This is the sixth and last post in a series by Allen & Overy on vital legal considerations in the life process of an investment in Africa. Simon Toms and James Freeman take a summary of the investment climate from a legal perspective and expect vital legal and regulatory modifications on the horizon.
MORE OF THE SAME?
Prior to taking a look at what may alter, it initially worth considering what is most likely to carry on as previously. Many global financiers think that political risk will continue to be the greatest challenge when investing in Africa, it pervades most kinds of investment. It is a central obstacle in some crucial investment sectors like the extractive markets which necessarily require governmental engagement because sovereign resources are in issue. It is also unavoidable in other sectors such as power, where the scope for feed in tariffs to be varied is a vital risk, and telecoms, where the need to maintain pertinent licenses presents state involvement. The understanding of threat supervisors in studies throughout 15 sub-Saharan nations by Commercial Risk Africa recommended not only that political danger is financier’s greatest concern, however also that political danger was on the increase in 2014 and 2015.
The future of investment treaty security in Africa looks combined. This view has actually led to examples like South Africa, where there is discussion of abandoning investment treaties altogether in favor of offering protection to foreign investments through domestic legislation (which is inferior from the financier’s point of view because the securities can be annulled merely through a modification in domestic law). By contrast, reform, rather than rejection, of the investment treaty design can be seen in (for example) the recently concluded investment treaties in between Canada on the one hand and Benin, Tanzania and Cameroon, which balance the requirements of investment protection with the capability of governments to control in the improvement of public interest.
A second major source of risk for financiers in Africa is corruption. The legal risk from long-arm statutes in the industrialized world like the US FCPA and the UK Bribery Act is popular. There are a variety of examples of corporations being subject to examinations for alleged FCPA infractions in connection with African projects. The risk does not just develop from worldwide legislation, anti-corruption legislation and, significantly, enforcement, is becoming a local matter in Africa. Kenya has actually enacted a number of anti-corruption statutes in the last few years and the brand-new governmental regime in Nigeria is revealing signs of taking corruption seriously. For as long as some prominent African territories keep low ratings in well-recognized procedures like Transparency International s Corruption Perceptions Index, the danger of being ensnared in corrupt activities will continue to be high for negligent foreign financiers.
A BRIGHTER FUTURE?
It is not just a case of more of the exact same for foreign financiers in Africa. In basic terms, the legal environment is enhancing with both legislative and institutional reforms. A few highlights can be identified.
Recent years have actually seen concerted efforts by some nations (Rwanda being perhaps the finest example) to develop a legal program favorable to private investment. Regional coordination of similar aspiration elsewhere in Africa currently looks some method off. Other regional groupings, such as the Common Market for Eastern and Southern Africa (COMESA), stay basically customs unions, with regulation other than in matters of trade and investment continuing at a national level.
The courts are fundamental to a predictable and beneficial investment climate. The Doing Business survey concludes that it is harder to impose an agreement through the courts in sub-Saharan Africa relative to other regions. More favorably, courts in sub-Saharan Africa have actually improved much more rapidly than those in other regions.
There is more cross-border and intra-regional co-operation through groups such as the South African Development Community or the 19-nation Common Market for Eastern and Southern Africa (COMESA), which has its own competition regime. There are likewise some careful signs of optimism about the institutional structure for identifying and imposing of intellectual property rights, which has long provided threats and uncertainties as a result of patchy record-keeping and inefficient, paper-based registration treatments. Electronic filing now dominates, for example, in South Africa and Nigeria, and there are two local registration systems for patents and trademarks (OAPI in Western Africa and ARIPO in Southern and Eastern Africa), albeit that their effectiveness can be irregular.
Overall, there are enough reasons to believe that the legal structure for investments in Africa is improving, while recognizing that considerable difficulties remain. This may be one reason that Africa continues to be a centre for growth in the international economy even in the midst of a depression in energy and commodities prices. The quick modifications in the legal and institutional framework are another reason why it is necessary to have strong networks with the local specialists who can navigate the modifications in each of the 54 territories across Africa.