King & Spalding LLP is an international law firm representing a broad array of clients, including half of the Fortune Global 100. With more than 1,100 lawyers in 21 offices across EMEA, Asia and the United States, the firm has handled matters in over 160 countries on six continents. King & Spalding is one of the most active international law firms in Africa and has established itself among the top projects and energy practices Africa-wide.
Trade and treaties
There still remains a lot that must happen before African Continental Free Trade Agreement (ACFTA) will be operating at or near its full potential. Once fully operational, what impact will this have on deal flow or on the ability to create strong portfolio companies?
Currently inter-African trade is shockingly low, especially when compared to Europe and Latin America. Less than 20% of trade in Africa (approximately 18%) is with other African countries. If at a minimum ACFTA can breed awareness of the need for increased intra-African trade, that will already be valuable. The increase does not have to be significant—we do not have to become a United States of Africa to realise a net benefit. There are some regions on the continent that already see the value of these types of trade relationships—for example, East Africa and Francophone West Africa.
There has to be an effort to sensitise leadership across the continent that increased intra-African trade is a good thing even though political leaders will not hold as much sway as they previously did. This will be a challenge, especially because this message is a little out of sync with where the rest of the world has been going. And it is important to recognise that there will naturally be some winners and losers in this trade deal. The reality is that more-industrialised countries will tend to do better. All the same, even a small incremental improvement in intra-African trade will be better (and not worse) for the continent.
Assuming ACFTA is even marginally successful, its benefits to African PE likely depend on the strategy of the fund manager. At AfricInvest, there will be direct benefits to our business model. Since we are in the mid-cap space, there is a limit to how big a company can be when it is within just one country. We need our portfolio companies to be able to expand to other markets. Thus, the more governments are willing to be open about this type of exchange, the easier it is for us to grow the type of companies we want to grow and create the value we want to create. You can see this already in East Africa and Francophone Africa, where regulations permit an investor to buy a bank in one country and open up branches in another country. The reality is that it is much easier for investors if the policymakers across a region are speaking the same language.
Mauritius, the ‘Gateway’ to Foreign Investment into Africa: how can investments be structured to benefit from Investment Treaty Protection?
Over the past few decades, through a series of sweeping reforms aimed at fostering a business-friendly legal and regulatory environment, Mauritius has cemented its place as a financial hub and “gateway” to investment in Africa and Asia. During this period, Mauritius has developed a robust network of double taxation agreements (DTAs) and investment promotion and protection agreements, otherwise known as bilateral investment treaties (BITs). While consideration of the former in tax planning is now a routine step in any cross-border investment transaction, analysis of the latter remains less systematic, and many investors may still be missing out on significant investment protections by forgoing investment structuring under BITs.
Particularly in light of increases in capital inflow into Africa, foreign companies — especially those seeking to invest in potentially high-risk markets in Africa and sensitive sectors such as oil and gas and mining (but not limited to these) — should consider structuring their investment to ensure it is covered by an investment treaty. Mauritius is ideally placed in this respect due to its location, its favourable tax regime and its business-friendly environment.
Mauritius also established a strong network of BITs. To date, Mauritius has signed 48 BITs, 28 of which are in force (10 with European countries; nine with Asian countries and the Middle East; eight with African countries (Burundi, Congo, Madagascar, Mozambique, Senegal, South Africa, Tanzania and Zambia); and one with Barbados). Mauritius also made it a strategic priority to expand its network of BITs with African countries, as demonstrated by the additional 19 signed BITs awaiting ratification, 17 of which are with African countries.
In terms of substantive protections, Mauritius’s BITs typically guarantee investors fair and equitable treatment, treatment no less favourable than the treatment afforded to investors from any other country, protection against expropriation without adequate compensation, and free repatriation of capital profits. With respect to investor-State dispute settlement issues, while some of Mauritius’s BITs (e.g. Swaziland, Mozambique) arguably limit arbitration to cases involving expropriation and nationalisation, all other Mauritius BITs do not contain such a limitation and commonly provide for arbitration under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) and/or ad hoc arbitration under the United Nations Commission on International Trade Law (UNCITRAL) Rules).
 Interview with Naana Frimpong (King & Spalding) and Ann Wyman (AfricInvest) on Recent Hot Topics in African Private Equity (March 2020).
Authors: Nikhil Markanday, Partner, and Florence Mugerwa, Trainee Solicitor