Eversheds Doing Business in Africa Avoiding legal pitfalls Boris Martor Partner Eversheds LLP borismartor@eversheds.com Geneva, Switzerland 16 April 2013 Contents 1. Presentation of Eversheds in Africa 2. Doing Business in Africa 3. Avoiding legal pitfalls and practical risks
1. 1. Presentation Presentation of of Eversheds Eversheds in in Africa Africa 1.1 History in Africa Eversheds LLP advising in Africa for over 25 years Formal creation of Eversheds Africa Group in 2007 Offices in Africa formal cooperation with Morocco/Tunisia 2011 Development from litigation to cross sectors advice Have advised in ALL 54 African countries Specialized team with relationship firms across the continent Publication of several best selling books on Business Law in Africa A unique client mix of Banks/Governments/Corporations
1.2 Our approach working in Africa Triple hub (Paris/London, North Africa) Full service with international transactions-investments and Contentious-arbitration support teams High quality, proactive, consistent day-to-day advice coupled with global project management Multilingual services across countries & sectors Network of proficient relationship firms Many financial institutions, governments and multinationals use us on a daily basis 1.3 Our particular Africa expertise Infrastructure, Project Finance, Fund structuring and PPPs Assisting a project company on a project financed satellite to provide pan-african telecommunications services Assisting several States on 3 key PPPs to develop the fiber optic (Central Africa, Chad, Congo and DRC) Oil & Gas, Mining and Power/renewable Projects Advising major oil companies on issues relating to licences, PSCs and JOAs in West and North Africa Advising the Government and state s entities to develop a gas to power project in Mauritania Advising the Government of Uganda on creation of a refinery
1.3 Our particular Africa expertise Day to day advice for major corporates based in Africa Institutional Reforms & Privatisations Assisting the Government of Congo in rewriting its securities laws Assisting the Government of Madagascar in adapting its PPP law framework Assisting the Government of Togo on the privatization of two banks Investment and Commercial Arbitration Advising major utility company in respect of ICC arbitration concerning hydroelectric dam operation in Mali Advising an International Company in an arbitration before the CCJA relating to the breach of OHADA s rules at the national level 2. Doing Business in Africa Growing economy: 6% average growth per year on the continent over the last 3 years An attractive challenge for operators and bankers A crucial need of infrastructures and investments Securing of investments through legal frameworks A growing middle class
2.1 Quick economic comparison 10 9 8 7 6 5 4 3 2 1 0 Sub-saharan Africa Emerging economy Developed countries GDP growth (2006-2013) 2.1 Economic context: favorable elements Investments in 2012 and 2013 (million USD) Year Gabon Ivory Coast Senegal Kenya Algeria 2012 4 958,00 2 938,00 3 569,00 7 629,00 74 020,00 2013 5 373,00 3 378,00 3 737,00 8 238,00 82 770,00 GDP per Capita in 2012 and 2013 (million USD/PPP) Year Gabon Ivory Coast Senegal Kenya Algeria 2012 14 754,00 1 660,00 2 010,00 1 780,00 8 750,00 2013 15 101,00 1 760,00 2 110,00 1 870,00 9 220,00
2.1 Economic context: favorable elements Increase of investments & GDP Population growth in particular in cities Macroeconomic stability even if depending on raw materials still Diversification of trade partners (new foreign direct investments : China; India; Brazil; Malaysia) New sectors emerge : pharmaceutical and information technology products; agribusiness, telecommunication Opportunity to bridge infrastructure gap 2.2 The African Legal patchwork
2.2 Harmonization through regional Economic and legal organisations 2.3 An innovative legal framework: example of 17 OHADA countries Synergies with Economic Unions OHADA main objective Improving legal security and predictability in order to foster investment and trade Promote economic growth in Africa OHADA challenges Regional integration through legal harmonisation Common integration within world commerce thanks to African unity establishing trust towards economies and creating development dynamics in Africa
2.3 OHADA innovative legal framework Benefits of the harmonisation Provide identifiable uniform modern rules on : commercial law corporate law securities simplified recovery procedures and insolvency proceedings arbitration accounting law transportation law Modernise business law Create a more stable legal and judicial environment for companies wishing to invest in the OHADA zone Dedicated Regional court : CCJA Consultative attributions Both a judicial court and an arbitration institution : Supreme court attribution matter which involve uniform acts decision without appeal Arbitration attributions International arbitration institution Arbitration rule: 11 March 1999 Grants exequatur to CCJA arbitral awards 2.4 What does it mean practically for actors in Sub Saharan Africa? Need to examine and take into account Harmonized regional rules and not only national regulations for the activities Harmonized regulations can be of benefit to identify rules and standardize projects documents Need to establish how overall transactions will be governed and which risks might arise from local regulations remaining in place vs regional ones Need to arbitrate between countries to determine existing legal frameworks and investments incentives
2.5 International organisations Regulations or World Bank standards/agreements with African countries may affect transactions EU regulations applicable to European companies in Africa with Directives Meet International standards (oil&gas/mining) 3. Avoiding legal pitfalls & practical risks Africa is full of opportunities but investors may have to manage several pitfalls : policy clarity policy stability policy consistency
There are several pitfalls but some are common to all countries: 3.1. Corruption 3.2. Limited access to protection of investments 3.3. Identification of laws and protection of IP rights 3.4. Litigation and dispute resolution avoidance 3.5. The Tax burden However, African states are aware of these pitfalls and are fighting against at different level: National Regional International 3.1 Transparence : the context The high-level of corruption: Bribery of foreign public officials Lack of control, supervising Inappropriate tax audits Anti-corruption legal frameworks Initiatives: Regional ECOWAS, Protocol on the fight against Corruption, 21 December 2001 Directive n 04/2005/CM/WAEMU of December, 2005 on awarding, executing and regulating public procurement in WAEMU 0 : highly corrupt 100 : clean International UN Convention against Corruption, dated 14 December 2005 OECD Anti-Bribery Convention in 2009 : establishes legally binding standards that criminalize the bribery of foreign public officials in international business transactions Local : states have their own regulation i.e: Congo : law n 5-2009 dated 22 September 2009 concerning corruption, misappropriation of public funds, fraud and related infringements in the Republic of Congo
3.1 Transparence : What to do in practice? Develop, implement and train on adequate internal controls Create Compliance programs and knowledge of existing rules Develop due diligence : on counterparts and business partners in case of acquisitions or investments Conduct an annual reviews of effectiveness of policies and procedures Avoid cash payments, even for legally-authorized fees, to government agencies or officials where at all possible, and limit the use of cash in African operations Obtain receipts for all expenses, and check published rates/tariffs Making sure records and data is safe 3.2 Access to and protection of investments : constraints Limits encountered Expropriation or nationalization of the investments without preliminary and appropriate compensation Risks of Treatment less favorable than domestic investors ( Most Favored Nation Status ) Difficulty concerning repatriation of income from investments (recent event in Mauritania) Transitional laws (OHADA in DRC) Specific ownership rules/ a few examples Libya :concerning the need to associate local management or local shareholdings Algeria : the rules 51 /49 51 % of the company s share capital shall be owned by a national resident or entity Need to structure and apply for repatriation of funds
3.2 Access to protection of investments : What to do? Determine existing host state investment legislation Take benefit of regional investment protection mechanisms such as UEMOA or CEMAC investment treaties Examine possibility to negotiate investment convention to be ratified by the State Structure investments taking into account existing bilateral investment treaties (BITs) 400 in Africa or Multilateral investments treaties between the government of more than two states Choose adequate arbitration settlements Identify one stop shop entities to facilitate registrations (CI/Rwanda for instance) 3.3 Identification of laws and protection of intellectual property rights Lack of knowledge of regional rules Failure to register IP rights locally Failure to protect the use of IP Failure to protect sensitive information
3.3 Intellectual Property : Regional organizations African Intellectual Property Organization (AIPO) 16 member States Mission : ensuring the protection and the publication of patent rights titles; making the legal framework attractive to private investment; encouraging creativity and transfer of technology. African Regional Intellectual Property Organization (ARIPO) 17 member states / 13 candidates states promotes the harmonisation and development of the intellectual property laws, and matters related thereto, appropriate to the needs of its members and of the region as a whole ARIPO AIPO ARIPO 3.4 Litigation and dispute resolution Avoid Litigation: Weak/variable national interpretations Nigeria : the rules governing civil proceedings are not uniform across Nigeria Algeria: limited access to Judicial decisions Benin: partiality of Judges Prefer Arbitration : Commercial and confidential settlement Development of arbitration is a trend Choice of appropriate clauses Check how getting enforcement in practice
3.4 Litigation and dispute resolution Check if Local courts are supervised by Regional Court; ex: CCJA (OHADA) UNCITRAL Model Law on Commercial Arbitration influence (Burkina Faso etc) Arbitration possibilities International level : ICSID; ICC etc Regional level : ex: OHADA : Common Court of Justice and arbitration National level (i.e: Benin: Centre d arbitrage et de médiation et de conciliation of the Chamber of Commerce and Industry; Ivory Coast; etc.) Recognition of : Foreign judgments (under specific conditions DRC; Egypt; etc. -) Foreign arbitral awards :» generally, appeal of foreign arbitration not possible, and specified by some countries expressly» check ratification of New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 3.5 The tax burden: rates (2013) Area State Taxes/ benefits Dividends Interests charges/ services Central Africa Gabon 30% 15% 10% 10% Congo 33% 20% 20% 20% DRC 35% 20% 20% 20% Cameroon 38,5% 16,5% 16,5% 15% Southern Africa and East Africa North Africa South Africa 28% 15% 10% 12% Kenya 30% 10% 15% 20% Morocco 8,75%/10% / 17,5%/30% 10% 20% 10% Algeria 25% 15% 10% 24% West Africa Ghana 25% 8% 8% 10% Ivory Coast 25% 12% 18% 20% Senegal 30% 10% 16% 20%
3.5 The Tax burden : How to avoid it? Relatively high rates and unpredictable implementation Need to check existing tax treaties when structuring investments ex: France : 30 tax treaties with African States. Mauritius is n 1 Regional regulations from WAEMU or members States limit double taxation QUESTIONS?