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April 2013
Strategy adopted by business law firms in Africa
In an increasingly global world where international strategy is more and more im- portant, developing a presence on the African continent has become an attractive prop- osition for business law firms. Indeed, both independent French and Belgian law firms as well as international law firms are showing ever greater interest in Africa.
Why Africa?
In spite of the uncertainties and crises which continue to affect the African continent (political instability, the war in Mali, the lack of infrastructure, lasting poverty,...), several factors account for the continent's strong growth potential and its attractiveness in the eyes of foreign investors and the law firms which represent them.
- Firstly, Africa benefits from exceptionally abundant natural resources (minerals, metals, oil and gas,...).
10% of the world's oil resources and 40% of the world's gold deposits are thought to be found in Sub- Saharan Africa. In addition, more than 60% of the world 's uncultivated arable land is in Africa
.
- The African continent has also become a relocation area with low-cost labor, as well as a gigantic consum- er market for goods and services boosted by dynamic population growth and an ever-growing urbanization rate (approximately 40%). There are currently
1.07 billion inhabitants in Africa (including 200 mil-
lion aged 15 to 24), and the continent is expected to represent 20% of the world population by 2020. Total revenues for the consumer products sector should grow by 400 billion dollars between now and 2020. A new 100 million-strong middle class is emerging, creating unique opportunities for foreign investors and companies.
- Average growth in Sub-Saharan Africa currently ex- ceeds 5%, while the growing number of economic reforms is helping to create a favorable context for foreign investments. Other equally important factors, such as the diversification of economies and the pro- gress of new technologies, explain foreign law firms' attraction to this continent.
European, American and Asian companies have made no mistake in choosing to make substantial investments in Afri- ca, where there is fierce competition. For example, Nestlé is due to invest 1.5 billion dollars in Africa before 2015, while Coca-Cola will invest 12 billion dollars by 2020, and Total has established its presence in no less than 11 Sub-Saharan countries.
Additionally, in 2013, seven African States (Angola, South Africa, Democratic Republic of the Congo, Tanzania, Kenya and Zambia) are considering creating State investment funds which will enable them to lessen the impact of raw material price variations. A dozen or so State investment funds have been created in Africa since 2005 (notably in Libya, Algeria, Sudan, Namibia, Mauritania, Gabon).
The attractiveness of Africa is also reflected in the interest shown by foreign investors in the African bond and equity markets. The valuation of African assets is in fact extremely attractive (particularly in South Africa, where the equity mar- ket capitalizes 900 billion dollars, and also in Nigeria), in comparison with their counterparts from other regions of the world. The Fed, the European Central Bank as well as other major central banks are injecting a significant amount of cash into the financial systems, part of which is being invest- ed in the African equity markets.
For example, Carlyle, a major private equity firm, made its first investment in Africa in 2012 (where it invested in an agricultural commodities broker); this was also the case for Wendel, which bought a 25% stake in an African telecommu- nications towers manager in October 2012. In addition, the "Big Four" have strengthened their presence on the African continent. This is yet another indication of Africa's growing attraction for investors.
Foreign law firms in Africa and their service lines:
More and more law firms have made Africa a pillar of their inter- national development. The Chambers Global 2012 Ranking of law firms in Africa places English and American firms such as Clifford Chance, Herbert Smith Freehills, Linklaters, Norton Rose, Allen & Overy, Cleary Gottlieb Steen & Hamilton and White & Case, as well as French firms such as Gide Loyrette Nouel, Jean- tetAssociés, CMS Bureau Francis Lefebvre and Canadian firms, such as Fasken Martineau, Heenan Blaikie at the top of its list.
These foreign law firms which are present in Africa share the following main practice areas:
• Corporate law (and notably mergers and acquisitions, restructuring and PPP);
• Project and infrastructure finance;
• International litigation and arbitration (the creation of the Mauritius Chamber of Commerce and Industry Perma- nent Court of Arbitration should contribute substantially to increasing international arbitration in Africa);
• Tax law; and
• Banking and finance law.
Additionally, the most promising sectors for foreign law firms in Africa are energy, mining, telecommunications, infrastructure and transportation, due to the aforementioned abundance of natural resources and Africa's considerable needs in terms of infrastructure (which amount to 93 billion dollars per year accor- ding to the World Bank).
Several conclusions can be drawn regarding investments by foreign law firms in Africa:
• Some countries have become hubs for law firms. Moroc- co and South Africa are the two preferred locations for law firms wishing to get a foothold on the continent. For example, Allen & Overy, Clifford Chance and Norton Rose opened offices in Morocco in 2011, followed by Baker & McKenzie in 2012. They followed French firms which had already established a presence in Morocco, such as JeantetAssociés (which opened its Moroccan office in
2009), Gide Loyrette Nouel (present in Casablanca since 2003) or UGGC & Associés (present in Casablanca since 2002). Other French firms such as August & Debouzy or CMS Bureau Francis Lefebvre also have offices in Casa- blanca. Over the last few years, French and foreign law firms have flocked to Casablanca due to the reputation of the Maroccan legal system, which is considered as one of the most sophisticated on the continent. Partner- ships with Moroccan, Tunisian and South African law firms are also looked on favorably.
• Paris, and to a lesser extent Brussels, remains an impor- tant location for firms wishing to develop their activities in (Frensh speaking) Africa. Even though the European Union is no longer alone in Africa, it remains the conti- nent's main international partner, while France continues to occupy a predominant place. Indeed, a majority of US/ UK firms have created Africa desks staffed by Paris- based lawyers. These firms have chosen to take advanta- ge of their presence in France to reach out to Africa's French-speaking countries, thereby neutralizing the com- parative advantage previously enjoyed by French firms thanks to their shared language with the 31 French- speaking African States. Their Paris offices allow foreign firms to take advantage of their French lawyers' experti- se, since the legal systems in these countries tend to resemble the French legal system. Additionally, foreign firms in Paris continue to attract the majority of legal matters connected with French-speaking Africa, thanks to the large number of OHADA legal specialists in Paris. For example, the Canadian firm of Heenan Blaikie has chosen to open an office in Paris in order to improve and increase its service offerings in Africa.
Patrick Bignon
april 2013
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March 2010