By Sofia Ferreira Enriquez, Partner at Raposo Bernardo
This is the question every company should ask itself before deciding how, where and when to invest in Africa. Investors may sometimes face business-unfriendly rules that make it hard to develop a business. It is therefore vital to ensure they will not only get qualified and proper advice, but can also count on a real business partner.
Africa is a continent of opportunities for those who want to invest. Despite that, implementing a business is very challenging and it is imperative to be aware of market specificities. Doing business in Africa can be extremely tough and it is very easy for investors to be surprised by limitations or restrictions they were not counting on.
It takes time and money – investors may only expect to be successful if they have a well-structured and viable investment and development plan and capital to execute it. No one should decide to invest in Africa expecting to see a return on the following day.
From international law firms’ point of view, one may identify different ‘Africas’: the Francophone Africa, with countries like Senegal, Côte d’Ivoire,Mauritania, Tunisia and Algeria; the Anglophone Africa, like Kenya, Botswana, South Africa and Zimbabwe (that has always been focal for UK law firms) and, finally, Lusophone Africa, like Cape Verde, Mozambique, Guinea-Bissau, São Tomé and Principe and Angola (the focus of Portugal-based international law firms). Due to the enormous development Angola has registered in recent years, Lusophone Africa has finally earned non-Lusophone law firms’ attention.
One can also identify a fourth group of countries, in which international law firms mostly work for states and international organisations or multinationals holding partnerships with public authorities. These include Central African Republic, Congo, Equatorial Guinea and Ghana.
The increasing number of international law firms in Africa should also require increased rigor from investors choosing a legal business partner – the legal team that is chosen to support the investment needs to act not as a consultant, nor as just a service provider, but as a real business partner.
Markets need to be well known and each business needs to be properly and thoroughly understood. A law firm may only provide an accurate service if it has a real and relevant experience working with businesses in the potential “client/partner” sector and understands the nature of it.
A law firm should know the market deeply and be able to answer all questions from a client looking to invest. Starting up a company is just the easiest part of the process. There is no doubt that doing business in Africa requires different kinds of skills. For foreign investors, the proactivity of lawyers assumes an essential role.
At home, investors may influence or be aware of changes in the law, relevant tenders or business opportunities, but things change when entrepreneurs are investing abroad. It is essential to be able to count on a business partner who understands the investor’s needs and takes the initiatives that can make all the difference in the business development.
Corruption in Africa is usually a concern for investors. This is a real problem in some countries, but the fact is corruption is a ubiquitous issue. This is just one more aspect to be considered, among several others, before taking the decision to invest: ease of starting or closing a business (including time and cost involved); the procedures, time and cost to deal with construction permits; labour law, mainly in relation to hiring or firing workers; the security of property rights; getting credit; taxes; costs and procedures in importing/ exporting, and the possibility of enforcing commercial contracts.
For instance, the presence of legal rules protecting foreign investment usually weighs about 73% in the decision to invest, according to the latest IFC-World Bank ‘Doing Business’ report. African countries are very different from each other. According to the IFC-World Bank report, the most difficult African countries to start a business are also those that most regulate business start-up – as is the case with Equatorial Guinea and Guinea-Bissau (where procedures may take 136 to 233 days, on average).
In Central and West Africa the economy is developing – business activity is increasing and this is expected to continue over the next few years. Nevertheless, transactions are still more difficult than in more mature markets. Investors in Africa will often face business-unfriendly rules that make it hard to develop a business. It is therefore important to not only get qualified and proper advice, but also be able to count on a real business partner.