Africa is a gold mine. A lot of individuals and corporate organizations are taking trips to Africa to set up businesses; Celebrities like Akon have been setting up investments in Africa. However, there are certain things you must know before investing in the motherland.
Baker McKenzie lawyers based in Africa, alongside the Firm’s global Africa specialists; as well as lawyers from African Relationship Firms from across the continent; share their knowledge about what investors should consider when transacting in Africa.
Accept the uncertainty and gather knowledge
Investors in Africa must consider geo-political and economic uncertainty on the continent as well as a plethora of country and region-specific governance, compliance and regulatory challenges when investing in the region. They must also contend with a critical lack of infrastructure and poor integration when transacting across borders in Africa.
In order to close deals on the continent, investors need access to the right information and data. The success of a transaction depends on having real knowledge instead of relying on market perception. For markets where there is a lack of reliable data, having the right partners with global, regional, local and industry-specific knowledge is crucial. Investors usually do not mind a challenge, but they have no affinity for uncertainty.
There is no single approach to investing in Africa
Investors can never assume one country is the same as any other in Africa. Even if they are geographical neighbours, each country is vastly different to the next. The legal systems in many countries are also changing rapidly, stemming from a desire to encourage foreign investment, but also out of a need to protect the rights and resources of a country and its people. Investors must negotiate a myriad of laws and regulations in a challenging environment. As a result, cross-border legal compliance has become so complex that investors are citing it as one of their biggest business risks in Africa.
Investment in infrastructure and development of regional economies
Key to boosting investment – and enabling African economies to make the most of their opportunities – is developing infrastructure. An important part of this is the creation of cohesive regional economic hubs by developing infrastructure that links countries together. This will increase the ease of cross-border transactions and grow investment across African regions organically.
According to African Development Bank (AfDB), poor infrastructure has cost Africa a cumulative 25% in growth in the last two decades. The World Bank estimates that the continent needs more than US$90 billion per year to begin bridging the infrastructure gap.