Africa has always been a continent of challenges. It is now becoming a continent of changes and a continent of the future for foreign investments, especially in the public infrastructures and mining sectors.
If the international business and banking communities do not put Africa to the top of their priority list, the situation may change faster than anticipated for responsible promoters and real entrepreneurs. There are several reasons for this, as set out below.
The African Continent, which is on the doorstep of Europe, has a population of more than one billion people and projections in terms of world population indicate that it may become the most populated continent before China and India. According to a UN report, its population is likely to be in the region of 2–2.5 billion people in 2050 and represent 22% of the world’s population (29% of the world’s youth population).
The world is committed to alleviating poverty and in this regard there is increasing focus on Africa, since its needs are probably greater than those of anywhere else in the world (41% of the population live below the poverty line). If the growth rate of Africa as a whole does not reach seven per cent to nine per cent per annum, there is little chance of achieving substantial poverty reduction and attaining the millennium development goals (MDG) that were set by the United Nations. One of the main bottlenecks is the poor state of infrastructures in Sub-Saharan Africa – its electricity, water, roads and information and communications technology (ICT) – which decreases national economic growth and reduces productivity. In this sector alone, the cost of addressing Africa’s infrastructure challenge is around US $93 billion a year.
Those needs and many others have to be put into perspective with the immense potential of Africa’s natural wealth, both for itself and for the planet: Africa’s natural resources; African potential in agriculture, both for its own needs and for the rest of the world; Africa’s potential in renewable energy; with the second largest forestry basin in the world, timber resources and biodiversity in Africa are both a major asset for the planet.
The above objective factors have so far been insufficient, with a few exceptions, to permit the economic development of African states and this is for many well-known reasons, ranging from political instability to corruption, lack of essential infrastructures and poor levels of education. In a nutshell, most of the African states are considered to be fragile states by international standards.
This is obviously a deterrent to foreign investors. A quick look at the World Bank Doing Business report, where African states have a very low-ranking average, could be enough to eliminate Africa from potential investors’ radar screens. This bird’s-eye-view approach, which is often sufficient for traditional investments in a competitive world, is in fact short-sighted in the area of mining and public infrastructure.
Indeed, for legal practitioners who have been advising international investors involved in projects in civil law Africa for many years, there are tangible signs of improvement or changes in many of those ‘civil law’ countries and the opportunities to develop large public infrastructures or mining projects in a sustainable and profitable manner have increased.
This is due essentially to a new level of understanding on the part of stakeholders and also by the states themselves, which, on the basis of the lessons learnt, are altogether more ready to accept and promote a new ‘partnership approach’ and modern legal security standards.
In the author’s experience, the way forward is to organise at the outset a due diligence exercise, substantially different in focus and much more ambitious than the ones generally carried out in accordance with international standards.
In addition, since most of the countries at issue are still in the process of streamlining their laws and procedures, and since anticipation is the key for any long-term investment in an area in this matter, it is often essential to contact the international stakeholders and more particularly the multilateral, bilateral and NGO community.
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In conclusion, it appears that it is increasingly possible to securitise investments in public infrastructures and mining projects in civil law Africa at acceptable and competitive levels by international standards.
However, it is subject to particular efforts in the understanding of local practice and sociology in a world where legal certainty is often reached by a legal and contractual approach substantially different from other regions in the world and where the concept of responsible partnership with the state is often the more secure way to protect an investment in the long term.
This excerpt is from an article published in Business Law International, Vol. 12, No. 2 (May 2011). For the complete text, please visit GcilA’s Knowledge Center at www.gcila.org.