Africa not making it easy for investors

BROAD-based black economic empowerment (BBBEE), “indigenisation” and local ownership policies are possible red flags for potential investors in Africa at a time when the continent is widely viewed as the next great frontier for capital growth.

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BY MARK ALLIX

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Many such “national” policies are not well understood, are incomplete and piecemeal, and do not necessarily dovetail with the economic needs of citizens in the 54 countries.

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Uzoma Azikiwe, corporate partner at law firm Udo Udoma & Belo-Osagie, says that in Nigeria foreign firms can own business entities 100%. This comes after policy in the 1970s encouraged “indigenous ownership” of the “commanding heights” of the economy. “This policy produced very rich Nigerians who took over ownership of the companies from colonial days,” he says. But they struggled under globalisation and foreigners have been invited back and are able to repatriate profits and dividends.

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Mr Azikiwe is among lawyers working in Zambia, Botswana, Kenya and Madagascar who spoke about African investment legislation at a recent Bowman Gilfillan Africa Group seminar in Johannesburg which focused on SA’s newly invigorated BBBEE policies. Certain sectors of Nigeria’s economy must be fully or majority owned by citizens, he says. This includes coastal shipping and onshore and swamp-based oil and gas industries and services.

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Charles Mkokweza, managing partner of Corpus Legal Practitioners in Zambia, says colonial control of the country’s resources morphed into a crippling 17-year period of state ownership to 1991. After that Zambia “pursued a very aggressive privatisation policy”. But this has long been seen to exclude ordinary citizens and subsequently led to policies meant to empower the majority of Zambians.

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He says there is less focus on ownership than on creating “decent” jobs. This means the law is concerned with targeting, retaining, training and progressing Zambian citizens into positions of economic influence.

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In SA, indigenisation and empowerment have made foreign investors jittery as such programmes are often tied to procurement, and in such sectors as business process outsourcing (mainly composed of offshore call centres) complying with BBBEE requirements is a precondition for incentives provided by the Department of Trade and Industry.

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Across Africa, different countries have at least as many methods of empowerment and enforcement. This leaves the economic playing fields open to interpretation and possible corruption. For example, mining licences favour small-scale production, and foreigners are not allowed to undertake construction projects in Zambia, Mr Mkokweza says.

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But foreign companies can evade such limitation by registering their business in the country. Telecommunications also needs a “certain percentage” of Zambian ownership, and authorities are working on providing powers to both the president and ministers to identify economic sectors that are restricted to Zambians.

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But the chaos surrounding Zimbabwe’s indigenisation programme indicates the degree to which things can go off track. Along with random takeovers of agricultural land, foreign platinum miners have been reluctant to give majority stakes to Zimbabweans of disputed provenance at a time when China is feted by President Robert Mugabe. The battle over ownership of the Marange diamond fields has spawned a huge black market for the gems. Having got rid of artisanal miners, the fields now belong to figures associated with the country’s political elite and security apparatus.

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John Ffooks, who represents Bowman Gilfillan Africa Group in Madagascar and other parts of Francophone Africa, says that in the Republic of Congo, President Denis Sassou Nguesso suppressed an uprising with the aid of Chinese military equipment and manpower. “Now everything has to be offered to the Chinese first.” Yet the Chinese do not employ locals, and the “state-to-state model” effectively excludes private enterprise.

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With many potential investors balking at working under such conditions, SA has endeavoured to assure foreign direct investment partners that it is not enriching elites and fomenting corruption. It is only “broadly” remedying historical wrongs.

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Bowman Gilfillan says other than in “certain” state authorisation processes, there is no “hard law” that requires any private entity in SA to meet specific BBBEE targets, or implement a broad-based empowerment policy. It also says there are no requirements to attain a certain level of empowerment compliance, or that a certain percentage of equity must be held by black people. “And there are no sanctions for noncompliance.”

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But the law firm says in certain economic sectors such as mining and telecommunications, minimum equity requirements “are or may be imposed in terms of the sector-specific legislation governing those sectors”.

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While the law firm forgoes mentioning that company directors can face jail time for BBBEE “fronting”, it acknowledges that “pressures from government” and a poor empowerment rating “may hamper entities in the conduct of day-to-day business with government, organs of state and private sector customers”.

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In other African countries, the interpretation of empowerment “law” appears to be more loosely based.

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Jeffrey Bookbinder, corporate partner of Bowman Gilfillan in Botswana, says that country has a “liberal economic structure”, and did not suffer the same privations under colonialism as many other African nations. Foreigners can own businesses and face no foreign exchange restrictions. But directors of foreign companies have to submit to residency requirements, and “citizen empowerment” has now become a part of the country’s legal framework.

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There are restrictions on foreigners in liquor trading and government tenders. “But that tends to be aimed at the lower end of the Botswana economy,” he says. “It is a recognition that we need capital and know-how.”

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Njau Muhuka says Kenya had a “strict Africanisation policy” at independence, but this did “not work very well”. During the violence of the country’s 2008 elections it became evident that a “central problem” related to land ownership. To this end, foreigners are restricted in the freehold of land. The aviation, mining, maritime activities, banking and insurance sectors require minimum Kenyan ownership of between 20% and 51%.

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“Other than those, any other business can be owned by non-Kenyan citizens,” he says. But authorities can be sticky with work permits around issues of skills transfer and the preferential employment of Kenyans. – This article was first published by the Business Day