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Investing in Africa: Understanding the Local Business Landscape From the Ground Up

A recent Investing in Africa Symposia, held in London, and jointly organized by the Association of Corporate Counsel and Lex Mundi, saw corporate counsel speak on the importance of building dedicated African expertise as their businesses expand into and across the continent. Many emphasized that a first step for the legal department should be to ensure they have the right advisors in-country.

"From Diageo's perspective, we see the Africa region delivering attractive growth. There is an expanding middle class, a young demographic and a boom in consumer spending across much of the continent," says Pat Rich, Africa regional counsel, Business Development and Projects, at Diageo. "When investing in Africa, it is prudent to spread your bets; to be aware of local regulatory or commercial developments; and to understand how these may help or hinder your operation, or even create entirely new opportunities."

Diageo's products have been present in Africa for over 150 years, he explained. Today, it distributes across virtually all of sub-Saharan Africa and has in-market brewing or distilling capability in countries including Nigeria, Ghana, South Africa, Kenya, Ethiopia and Uganda. Diageo's current global sales split is approximately 55 percent in developed markets and 45 percent in developing markets, although it is anticipated that developing markets will grow in importance.

"We have a lot of Africa investment experience and we assess future opportunities carefully to mitigate risks," says Rich. "I see not investing in Africa as a big risk to multinationals given the growing importance of the continent. When investing, however, it is important to undertake detailed due diligence on the country and the target or local partner, to know what it is you are getting into."

In this respect, he and others highlight the importance of understanding those you do business with. In many African markets, and especially in sectors such as oil and gas, energy or telecoms, it is inevitable that you will have some interaction with the government, in terms of regulation, licensing or partnering, which can bring its own transparency or anti-corruption concerns. But more frequently, it will be a local private investor with whom you do business or partner.

"We are focused on the legal and compliance issues that surround all of our investments. In this respect, Africa is no different to anywhere else we do business," says Ian Stoodley, deputy general counsel at Intel Capital, the investment arm of Intel. "If we are to invest in a company, we need to carry out appropriate diligence and know what structures we need to put in place to safeguard our interests and reputation."

As well as undertaking comprehensive due diligence on each potential investment, Intel Capital is also concerned to ensure that the companies in which it invests have good corporate governance. So it will look to understand the composition of the board and whether the executive management is appropriately balanced by independent non-executive directors and/or co-investors from the local or international venture capital community.

"Finding appropriate co-investors in some countries can be a challenge," says Stoodley. "We have our own people on the ground in most places in which we operate, but in EMEA, we have often been among the first international investors to make a venture capital investment in a particular country — we have made investments in 26 countries within EMEA to date. So we always need to look closely at how potential investments are structured. We also spend significant time finding the right external advisers to help us navigate the local environment."

Halliburton is another multinational with a long track record of operations in Africa, albeit the Africa legal team comprises only eight legal professionals, explained Paige Bickley Navarro, senior director, Commercial Law – Europe/Africa, at Halliburton in London.

"We have a dedicated team but remain very lean in the way we manage issues," says Bickley Navarro. "While Halliburton has operated for many years across Africa, it historically concentrated in West and North Africa in Nigeria, Angola, Algeria, Libya and Egypt. However, recent years have seen us expand and grow in East Africa, in countries such as Tanzania, Mozambique and Kenya. In response, we have tried to better segment the way we work, creating primary hubs to maintain regional oversight of matters as well as the ability to respond to very specific local needs," she explained.

However, what most people on the ground want to know is how to handle day-to-day deals and the myriad legal aspects of "on the ground operations," says Bickley Navarro. A recurring issue is how to manage local content matters, as regards suppliers, employees and training/technology transfer, along with regulatory matters and infrastructure setup.

"As well as developing the internal team's own expertise, we have built a very strong network of outside advisers," says Bickely Navarro. "As a team of eight, we can't be experts on all things to all people given the jurisdictional diversity. Africa is a challenging place to operate, but we have found that by building the right kinds of external relationships and educating our local firms on our specific needs and ways of doing business, we are able to rely on them much more as integrated team members who can add real value to our business proposition."

To truly understand the cultural and jurisdictional differences across Africa, you have to get in-country, to meet people on the ground, and understand the local business and legal nuances, all insist. A week meeting people in-country can generate more success than six months of emails or phone calls.

Rich acknowledges that additional help can be required: "Where we do not already have our own people, we have found it useful to meet other consumer-focused businesses already in-country to help give us an insight into local issues and to identify the right external advisers, but nothing compares to undertaking your own reconnaissance to truly understand the key issues as they affect a particular country's operation."

Nonetheless, he notes that in the most rapidly developing countries, the local firms can become over-stretched. Turnover of people can also be an issue in markets where a relatively small number of lawyers have an abundance of private practice and in-house opportunities, he said.

"In this respect, unless you have the resources to manage matters very closely, it can make sense to retain a London, Paris, Lisbon or South African firm to help act as a buffer against some of the frustrations this can present. Conversely, in the most sophisticated African markets, you can have confidence that the leading law firms are sufficiently skilled and responsive to the needs of a business such as our own."

About the Authors

Ian Stoodley - managing counsel for Intel Capital in Europe, Middle East and Africa. Intel Capital, Intel's global investment and M&A organization, makes equity investments in innovative technology start-ups and companies worldwide.

Pat RichPat Rich - regional counsel, Africa, focusing on business development and projects. Prior to this, he was legal counsel to Diageo Supply & Procurement Europe, legal director of Brandhouse Beverages, a South African joint venture between Diageo, Heineken and Namibia Breweries.

Paige Bickley Navarro - enior director, Commercial Law – Europe/Africa for Halliburton, one of the world's largest providers of products and services to the energy industry. She is based in London, where she leads the legal team across the two continents. She is a member of the State Bar of Texas and is admitted to practice before the U.S. District Court for the Southern District of Texas.

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