As the world’s second-most populous continent and blessed with abundant mineral riches, Africa holds great promise and economic opportunity. But those opportunities must also be mentioned and measured along with Africa’s many challenges: its division into 50 often fractious nations, frequent wars and civil strife, a stubborn history of corruption and inefficiency, and the deepest poverty anywhere on the planet. It’s fair to say Africa is the toughest place in the world to do business.
The continent’s many and varied issues have not stopped investors from the rest of the world, and the legal firms that represent them, from being increasingly active there. While Africa’s development lagged during the past century, it appears to be catching up. Spurred by investment and economic development by first- and second-world nations, China being the most notable among the second group, the continent’s economy grew nearly five per cent in 2010. Even with a civil war in Libya and civil unrest in Tunisia and Egypt this year, growth should come in at 3.7 per cent this year, according to an estimate by the African Development Bank Group.
Canadian law firms are increasingly active in Africa, due to Canada’s prominent role in providing a public market for mining and energy companies as well as its experience with foreign infrastructure programs. It’s not easy, however, to gauge that activity by counting law offices there. Although Canadian law firms have been quick to establish offices in other emerging markets such as China, just one firm has a permanent presence on the continent: Fasken Martineau DuMoulin LLP, which has an office in South Africa’s mining capital, Johannesburg.
One of the reasons Canadian firms for the most part do not have physical outposts in Africa is they say there is little advantage to doing so. Legal activity for a firm is likely taking place in a number of countries at any one time, so it doesn’t make a great deal of sense to set down roots in one place, is how the argument goes. Instead, business is handled through a combination of cross-Atlantic flights and, for some firms, from offices on the periphery in European business centres such as London and Paris. “We haven’t candidly found that an impediment at all,” says Jay Kellerman, a Toronto-based partner at Stikeman Elliott LLP and leader of its global mining group, about the lack of a permanent office on the continent. “We deal with Africa through both our offices [in Toronto and Montreal] and our London office is very active in Africa as well.” Stikeman’s Montreal office’s focus on the continent is infrastructure projects such as power generation and oil and gas.
Stikeman’s work in Africa is divided between raising money for companies with assets as well as merger and acquisition activity related to projects or companies there. And it is growing. “I would say that Africa is a very important geographic area of the world for us for ongoing and for new business,” says Kellerman. Stikeman’s mining deal book for Africa shows a dip in activity for 2008 and 2009 during the recession and then a ramp up in business in 2010, working on deals such as the US$385-million private placement and prospectus financing for Platmin Ltd. in South Africa, First Uranium Corp.’s $150-million financing, and the joint Uranium One-JSC Atomredmetzoloto Aus$1.2-billion proposed bid for Mantra Resources Ltd.
There are other signs that investment in Africa will only grow. Earlier this year the Canadian government started free-trade negotiations with Morocco, which if completed would be the first free-trade deal with an African country. It is part of the Harper government’s push to increase trade between Canada and the continent and would leverage Canada’s strengths in sectors such as natural resources and energy as well as telecommunications, agriculture, transportation, education, and infrastructure, says Ottawa. In 2010, bilateral trade with Africa reached almost $13 billion, a 72.5-per-cent increase over the previous five years.
Because Canadian firms are experts in Canadian, rather than African law, they typically rely on local legal partners to ensure contracts and agreements are enforceable. “You need to invest time and actually go there because it is not on the Internet and you need to talk to local lawyers to see how they do things,” says Poupak Bahamin, a new partner with Norton Rose OR LLP who has just moved from Montreal to the firm’s office in Paris. She will work on behalf of clients in French-speaking Africa while another lawyer is responsible for English-speaking parts of the continent. (Norton Rose recently announced it will open an office in Morocco to focus on the finance, energy, and infrastructure sectors. The U.K.-based firm’s merger with Deneys Reitz earlier this year also gave it African offices in Cape Town, Durban, and Johannesburg).
Fasken Martineau, which has a well-established office in “Jo’burg,” claims its physical presence gives it a leg up on firms that have to fly in legal expertise on an as-needed basis. “Investment banks and [other clients] refer us not only because of our expertise but because we are on the ground there,” says John Turner, head of the firm’s global mining group. “It certainly adds to our credibility and we have a depth of experience that no one else has.”
While Fasken’s African business emanates from its Johannesburg office, it also has a team in Paris focused on the French-speaking areas of Africa and a “big team in London as well,” says Turner. “There is some focus on South Africa obviously because we are there but we have never tried to have a domestic South African practice. What we have focused on is advising Canadian companies throughout Africa and South African-based companies in other parts of Africa.” Fasken’s Canadian and South African offices recently handled mining giant Vale S.A.’s bid for South African-based copper producer Metorex Ltd.
For those Canadian firms not able to tap into a network of international ofices, they can bring some homegrown advantages: Canada is known as an international “good guy” (a peacekeeping, non-colonial power) that is bilingual, a priceless asset where most of the key countries use either English or French as the language of business. “I think the Canadian law firms have not been very present but in fact they should because we have the added advantage, especially out of Quebec, of offering a whole host of bilingual professionals,” observes Bahamin. “If you are covering West Africa, you need to be bilingual.”
Bahamin, who was with Heenan Blaikie LLP prior to joining Norton Rose, figures she averaged about 100 days per year over the past five years away from Montreal to service her African business. “I say to my clients, and I think it applies to law firms too, if you want to carry on business anywhere you have got to be ready to invest some time and actually send someone there to figure it out,” she says. “It does take a certain level of travelling if you want to be [successful], especially on the M&A and local side. If you just want to do the financing side then you probably don’t have to, you just have to get the clients that have projects in Africa.”
Face time is especially important in Africa, she notes. “You have to be present, you don’t do deals by e-mail like we do here. We can do a billion-dollar deal and never ever see each other [in North America]. It just doesn’t work that way in Africa. You have got to be there, they have got to see you, and they have got to trust you, they have got to trust your clients.”
Bahamin notes that the pace of modernization of business laws across the continent is uneven. A group of 16 French-speaking countries in west and central Africa have harmonized their commercial laws under the aegis of the Organization for the Harmonization of Business Law in Africa in part to attract foreign investment into the OHADA zone. As well, speed and timing of business agreements often present a challenge to western law firms and their clients, says Bahamin. “We are used to doing things very fast. It doesn’t always happen at the same speed” in Africa. “The only way to deal with it is to accept that the way we do it is not necessarily the right way. . . . You really have to have that [attitude] otherwise you will get very frustrated.”
Foreign investment in Africa has progressed over the years from World Bank-backed projects and large oil and gas projects to U.S., French, and U.K. investments to most recently large projects financed by China, observes Heenan Blaikie’s director of international business Jacques Bouchard Jr. “But now it is really open for business, people feel more comfortable about the continent, you have real democracies that are really stable that are open for business,” he says. “People are aware obviously of the resources but they now see Africa as a real place to do real business.”
Heenan Blaikie services clients doing business in Africa primarily out of its offices in Montreal, Toronto, and Paris and has seen activity on the upswing there. “We see the business growing and growing rapidly,” says Bouchard.
African countries in general have made great strides in modernizing their commercial laws and court systems to accommodate the increased pace of investment, particularly with the OHADA agreement covering much of French-speaking West Africa. But political corruption spilling into the legal system is still a concern and must be guarded against, says Jean-François Mercadier, who leads Heenan’s mining practice out of the firm’s Paris office. “One cannot ignore corruption in Africa, it is a fact that corruption is still there,” says Mercadier. “It is often necessary to keep your contract and the disputes in a safe framework to export the particular mediation and to put it under the arbitration under the International Court of Arbitration or any kind of recognized system of settlement.” That’s an observation echoed by Mercadier’s Montreal colleague. “Despite the fact that they are adopting new laws and new codes [they] really are still very deficient,” says Bouchard. “Most international investors will seek international dispute resolution” as part of any foreign investment.
The uncertainty that comes with Africa’s still-developing and less-than-certain legal structure also affects how foreign entities structure their investments, the Heenan lawyers say. Often projects or investments will include a local company that will hold the necessary licences and permits to operate the business but the ultimate ownership of the investment will be in a holding company that has been established outside of Africa.
For a Canadian firm to be successful in the diverse and uncertain terrain of so many countries, it needs to cultivate a large and robust roster of local lawyers on the ground, stresses Mercadier. “It is absolutely key to have a network of corresponding lawyers, and we have a network of corresponding lawyers, to back up the legal advice and helping you in the necessary lobbying that you have to do with the local administration, the local tax authorities, the local mining or telecom authorities.” As well, Canadian or other foreign legal firms cannot offer legal opinions in the African countries in which they operate, so they also have to work with local lawyers licensed to practise there.
Despite their necessary role in the process, local African lawyers will not be vying for work from large western firms anytime soon, observes Mercadier. “The clients that come to us are sophisticated international companies. They want a thorough review of the law, they want due diligence to be carried out in the way western firms do, so they rely on us to do that work. We usually prepare the opinion, we usually prepare the legal due diligence, and we check of course our conclusion with the local lawyers, but it is not something that the local lawyers could do in the current structure of legal market.”
The western bias is even more pronounced when one considers that the money for investment in Africa still predominately comes from large banks or syndicates of lenders in financial centres such as London, New York, or Toronto, or indirectly from investors in the form of the public markets. When it comes to staking mining and resource projects in Africa, the Canadian markets play an outsized role given our equity markets serve as a magnet for international mining and resource companies as a place to sell shares and seek capital from investors.
Those Canadian-listed, but not necessarily Canadian, companies often cast their gaze hungrily on Africa. “From my client’s perspective, Africa has a lot of attraction,” says Mark Wheeler, a mining partner with the Toronto office of Borden Ladner Gervais LLP. “Mining and exploration companies have to trade off exploration risk against political risk. Africa is relatively unexplored compared to North America certainly and even arguably South America and it has a long history of very large mineral deposits. Geologically, it is a great place for them to be and it is just a matter of choosing your jurisdictions to manage your political risk.”
Risks and challenges for companies investing in Africa go beyond the chance of a revolution, upheaval, or in the case of the Democratic Republic of the Congo, war to social issues. “Most African countries you are doing business with are very poor,” says Wheeler. “You have got poverty issues, education issues, infrastructure issues, those are all challenges.” Countries such as South Africa and Zimbabwe have also introduced indigenization requirements to ensure historically disadvantaged people have ownership interests in mining developments that add another layer of complexity to project development.
BLG does not have any offices in Europe or Africa to service its clients, but instead relies on alliances with law firms in places like South Africa where it has long-standing relationships. Wheeler agrees with the prevailing view in Canada that a permanent presence on the continent is not crucial to success there. “We tend to think of Africa as one large, homogenous place, but in fact it is a huge continent with many different cultures. So having an office in South Africa isn’t necessarily going to be any help to you when you are doing business in Kenya.”
Beyond this country’s well-known expertise in exploring, financing, and extracting natural resources, Canada has a large and potentially growing role to play in bringing Africa’s infrastructure up to the standards much of the rest of the world takes for granted. With infant mortality and death from water-borne diseases still a scourge on the continent, infrastructure needs to start with water and go from there, says Judy Wilson, a Toronto partner with Blake Cassels & Graydon LLP. “You can imagine the big push on infrastructure,” she says. “Water, waste water, even solid waste, hospitals, schools, and the prospective involvement in the private sector in all of the above certainly presents big growth and an opportunity.”
Canadian expertise in public-private partnerships and operating infrastructure is well developed and now in its second generation, says Wilson. Her firm has worked on water and sewer infrastructure projects in Mozambique, Zambia, and South Africa as well as some study and analysis work on involving the private sector in proposed infrastructure in countries such as Kenya.
At the end of the day, any push into Africa on the part of Canadian law firms favours larger, better capitalized, and staffed practices. “It takes a fair amount of strength in terms of size and the ability to deploy people,” says Wilson. “It is not for the faint of heart in terms of small firms.”
While the thirst for Africa’s resources and development opportunities that come with modernizing the continent’s infrastructure will see its overall economy growing more rapidly than the developed West, the stubborn legacy of corruption remains a headache for investors and lawyers alike.
“Africa is Africa and it is its own worst enemy as a continent,” says Stikeman’s Kellerman. “Dealing in some of these countries for our clients is not easy. Whether it is the Ivory Coast or the DRC you are dealing with culture and you are dealing with politics, you are dealing with corruption. Its blessing has been its resources and it has been its downfall if you will for time immemorial,” he says. “That is not a scoop at this point.”
The continent’s many and varied issues have not stopped investors from the rest of the world, and the legal firms that represent them, from being increasingly active there. While Africa’s development lagged during the past century, it appears to be catching up. Spurred by investment and economic development by first- and second-world nations, China being the most notable among the second group, the continent’s economy grew nearly five per cent in 2010. Even with a civil war in Libya and civil unrest in Tunisia and Egypt this year, growth should come in at 3.7 per cent this year, according to an estimate by the African Development Bank Group.
Canadian law firms are increasingly active in Africa, due to Canada’s prominent role in providing a public market for mining and energy companies as well as its experience with foreign infrastructure programs. It’s not easy, however, to gauge that activity by counting law offices there. Although Canadian law firms have been quick to establish offices in other emerging markets such as China, just one firm has a permanent presence on the continent: Fasken Martineau DuMoulin LLP, which has an office in South Africa’s mining capital, Johannesburg.
One of the reasons Canadian firms for the most part do not have physical outposts in Africa is they say there is little advantage to doing so. Legal activity for a firm is likely taking place in a number of countries at any one time, so it doesn’t make a great deal of sense to set down roots in one place, is how the argument goes. Instead, business is handled through a combination of cross-Atlantic flights and, for some firms, from offices on the periphery in European business centres such as London and Paris. “We haven’t candidly found that an impediment at all,” says Jay Kellerman, a Toronto-based partner at Stikeman Elliott LLP and leader of its global mining group, about the lack of a permanent office on the continent. “We deal with Africa through both our offices [in Toronto and Montreal] and our London office is very active in Africa as well.” Stikeman’s Montreal office’s focus on the continent is infrastructure projects such as power generation and oil and gas.
Stikeman’s work in Africa is divided between raising money for companies with assets as well as merger and acquisition activity related to projects or companies there. And it is growing. “I would say that Africa is a very important geographic area of the world for us for ongoing and for new business,” says Kellerman. Stikeman’s mining deal book for Africa shows a dip in activity for 2008 and 2009 during the recession and then a ramp up in business in 2010, working on deals such as the US$385-million private placement and prospectus financing for Platmin Ltd. in South Africa, First Uranium Corp.’s $150-million financing, and the joint Uranium One-JSC Atomredmetzoloto Aus$1.2-billion proposed bid for Mantra Resources Ltd.
There are other signs that investment in Africa will only grow. Earlier this year the Canadian government started free-trade negotiations with Morocco, which if completed would be the first free-trade deal with an African country. It is part of the Harper government’s push to increase trade between Canada and the continent and would leverage Canada’s strengths in sectors such as natural resources and energy as well as telecommunications, agriculture, transportation, education, and infrastructure, says Ottawa. In 2010, bilateral trade with Africa reached almost $13 billion, a 72.5-per-cent increase over the previous five years.
Because Canadian firms are experts in Canadian, rather than African law, they typically rely on local legal partners to ensure contracts and agreements are enforceable. “You need to invest time and actually go there because it is not on the Internet and you need to talk to local lawyers to see how they do things,” says Poupak Bahamin, a new partner with Norton Rose OR LLP who has just moved from Montreal to the firm’s office in Paris. She will work on behalf of clients in French-speaking Africa while another lawyer is responsible for English-speaking parts of the continent. (Norton Rose recently announced it will open an office in Morocco to focus on the finance, energy, and infrastructure sectors. The U.K.-based firm’s merger with Deneys Reitz earlier this year also gave it African offices in Cape Town, Durban, and Johannesburg).
Fasken Martineau, which has a well-established office in “Jo’burg,” claims its physical presence gives it a leg up on firms that have to fly in legal expertise on an as-needed basis. “Investment banks and [other clients] refer us not only because of our expertise but because we are on the ground there,” says John Turner, head of the firm’s global mining group. “It certainly adds to our credibility and we have a depth of experience that no one else has.”
While Fasken’s African business emanates from its Johannesburg office, it also has a team in Paris focused on the French-speaking areas of Africa and a “big team in London as well,” says Turner. “There is some focus on South Africa obviously because we are there but we have never tried to have a domestic South African practice. What we have focused on is advising Canadian companies throughout Africa and South African-based companies in other parts of Africa.” Fasken’s Canadian and South African offices recently handled mining giant Vale S.A.’s bid for South African-based copper producer Metorex Ltd.
For those Canadian firms not able to tap into a network of international ofices, they can bring some homegrown advantages: Canada is known as an international “good guy” (a peacekeeping, non-colonial power) that is bilingual, a priceless asset where most of the key countries use either English or French as the language of business. “I think the Canadian law firms have not been very present but in fact they should because we have the added advantage, especially out of Quebec, of offering a whole host of bilingual professionals,” observes Bahamin. “If you are covering West Africa, you need to be bilingual.”
Bahamin, who was with Heenan Blaikie LLP prior to joining Norton Rose, figures she averaged about 100 days per year over the past five years away from Montreal to service her African business. “I say to my clients, and I think it applies to law firms too, if you want to carry on business anywhere you have got to be ready to invest some time and actually send someone there to figure it out,” she says. “It does take a certain level of travelling if you want to be [successful], especially on the M&A and local side. If you just want to do the financing side then you probably don’t have to, you just have to get the clients that have projects in Africa.”
Face time is especially important in Africa, she notes. “You have to be present, you don’t do deals by e-mail like we do here. We can do a billion-dollar deal and never ever see each other [in North America]. It just doesn’t work that way in Africa. You have got to be there, they have got to see you, and they have got to trust you, they have got to trust your clients.”
Bahamin notes that the pace of modernization of business laws across the continent is uneven. A group of 16 French-speaking countries in west and central Africa have harmonized their commercial laws under the aegis of the Organization for the Harmonization of Business Law in Africa in part to attract foreign investment into the OHADA zone. As well, speed and timing of business agreements often present a challenge to western law firms and their clients, says Bahamin. “We are used to doing things very fast. It doesn’t always happen at the same speed” in Africa. “The only way to deal with it is to accept that the way we do it is not necessarily the right way. . . . You really have to have that [attitude] otherwise you will get very frustrated.”
Foreign investment in Africa has progressed over the years from World Bank-backed projects and large oil and gas projects to U.S., French, and U.K. investments to most recently large projects financed by China, observes Heenan Blaikie’s director of international business Jacques Bouchard Jr. “But now it is really open for business, people feel more comfortable about the continent, you have real democracies that are really stable that are open for business,” he says. “People are aware obviously of the resources but they now see Africa as a real place to do real business.”
Heenan Blaikie services clients doing business in Africa primarily out of its offices in Montreal, Toronto, and Paris and has seen activity on the upswing there. “We see the business growing and growing rapidly,” says Bouchard.
African countries in general have made great strides in modernizing their commercial laws and court systems to accommodate the increased pace of investment, particularly with the OHADA agreement covering much of French-speaking West Africa. But political corruption spilling into the legal system is still a concern and must be guarded against, says Jean-François Mercadier, who leads Heenan’s mining practice out of the firm’s Paris office. “One cannot ignore corruption in Africa, it is a fact that corruption is still there,” says Mercadier. “It is often necessary to keep your contract and the disputes in a safe framework to export the particular mediation and to put it under the arbitration under the International Court of Arbitration or any kind of recognized system of settlement.” That’s an observation echoed by Mercadier’s Montreal colleague. “Despite the fact that they are adopting new laws and new codes [they] really are still very deficient,” says Bouchard. “Most international investors will seek international dispute resolution” as part of any foreign investment.
The uncertainty that comes with Africa’s still-developing and less-than-certain legal structure also affects how foreign entities structure their investments, the Heenan lawyers say. Often projects or investments will include a local company that will hold the necessary licences and permits to operate the business but the ultimate ownership of the investment will be in a holding company that has been established outside of Africa.
For a Canadian firm to be successful in the diverse and uncertain terrain of so many countries, it needs to cultivate a large and robust roster of local lawyers on the ground, stresses Mercadier. “It is absolutely key to have a network of corresponding lawyers, and we have a network of corresponding lawyers, to back up the legal advice and helping you in the necessary lobbying that you have to do with the local administration, the local tax authorities, the local mining or telecom authorities.” As well, Canadian or other foreign legal firms cannot offer legal opinions in the African countries in which they operate, so they also have to work with local lawyers licensed to practise there.
Despite their necessary role in the process, local African lawyers will not be vying for work from large western firms anytime soon, observes Mercadier. “The clients that come to us are sophisticated international companies. They want a thorough review of the law, they want due diligence to be carried out in the way western firms do, so they rely on us to do that work. We usually prepare the opinion, we usually prepare the legal due diligence, and we check of course our conclusion with the local lawyers, but it is not something that the local lawyers could do in the current structure of legal market.”
The western bias is even more pronounced when one considers that the money for investment in Africa still predominately comes from large banks or syndicates of lenders in financial centres such as London, New York, or Toronto, or indirectly from investors in the form of the public markets. When it comes to staking mining and resource projects in Africa, the Canadian markets play an outsized role given our equity markets serve as a magnet for international mining and resource companies as a place to sell shares and seek capital from investors.
Those Canadian-listed, but not necessarily Canadian, companies often cast their gaze hungrily on Africa. “From my client’s perspective, Africa has a lot of attraction,” says Mark Wheeler, a mining partner with the Toronto office of Borden Ladner Gervais LLP. “Mining and exploration companies have to trade off exploration risk against political risk. Africa is relatively unexplored compared to North America certainly and even arguably South America and it has a long history of very large mineral deposits. Geologically, it is a great place for them to be and it is just a matter of choosing your jurisdictions to manage your political risk.”
Risks and challenges for companies investing in Africa go beyond the chance of a revolution, upheaval, or in the case of the Democratic Republic of the Congo, war to social issues. “Most African countries you are doing business with are very poor,” says Wheeler. “You have got poverty issues, education issues, infrastructure issues, those are all challenges.” Countries such as South Africa and Zimbabwe have also introduced indigenization requirements to ensure historically disadvantaged people have ownership interests in mining developments that add another layer of complexity to project development.
BLG does not have any offices in Europe or Africa to service its clients, but instead relies on alliances with law firms in places like South Africa where it has long-standing relationships. Wheeler agrees with the prevailing view in Canada that a permanent presence on the continent is not crucial to success there. “We tend to think of Africa as one large, homogenous place, but in fact it is a huge continent with many different cultures. So having an office in South Africa isn’t necessarily going to be any help to you when you are doing business in Kenya.”
Beyond this country’s well-known expertise in exploring, financing, and extracting natural resources, Canada has a large and potentially growing role to play in bringing Africa’s infrastructure up to the standards much of the rest of the world takes for granted. With infant mortality and death from water-borne diseases still a scourge on the continent, infrastructure needs to start with water and go from there, says Judy Wilson, a Toronto partner with Blake Cassels & Graydon LLP. “You can imagine the big push on infrastructure,” she says. “Water, waste water, even solid waste, hospitals, schools, and the prospective involvement in the private sector in all of the above certainly presents big growth and an opportunity.”
Canadian expertise in public-private partnerships and operating infrastructure is well developed and now in its second generation, says Wilson. Her firm has worked on water and sewer infrastructure projects in Mozambique, Zambia, and South Africa as well as some study and analysis work on involving the private sector in proposed infrastructure in countries such as Kenya.
At the end of the day, any push into Africa on the part of Canadian law firms favours larger, better capitalized, and staffed practices. “It takes a fair amount of strength in terms of size and the ability to deploy people,” says Wilson. “It is not for the faint of heart in terms of small firms.”
While the thirst for Africa’s resources and development opportunities that come with modernizing the continent’s infrastructure will see its overall economy growing more rapidly than the developed West, the stubborn legacy of corruption remains a headache for investors and lawyers alike.
“Africa is Africa and it is its own worst enemy as a continent,” says Stikeman’s Kellerman. “Dealing in some of these countries for our clients is not easy. Whether it is the Ivory Coast or the DRC you are dealing with culture and you are dealing with politics, you are dealing with corruption. Its blessing has been its resources and it has been its downfall if you will for time immemorial,” he says. “That is not a scoop at this point.”
