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African Investment FAQs
To discuss your matter relating to Africa, e-mail Peter Hansen at or call him at (202) 349-3780. The following does not constitute legal, business or financial advice, or an offer or agreement to represent anyone.
| Is Africa really a serious investment destination?
| | Yes, if the investor is also serious. Africa is obviously an emerging market, and poses the difficulties common to such markets. What makes Africa somewhat different from other emerging markets is that its cultures, legal systems and business practices are largely unfamiliar to the West. This can lead to a lot of misperceptions and misunderstandings on both sides. The serious investor in Africa will get advice about handling Africa's various challenges, and thereby lower the investment's risk profile. While the model investor will be an existing profitable business with solid internal controls and experience in other emerging markets, less ready investors can certainly enter Africa. They should, however, seek advice about how to enter an emerging market, and Africa in particular. While advisors cannot eliminate all risk, they can help investors work more safely and help reduce their non-business risks. For example, one of the services the Law Offices provides is risk-management training. This helps investors identify and address risks at the outset of the investment process, or even before they start planning anything concrete.
| | What are the best countries in Africa to invest in?
| | There is no single answer to this question. The response depends on what the investment deals with, what the investor's capacities are, and the investor's level of risk-tolerance. For example, a cautious investor in health clinics who doesn't speak French is an unlikely match for the Democratic Republic of Congo, but may be more comfortable in South Africa, Namibia or Ghana. Personal preferences aside, and obvious problem cases like Somalia as well, it must be noted that all African countries pose a common set of risks that any prudent investor must address. For example, differences between Namibia, Kenya and Senegal are mostly a matter of degree and emphasis. What is most important is finding the right market for the investment, and reducing the risk profile of the investment to make it a good prospect.
| | What does legal advice for Africa entail?
| | One of the common misconceptions about Africa is that it is lawless. While one commonly encounters issues with enforcement and the legal clarity of rules, African States are indeed supplied with legal systems. For example, the OHADA countries of francophone Africa have a uniform set of commercial laws which are quite modern, well-annotated and applied by an international court. This being said, there is of course no doubt that in Africa, as anywhere, gaps or uncertainties in the local law must be addressed to ensure that the investment conforms with local rules. Here legal advice, and assistance in finding reliable local counsel, can be crucial. Even before this stage is reached, however, an entirely different legal plane must be crossed – that of international law. Finding the right site for the holding company can help ensure that the investment is protected by a bilateral investment treaty (BIT) and its promise of impartial international arbitration if there is a dispute with the host State. (This opportunity is overlooked by a surprising number of otherwise sophisticated investors.) There are also tax matters to sort out, so that at a minimum the investment's expected returns can be estimated. Issues also often arise from the investor's home State law, for example anti-corruption laws (particularly in the U.S. and U.K.), export controls or financial regulations. Then there are the local contracts and concessions themselves, and a host of legal issues can arise during implementation, such as for the shipping of equipment, meeting visa requirements, securing project insurance, etc. All of these matters should be tackled by the investor only after getting legal advice.
| | I have a good lead for a project in Africa, but don't know where to begin. What should I do?
| | The first thing to do is make sure that the idea is sound from a business perspective, and that your African partners are clean, able to assist with the project itself, and not just looking for a quick buck. This takes good business sense, research, planning and thorough due diligence. This may require travel to Africa, but in many cases such visits can be misleading or unproductive. Getting expert help is strongly advised when getting started. You do not want to find yourself compromised financially or legally by putting a foot wrong on your first step. This is particularly the case if someone demands a bribe. For example, U.S. citizens are subject to the Foreign Corrupt Practices Act (FCPA), and can find themselves in federal prison for paying off an official, whether or not they work through a go-between or through their company. To learn how to comply with the FCPA, and even use it to your advantage, you should seek expert advice. The Law Offices can assist with anti-corruption and due diligence issues, and can provide risk-management training that will help you spot and avoid potential problems even before they arise.
| | I received a Memorandum of Understanding (MOU) from an African official. Is this all I need?
| | In the African investment field, a Memorandum of Understanding (or "MOU") is usually considered next to worthless as a legal basis for investment. MOUs are rather common in Africa, but are often worded more as invitations than as concrete plans. Sometimes the official issuing the MOU is not even authorized to speak on all of the topics addressed in the MOU. In most cases, the best way to look at an MOU will be as a plan for future discussions, not as a contract or a concession. Such steps require much more detailed planning and agreement, and should be undertaken only with legal advice. Unfortunately, many would-be investors spend a great deal of time and money flying to Africa to "negotiate" an MOU, only to find with frustration that the deal still isn't done. The Law Offices offers risk-management training that helps to explain the project-planning process, and helps investors avoid such needless frustrations.
| | I don't want to spend a lot of up-front fees until I know I have a deal in place. Is this wise?
| | Not usually – it can often be a case of "penny wise, pound foolish." A prudent investor will select advisors very carefully, and then act in accordance with their advice. An imprudent investor will forego advice and just plow ahead to "make a deal." The reasons why people forego advice vary from person to person. Some are not really serious investors, and are just fishing around. Some have unrealistic plans and don't want a reality check. Some find it hard to trust others' advice. Some feel they must spend their limited funds making a deal in-country. Some have extreme confidence in their own abilities and business-sense, and trust themselves to navigate Africa on their own. Whatever their reasons, these folks tend to make the same basic mistakes, often at great cost of time and money. Another common saying applies here – "an ounce of prevention is worth a pound of cure." A good test of a serious investor in Africa is whether they treat advisors as an investment. Those who treat advisors as a luxury are usually not serious.
| | How can I get advice about Africa without breaking the bank?
| | You have to identify advisors who are reliable and reasonable. This is a basic business skill, whether or not you go to Africa. First, you need to locate people who have the skills, experience and focus to help you. Second, you need to get a good vibe from them – if you don't trust your advisors, you will not trust their advice. Third, you have to build a solid working relationship with your advisors. This includes figuring out what you want, and how you want it done. A good advisor will work with you to set up a work program that meets your needs at a reasonable cost. For example, the Law Offices works with clients to refine the questions they are asking. This helps us meet the client's needs efficiently, and helps to save the client money.
| | I have very few funds for my Africa project. Can you work on success fees or on a delayed payment schedule?
| | In a word, no. As with most project attorneys, we work on the basis of a retainer and hourly fee rates. It needs to be remembered that advisors are agents, not partners. Advisors provide services for money, and their business risk is putting themselves in the market as advisors. They do not generally need or want to join other businesses. It is also important to keep in mind that if an advisor becomes a partner, the new "partner" will usually expect to have power over what you do and how you do it. Most investors don't want this intrusion, and those that do are likely not a good prospect. It is therefore best for all concerned if the investor treats the advisor as a respected part of the team, but ultimately as a paid agent. If you can't afford the advisor's rates, you should perhaps reconsider going into a transnational enterprise in an emerging market. African investments cannot be done on a shoestring.
| | How do I find financing for my project in Africa?
| | The financial crash in the late 2000s drained a lot of money out of the African investment field. This had little to do with Africa as a promising market – Africa's growth rates were very high by world standards. Instead, there was the much-noted "flight to quality" whereby finance institutions sought safety above all. This has not been fatal to African investment, and in many ways was quite healthy since it exposed and emphasized the need for proposed projects to have sound business fundamentals. Obviously, however, African investments pose a level of exoticism and risk that goes well beyond the underlying business plan. Thus, the bank on the corner may not be interested in Africa no matter what you do. There are, however, a number of Africa-focused investors worldwide who will consider projects aimed there. (The Law Offices has compiled a proprietary list of such institutions.) The key is to have a solid business plan and pitch in place. The pitch needs to be realistic and must address all aspects of the planned investment, particularly the legal risks, which are all too often overlooked. Many pitches unfortunately have a kernel of a serious project buried under techie jargon, straight-line revenue projections, and breezy coverage of risks. If you want your project to be noticed and accepted, it has to be something that a serious businessperson would consider a good prospect for delivering an excellent return despite inevitable setbacks. The mark of an unserious or incapable would-be project developer is that they don't know what a serious pitch requires, and go ahead with a funding search anyway. The fatal defect here is a reliance on luck, which is not a proper business attitude for Africa. Your pitch is your project, and if your pitch is not serious, your project will be not be given serious attention.
| | Can you help me find financing for my project in Africa?
| | The Law Offices can help you put together a solid, realistic and attractive pitch for your project. This requires not only editing and sometimes recrafting the pitch, but sometimes also a thorough assessment and reworking of the proposed project. Very often a pitch's faults express weaknesses or gaps in the underlying project design. We can help identify these defects and suggest ways to fix them if they can indeed be overcome. The key point to remember, however, is that we can only help you do these things. We do not take your place, adopt the project as our own, or guarantee anything. You have to take the steps necessary to make the project and thus the pitch better. This is sometimes not an easy task, particularly when a project is your "baby." This, however, is precisely why having outside advisors can be so useful. We can bring clear, cold and fresh eyes to your project, having seen other pitches and also having a lawyerly scepticism. We charge our regular hourly rates for this service. If we decide at the end of this process that the proposed investment is likely to be attractive, we may agree to forward the pitch to funders, and to report on the offers that come back. This is done for hourly rates with the prospect of a brokerage fee as well. If the Law Offices obtains a brokerage fee, the Law Offices will normally refund certain pitch-preparation and pitch-forwarding fees. The Law Offices does not advise on the legal aspects of any financing deal which it has brokered, but can suggest reputable and independent law firms that can perform such tasks under a separate agreement with the client.
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To discuss your matter relating to Africa, e-mail Peter Hansen at or call him at (202) 349-3780.
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