Q&A: WEBBER WENTZEL - JSE MAGAZINE

Q&A: WEBBER WENTZEL

Christo Els, senior partner at Webber Wentzel, on renewed M&A activity, forging legal partnerships and why SA is still the gateway to the rest of the continent

Q&A: WEBBER WENTZEL

Q: The perception exists that the leading problem hindering business in Africa is red tape. Is this accurate?
A:
There is huge potential for economic growth in Africa, which is a large and complex market. Generally, regulations alone do not hinder business in the region and could essentially be enabling, provided there is certainty regarding their application. At times, the uncertainty of application – and the delays caused by this – hinder business rather than the regulations themselves.

Q: What are the biggest legal stumbling blocks companies face when wanting to invest in Africa?
A:
It is important to remember that Africa has numerous legal systems, and that the challenges investors face can differ depending on the region or country involved. Stumbling blocks could include not knowing which legal system applies, as well uncertainty regarding the application of regulations. However, uncertain regulations and related delays are found throughout the world and are not Africa-specific.

Q: Is SA still the gateway into Africa?
A:
This country has always been positioned as a platform for organisations to move into other parts of the continent. As a result, depending on the industries in which they operate, many organisations have chosen to establish their regional headquarters here as opposed to other countries  in sub-Saharan Africa. It’s not difficult to see why. As Africa’s second-largest economy, SA has strong capital markets and a robust services sector. It is home also to the continent’s biggest lenders and largest insurers.

This financial infrastructure, coupled with growth opportunities in new sectors such as oil and gas; growing sectors such as agribusiness, food and beverage, retail, transport, telecoms and others; and traditional sectors such as mining and metals, is what makes SA an attractive base for foreign direct investment [FDI] into the country and the continent. Furthermore, adherence to the rule of law along with the country’s strong legislative framework have always played a very positive role in securing FDI.

AT Kearney’s 2014 Foreign Direct Investment Confidence Index ranks SA as the thirteenth most attractive destination for FDI globally. Pricing and consumer purchasing power also count in the country’s favour. As a result of this, business leaders continue to be optimistic about future prospects despite short-term challenges, and the country definitely remains a gateway into the rest of the continent.

Other countries, such as Nigeria and Kenya, are also seen as potential gateways into their regions but not yet in respect of a total African play. It is also interesting to look at the way in which firms are transacting from SA. It is clear that it is not only international organisations but also local companies that are expanding further afield into Africa.

‘It is also interesting to look at the way in which firms are transacting from SA’

Q: At the 2015 Mining Indaba, keynote speaker Tony Blair singled out Rwanda as a country that has made great strides in easing the costs and legal requirements for doing business. Would you agree?
A:
Most countries around the world implement legislative changes to encourage investment. It is commendable for any country to make strides in the efficiency of its legal system.

Q: Traditionally, extractive industries were considered the backbone of African economies. Is this still applicable? What other sectors are seeing big growth?
A:
Mining does remain an important industry in Africa. However, other sectors seeing financial growth include consumer goods, energy and infrastructure, financial services, private equity and oil and gas. In addition, industries serving the emerging middle class, particularly Africa’s fast-moving consumer goods [FMCG] market, were a focus of activity in 2014. An example of this is Abraaj Group’s acquisition of Libstar and its subsidiaries – a precedent-setting private-equity transaction that represents a unique investment into this sector in Africa by a global fund. This transaction, among others, demonstrates investor confidence in the pan-African FMCG sector. It also comes at a time when the number of private-equity deals in Africa is the highest since the 2008 global financial crisis.

Another example from the FMCG sector is SAB-Miller’s African soft-drink units merger with SA’s second-largest Coca-Cola bottler and the Coca-Cola Company’s local operations to create an African bottling champion. The impact of this on our firm is that our clients are demanding specialist legal advice relevant to the sectors in which they operate, and tailored to their African-expansion plans. As a result, we recently reorganised our internal structure, gathering our legal expertise into five key areas and overlaying this with a sector-based approach to the market. We feel that this structure best matches our clients’ needs for legal expertise in key growth sectors.

Q: Africa is often perceived to be a risky place to do business. How does it compare to other jurisdictions?
A:
I do not think that doing business in Africa is riskier than in many other countries or jurisdictions. Africa comprises many emerging economies which, by their nature, provide less certain environments. However, these risks are offset by the higher growth margins, which can be attained.

Q: We have seen a great deal of activity on the African M&A front recently. Do many big companies see this as an appropriate way to access the continent?
A:
Companies enter Africa in a number of ways, including through M&As as well as greenfield operations. For many firms, an acquisition provides an established presence on the continent from which they can expand. M&A activity certainly has been increasing in recent times. Last year, it rebounded to approach pre-financial crisis levels. Activity in the Middle East and Africa increased by 44% per annum from $2.2 trillion to $3.2 trillion in 2014. This is just shy of the $3.6 trillion reached in 2007. Last year, the value of announced transactions involving sub-Saharan African targets – $28 billion – demonstrates the significance that investors attach to M&A on the continent.

Q: if, For example, a law firm wishes to set up an office in another African country, Is finding local legal talent a problem?
A:
No, there are many talented lawyers operating in Africa.

‘There is huge potential for economic growth in Africa, which is a large and complex market’

Q: How does Webber Wentzel go about identifying partnerships with other law firms in Africa?
A:
Based on a strong understanding of our clients’ needs and the industry sectors in which they are involved, we believe that a tiered alliance model is the best way for our firm to do business in the rest of Africa. Our approach to this is two-fold.

Firstly, we collaborate with [multinational law firm] Linklaters to give our clients access to the best English law, US law, anglophone, francophone and lusophone capability available. Secondly, we work with local law firms to provide on-the-ground expertise across the continent. Having a network of good local lawyers on-the-ground is very important but we do not see the need for our firm to have a physical presence in the African countries where our clients operate.

This is where we draw on our association with ALN [African Legal Network], which is a group of leading African law firms, and our network of best-friend relationships with other law firms across the continent. We regularly interact with firms in Africa and get to know them through working on matters together, pursuing joint training and marketing opportunities and, in some cases, through providing support services to assist smaller players.

Q: Ideally, what should the continent’s nations be doing to help develop cross-border trade?
A:
African countries could work on integrating regional networks more, as well as streamlining regulatory efficiency between countries.

Q: What role do you foresee private equity playing in driving future economic growth in Africa?
A:
It is certainly considered a growth sector, with numerous industry players looking for opportunities to invest.

Q: Generally speaking, what are the major legal differences between businesses in Southern Africa and West Africa?
A:
There are a multitude of legal systems spread across the African continent. As such it is not possible to generalise on the differences between regions. Each country’s legal system should be seen individually.

By Patrick Farrell
Image: Matina Steyn