Mark Zuckerberg is not the only Western business leader paying attention to Africa. The Facebook founder’s recent visits to Nigeria and Kenya gave a high-profile boost to the tech community, but this trail is being blazed by CEOs across a number of sectors.
In the first half of 2016 alone, data from Thomson Reuters suggests mergers and acquisitions in sub-Saharan Africa totalled US$12.8bn, largely comprising cross-border deals. While that was down on the records set in 2015, with low commodity prices having dampened the market, the longer-term trend is for increasing overseas investment in the region.
So, how do Western companies manage risk effectively in Africa? In an unfamiliar environment, where local regulation, operating practices and business culture can be very different, even Western businesses that have won access to the most exciting opportunities can come unstuck if their ventures are poorly structured.
For many companies, the ideal solution is some form of joint venture – indeed it may be a legal requirement. Including local partners when establishing operations in country, or agreeing commercial agency, distribution or supply arrangements can provide crucial expertise, experience and contacts.
Successful joint ventures require careful planning, with upfront agreement on all sides about the objectives and duration of the project, as well as clearly defined governance procedures. A popular choice is the incorporation of a special purpose vehicle (SPV) to operate the joint venture.
Partners than take share ownership in the SPV and sign a shareholders’ agreement outlining how the business will operate. Control is a key issue, since international investors may only have a minority shareholding in the SPV in order to comply with foreign investment regulation.
The agreement should clearly set out who will be represented on the SPV board, how key decisions will be made, and when unanimous agreement, rather than a majority vote, will be required. While all parties set out in the spirit of co-operation, it’s important for the SPV shareholders’ agreement to include dispute resolution procedures.
International investors often look for disputes to be governed by English law, since it sets out straightforward and widely recognised resolution procedures, but it’s important to agree on which country disputes will be heard in – and whether in court or in an arbitration tribunal, which offers greater privacy. Good corporate governance practice should not be neglected when structuring the SPV.
The SPV should protect all shareholders with a commitment to transparency, including adopting very clear policies on bribery and corruption, conflicts of interest and corporate and social responsibility. Without such policies – and oversight of how they are implemented – all shareholders in the SPV may risk regulatory censure and reputational damage.
International businesses should not seek to simply impose their domestic practices and governance regimes on local partners. In order to be effective, the parties should spend time to understand each other’s governance requirements and expectations, and combine these into policies and procedures that are both compliant and workable in practice, taking into account any market and cultural sensitivities on each side. Investing time and effort in the structure of the venture and the relationship between the parties at the outset will pay long-term dividends.
Zoe Ashcroft, head of corporate, Winston & Strawn London LLP
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