after three or four years. The details are all in the public domain and, given the numbers involved, I do not think anyone could plausibly see it as an attempt to sneak out of the market, we were simply offered a huge return.

Salah Mostafa: There are probably some common drivers though. I am seeing heightened scrutiny from governments across Africa, particularly with oil prices falling. Governments are looking much more closely into tenders, into anti-trust issues, into anti-bribery issues. This takes me to the same point that was made earlier about compliance. You don’t do business directly, you have to use third parties. That is creating awareness within the business that we need to do third-party due diligence across the chain. One of the beneficial results of all this is a sharpened view of compliance among businesses.

Karima Tanfous, Shire: In North Africa in particular I feel that governments are becoming more aware of compliance and corruption matters and are tightening their financial controls. This adds a lot of bureaucracy and the administrations are sometimes afraid to make a decision one way or another. But we are perhaps being too general about Africa here. Some governments in Africa are very flexible while others are more forceful in their approach and will insist on following their existing models for engagement. When a government displays a high degree of flexibility it naturally leads business to look for solutions that work for both parties. On the other hand there are many countries where the laws are rigid. You do not feel like there is any reciprocal trust and things grind to a halt. However, even a flexible government must have a long record of supporting investors to convince me it is not a risk.

Neeta Thakur, EFG Hermes: In late 2017, EFG Hermes entered Kenya. We did not face any of these challenges because we had already considered the risks and put in place measures to address them. We had a beneficial relationship with an existing company, we hired a person who had knowledge of how to penetrate those markets that we wanted to expand into, and we met with the Nairobi Stock Exchange and convinced its chief executive that we had a sound business plan and that EFG Hermes could leverage its presence in nine other markets in the MENA region. Our licenced activity in Kenya is brokerage and investment banking. Brokerage is a sophisticated licence, it is not something you can expect to be granted without a lot of scrutiny. Nonetheless, we got a licence from the Nairobi Stock Exchange within three months.

Ali Khalaf, Evolvence Capital: Here you followed Paul’s and Francois’ advice: you used the right person - someone who understood the culture on the ground. But I would say this was not a standard case. The Kenyan government was willing to give assistance. Most governments I have encountered are not so forthcoming with this type of support.

Neeta Thakur: The government could see that we were partnering for the benefit of the country. EFG is the leading brokerage house in the region and we were able to leverage that strength. The office in Kenya is already fully functional and employs 70 people, all of whom are Kenyan nationals. The capital requirement is about $5m. That is a huge sum of money for most Kenya-based entities. If you can partner with a government and explain how it will benefit them it will be easier. Most African countries now are competing for a limited pool of investment and will be interested in your proposal. On your side, you need to show them you are a serious investor who can benefit the host country.

Martin Hayward: Ciena is a US-publicly listed telecoms solutions provider. At the moment our work in Africa is pretty much limited to operations in South Africa and a submarine cable business. The big issue we would have to consider in any expansion plan is compliance. We see the potential, but as a US-listed company the barriers to entry from a compliance point of view would need careful attention. Do you think Middle East-based companies are at an advantage here?

Neeta Thakur: Entities based in the US, for example, are perhaps at a disadvantage because of FCPA and sanctions risks. While we do have offices in the US and UK we primarily focus on the MENA region. I would imagine African governments believe it is more risky to deal with a US entity than an Egyptian one. However, although EFG Hermes is listed on the Egyptian and London stock exchanges we did set up a Kenyan entity to do business there and the licence grantee is a Kenyan organisation. The most important factor was that we are a leading broker that can bring in revenue.

Samir Safar-Aly, Simmons & Simmons: On the other hand, companies based in Dubai with a nexus to the UK or US and which have a view to engage in activity in Africa need to think of both domestic and international concerns. Regionally you have the law on anti-bribery and corruption in the UAE. That law is in the penal code and is applicable even in the Dubai International Financial Centre (DIFC). DIFC does not have its own jurisdiction on criminal matters, only on civil and commercial matters. In 2016, the penal code was updated to increase the penalties for companies from 50,000 AED to 500,000 AED with a prison sentence of five years. These are potentially criminal matters from a UAE perspective. That type of provision is very similar across the GCC region. Then there are FCPA and UK Bribery Act concerns, and of course, both have extraterritorial effect.

Salah Mostafa: Like Neeta, I have had positive experiences in the Kenyan market and found the authorities to be both flexible and welcoming to foreign investors. Takeda is a Japanese company. We wanted to sell our oncology products into the Kenyan market. There are two challenges here: How can we get our oncology products into market in a way that is affordable and how can we diagnose people in rural areas where access to diagnostics is limited. We worked together with the Ministry of Health to address these issues. Our offer was to help them build diagnostics capabilities, especially in rural areas. They loved it. Our chief executive went and signed a memorandum of understanding with the government. I actually went on one of the research trips and met with the Ministry of Health at one of the main hospitals in Kenya.

Samir Safar-Aly: We have been advising the National Treasury of Kenya on developing the rules and regulations surrounding the Islamic Finance sector – which, for its sizable Muslim population, is really an unbanked sector of the economy – and on the foundation of the Nairobi International Financial Centre (NIFC). The latter was an initiative of the Government of Kenya under the Kenya Vision 2030 to develop the country as gateway to Africa for the financial sector. Both of these projects have reinforced the sense we have of Kenya as a country that is looking to make itself a good destination for investment as a financial centre.

Paul Bugingo: There will be a lot more investment activity in Kenya in the coming months so perhaps these will prove to be astute investments. I am involved in an increasing number of oil-related matters in Kenya. Historically, Kenya has not had a lot of oil passing through its territory. Infrastructure was built to transport oil from the Democratic Republic of Congo (DRC) but the volumes have been small. However, anyone who knows that region will tell you that a lot more oil will be going through Kenya. Ugandan oil, South Sudan oil and DRC oil.

Martin Hayward, Ciena: We all seem to agree that some jurisdictions are positioning themselves more favourably to attract investment, but I would like to know what happens when things go wrong, as they inevitably will in emerging markets. Do these jurisdictions remain flexible and welcoming?

Philip Norman, Simmons & Simmons: To stick with Kenya as an example here, I would say it is one of the more mature, sophisticated markets for dispute resolution. Do I have confidence in the ability of the Kenyan courts to adequately settle a dispute? Yes, for the most part. It has a long experience of the common law system, its legislation is based essentially on common law, its judges are reasonably well established, sophisticated, trustworthy and independent and have got a solid arbitration tribunal. Commercial counterparties will have the same confidence in having their rights enforced, so disputes tend to arise only when one side is truly convinced they have the benefit of the arguments. In less mature jurisdictions the threat to go to court might be met with a smile because, ultimately, it is like flipping a coin. There is not really such a predictable outcome, which means that you end up running a big risk by threatening litigation. Then you have the problem of explaining the court’s rationale behind the decision to the commercial guys back home. It must also be remembered that corruption of arbitrators is, anecdotally, more prevalent in developing markets where the experience of independent, impartial dispute resolution may not be so widespread.

Paul Bugingo: I would follow up on that by adding that one of the biggest challenges investors face today is governments insisting that local laws should govern a contract, particularly for long-term infrastructure projects. I think investors need to see this from the government’s perspective, to an extent. They sit across from investors who want to spend hundreds of millions of dollars while saying they have no faith in their laws. It is entirely reasonable for the government to say, ‘if you want to trade with us you have to trust us.’

Ali Khalaf: I can see why governments might be wary of investors wanting all the plusses while having no faith in the governing law, even if these laws are modelled on the investor country’s laws in most cases, particularly in common law jurisdictions. I can see why it would be difficult to convince a government that you want to invest only if the investment can be governed under Singapore law, for example.

Firas Oggar: Sure, you can accept the local law but you have a right to insist that the seat be subject to arbitration. It is reasonable to demand an independent forum to settle the case. I agree you do not have an option if they tell you, ‘this is our law and you will not get a licence here unless you follow it’. That is fine, but you can still arbitrate the dispute. It is not a question of trusting the local laws, it is simply a question of self-protection. Yes, it will be difficult to enforce a judgement even if you arbitrate, but you at least have the option of getting damages or expropriations.

Philip Norman: That absolutely resonates with me. In a previous life I acted as GC to a big US engineering firm. Whenever they were thinking about going into a new country I pretty much got three questions: Is the legal framework in that country stable; If we have a dispute is there a system there which can deal with it efficiently and impartially, and does the government understand that to bring investment and international participation in means they cannot have it all one way. There has to be some compromise when it comes to terms and conditions or rules for settling disputes. That is something I have seen consistently with disputes in emerging markets. If the framework is not predictable we at least want a process to de-risk investment, usually through ICSID or some other international dispute settlement mechanism. From a GC’s perspective managing an emerging market is about controlling what you can while recognising that risk will always be there.

Karima Tanfous, Shire: But often it depends which government you are dealing with and what you are putting on the table. If you go to a government and say, ‘we will create 5,000 jobs’ or ‘we will bring foreign currency into the country’ then the government is often willing to settle. Disputes must be seen as part of a long-term game and the level of resistance you encounter to any proposal depends on what you offer them in return.

Madhavi Ramachandran: How are people handing compliance risk? There is such a huge focus now on being seen to be doing the right thing. You must do the right thing, of course, but you must also be seen to be doing the right thing. The only real solution is to have a solid compliance programme and to make it clear legal is being heard. But the way in which global regulators evaluate compliance plans is constantly shifting, which can make it difficult to be certain you are demonstrating strong compliance.

Payam Beheshti, Simmons & Simmons: Regulators are increasingly looking at things from a systems and controls perspective, including in respect of bribery and corruption. That is where one sees the biggest fines. It is systems rather than incidents that are the target of regulatory scrutiny. Incidents happen, people accept that and of course they will be investigated and policed, but it is the systems and controls infrastructure that regulators and prosecutors are paying attention to. The premise is that businesses should have an anti-bribery and corruption (ABC) framework in place which meets international standards. It has got to be implemented and actioned, so you need an ABC officer in place who activates it and a governance structure that can effectively oversee the process. Under many key legislative frameworks having proportionate procedures is key and sometimes a defence or at least a mitigating factor. A complex organisation needs to have something in place that addresses that complexity of its operations. The other thing regulators look for is top-level commitment. Is there a philosophy and managerial commitment to fostering a culture of compliance? Demonstrating that to the regulators is an important step. You cannot just have a policy on the shelf collecting dust, it has to be enacted by a person or persons within the organisation.

Francois Leblanc: From my time at Kinross I can say it is one thing to have an ABC programme and quite another thing to monitor it. You start with the programme and the systems and control measures but you need people to oversee it and implement it. You need people that are trained to spot ABC infractions. The things I commonly encountered as ABC risks were typically small in value, but there is no materiality threshold in any of these laws. It always starts with having the right people who know what to do and will seek out the right exemption and correct documentation in advance. I can recall an example where a large financial institution was investigated for the misconduct of one of its employees. It was able to document that it had done everything properly by putting the right checks in place and it was exonerated while the individual in question was sentenced.

Karl Rogers, Standard Chartered: I have a rather interesting example of working for a British bank that is in 16 countries across Sub-Saharan Africa. We have had regular, in-depth training since 2010 on the Bribery Act and other compliance-related regimes. I was in Lagos airport about four weeks ago. Having had my training on the Bribery Act I knew that when a gentleman with a machinegun came up to ask me if I was his friend and would I give him some money to buy water I had to assess whether my life was being threatened or not. Since I decided my life was not being threatened I politely declined. But that is an example of a situation where you have to work through the circumstances and make a judgement on whether you respond one way or another. Now, extrapolate that to business practices across a jurisdiction and you find yourself making similar judgement calls. As GC you are, for example, looking at regulators across the world and asking what they expect us to be doing with respect to foreign exchange transactions and pricing transparency. If you go to a market where there is a huge amount of price volatility you may think it should be priced differently, but there is a limit on what you can do because of these international regulations. It does not mean it is legitimate or illegitimate, but it does raise the question of how you apply a regulation that was developed for more mature markets to an emerging market.

Legal 500: To what extent can things like blockchain be used to enhance a company’s compliance programme?

Raza Rizvi, Simmons & Simmons: I have mixed views on this. We regularly work with businesses who have been at the wrong end of significant fines and we know they would love to procure technology that will magically solve compliance problems. Distributed ledger technology provides the potential for huge strides in transparency and decentralised solutions are immediately attractive for compliance functions; however, I think there are some lower tech solutions which can help solve the same issues. Before we jump on the blockchain bandwagon, I would like to see more adoption in Africa of quite simple relational databases and other digitised and uniform approaches to record keeping. Beyond compliance, I am excited about the huge data monetisation opportunity that African businesses are waking up to. With improving digital infrastructure and broadband connectivity, there will be huge opportunities to get data insights which will help all the businesses represented today grow in Africa.

Philip Norman: What do you say as investors when the governments of emerging countries ask you to accept local laws and institutions to help build up their experience and strength for future generations? As potentially pioneer investors do you believe that you have an obligation to use these institutions? The argument many governments will make is that this sort of long-term investment in the institutions and laws of a country is beneficial to investors in the long-run because it helps to raise the bar and will ensure that the potential they had seen in the market comes to fruition.

Firas Oggar: Well, the answer I would give such a government is very simple: you are conflicted, sorry. You cannot be party to a dispute and decide on the dispute. Besides, if you want to increase the quality of your systems then you need to go speak to someone else. We are here to invest and to make a return on our investment and we need to be protected. If that government has 100 years of experience settling complex disputes with foreign parties then we can talk. If it has got only six years of experience as a jurisdiction and does not have any precedent in a particular type of case then how can we as an investor decide to trust its institutions? It would be crazy.

Philip Norman: But leaving dispute resolution forums aside for a moment, should it not be an ambition of the government to upskill its people? It seems entirely reasonable for a government to have this at the back of its mind when it is looking for an investment partner, otherwise the countries with the least amount of vision for their futures will become the leading investment destinations, which cannot be right. It makes more sense to engage with a jurisdiction that has some sense of long-term development.

Firas Oggar: For sure it is a legitimate objective for the government, but the way to ensure development is not to insist only on protecting the country. You can take it for granted that any business committing large sums of money has an interest in the stability of the jurisdiction in which it is investing, but at the same time you cannot really help the country achieve what it wants. You are an investor, not an NGO or development bank. I would always tell businesses to avoid entering into joint ventures or distribution agreements where the stated intention of the counterparty goes beyond receiving your investment for a set term. Keep investments simple or you will fall into any number of traps. Be clear about what you are doing in the country and what your commercial objectives are.

Yasser Abo Ismail: We should never confuse CSR commitments with legal rights or protections. Governments can place a commitment on you to build schools, hospitals or other infrastructure. That is fine. If the government asks you to put another $100m on top of the initial investment for these purposes then you can look at it as an investment in CSR. But that is completely separate to the law. I agree with Firas that we need to be careful of situations where the investment in CSR is not additional to the commercial investment but is tied in with it through demands to use the courts or employ certain persons close to the government. These are not properly structured investments and they come at too large a risk. A responsible business should avoid them because at the end of the day you are responsible to shareholders, not the government.

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