Osayaba Giwa-Osagie, senior partner at Giwa-Osagie & Co — a LEX Africa member in Nigeria — chaired an in-depth panel discussion on this topic at a seminar held in Johannesburg.
He opened with an analysis on Nigeria’s economy, which in 2016 and after 25 years, experienced a near-catastrophic annual contraction of its GDP in 25 years. According to the National Bureau of Statistics, the country’s GDP shrunk by 1.58 percent. By 2017 though, recovery was on the cards as the economy grew 0.83 percent, in large part due to higher oil prices.
Mr. Giwa-Osagie said Nigeria’s vast, natural resources, large workforce and geographic position in Africa provided for huge growth potential. He said the International Monetary Fund forecast growth in 2018 to accelerate to 2.1 percent — a 1.3 percent rise from December 2017’s figures.
“… oil output remains stable and prices rebound, providing more foreign currency for manufacturers to import inputs.”
In terms of Nigeria’s attractiveness to foreign investors, Mr, Giwa-Osagie said government has incentivised investments by offering deals which include: 100 percent foreign ownership of a company, protection against nationalisation and expropriation, exemption of interest on loans granted to companies engaging in agricultural trade or business and fabrication of any local plant or machinery.
Nigeria has also implemented a Double Taxation Agreement (DTA), that already has the support of 13 countries, including South Africa and the UK. Some provisions made in the DTA includes: Entry into force which comes into force after 90 days upon the exchange of notifications by both countries; Scope which applies to personal income tax, the companies income tax, petroleum profits tax, etc; Permanent Establishment of which the threshold of which n the case of exploration for natural resources is 60 days in any 12 month period, 6 months for construction, installation, supervisory; and for services 183 days in any 12-month period; and Passive income which governs dividends, interest and royalties subject to tax at 7.5 percent where the recipient is the beneficial owner.
Mr. Giwa-Osagie said foreigners are free to bring in any legally earned, recognised foreign currency into the country, through authorised dealers.
Tax holidays are also granted to pioneer status foreign investors in the manufacture of cement, glass and glassware, cultivation, process and preservation of food crops and fruits, for a period of three years with an additional two years.
He said the current Economic Recovery and Growth Plan (ERGP) would continue to focus on boosting development in the areas including agriculture, manufacturing, oil and gas, construction and real estate, tourism and creative industries.
“[Last year] 112 projects were executed in Nigeria with investments from various jurisdictions amounting to the sum total of USD 66.36 billion.”
Mr. Giwa-Osagie said these projects included collaborations with the US, UK, Japan and Norway, amongst others.
“The Nigerian Investment Promotion Commission recently stated that in the first quarter of 2018, Nigerian states received a total investment commitment of USD 17.99 billion. The oil and gas sector had a commitment of USD 12.9 billion, the services sector had USD 4.5 billion, manufacturing [had] USD 440 million and agriculture [had] USD 10 million. “
Through the Presidential Enabling Business Environment Council, government departments are also now eliminating bottlenecks associated with doing buisness in Nigeria. “The resultant effect of government’s efforts was evidence by the ranking of the World Bank on ease of doing business which saw Nigeria move 24 places up to the 145th position,” he said.
Rachel Mbai of LEX Africa member Kaplan & Stratton in Kenya next took the floor to discuss trends in mergers and acquisitions (M&A) in East Africa.
Ms. Mbai said for 2017, 47 M&A deals were disclosed in the public domain, of which 29 were private equity deals. The median value of the deal size was estimated at USD 10.6 million, while the total value of disclosed corporate deals amounted to approximately USD 5.2 billion.
Compared to other countries in the region, Kenya’s deals from2015 to 2017 were significantly higher. Eighty-three deals were concluded in 2015, followed by 71 deals in 2016 and 65 deals in 2017. In Uganda, nine (2015), seven (2016) and eight (2017) deals were disclosed. Tanzania performed marginally better than Uganda with 15, 16 and 11 deals over the same period. Rwanda, predictably performed lowest with four deals concluded in 2015 and 2017 and only two deals done in 2016.
Ms. Mbai said in terms of FDIs, Kenya’s investment rose by 71 percent last year, “… bucking the global and Africa trend which fell by 23 percent and 22 percent respectively.”
She said the UN Conference on Trade and Development “attributed to Kenya’s strong performance to buoyant domestic demand and inflows into ICT industries as well as tax incentives for foreign investors.”
According to the I&M Burbridge Capital Annual East Africa Financial Review, the sectors in that part of the continent where the most number of deals were made in 2017 included the financial sector (17), TMT (17) and manufacturing (10).
Speaking on new developments in privatisation of SOE’s, Tewodros Meheret from the GeTS Law Office in Ethiopia said government subscribed to a developmental state economic policy.
“Because of a lack of clarity on the concept, it is construed to justify a certain course of action in relation to the degree of State involvement in the national economy,” said Mr. Meheret.
He added that the country had reluctantly implemented privatisation “which was not attractive for big foreign corporations as it was perceived as a means of shedding loss making State enterprises.”
Ethiopia could soon be privatising some of its largest SOEs. In June, Prime Minister Abiy Ahmed said the Executive of the EPRDF has considered Ethiopian Airlines, Ethio-telecom, Ethiopian Electric Power, Ethiopian Shipping & Logistics Services Enterprise to be some of its most profitable enterprises.
According to the EPRDF: “While majority stakes will be held by the state, shares in Ethio Telecom, Ethiopian Airlines, Ethiopian Power, and the Maritime Transport and Logistics Corporation will be sold to both domestic and foreign investors.”
Mr. Meheret said however that conflicting information has been conveyed by government officials “although it seems convincing that the reason for privatisation is the foreign exchange crunch gripping the country which some consider as economic emergency.”
He said the dire need for hard currency compelled the government to opt for privatisation as a means of raising the funds needed.
Mr. Meheret said it is possible that a revision of the law with regards to investments might take place to continue to stimulate direct foreign investment.
Areas governed under law for the exclusive right of government includes the transmission and distribution of electrical energy, postal services (with the exception of courier services and, air transport services.
Sectors were investors are allowed to work jointly with government include weapons and ammunition manufacturing and telecom services.
The Council of Ministers, however, may, whenever it deems necessary, determine, by issuing regulation, that areas of investment exclusively reserved for the government or for joint investment with the government be opened to private investors.
Mr. Meheret said the privatisation of SOEs still requires the input of experts who will examine the process and assess it fairly.
In Mauritius, government has passes several laws to ease the flow of investments.
Dev Erriah from Erriah Chambers said some laws include governments implementation of the E-licensing Platform which will provide a single point of entry for application of permits and licenses; a review of the licensing framework across all sectors of the economy; and the introduction of the Investment Promotion Authority which is mandated to facilitate and promote investments in the country;
More promising reformations also includes government’s policy on expediting the process to start a business; improving access to finances; facilitating the process to register property in Mauritius; improving insolvency procedures; as well as the system for collection of taxes and levies.
Mr. Erriah said sectors showing a high rate of investment includes financial services, biotechnology, real estate and the building of smart cities. He said marketing the islands tourism features and instituting a duty-free area was also prominent in government’s sights.
Mauritius is looking to use innovation, technology and communication to enhance its use of renewable energy. In particular around the project of smart cities, government is looking to build a “work-play” concept with mixed-use developments on an extent of at least 50 acres of land.
Said Mr. Erriah: “The PDS (Property Development Scheme) allows for the development of residences on freehold land of at least .34 hectares, but not exceeding 17 hectares) for sale to non-citizens, citizens and members of the Mauritian diaspora.”
He said the country’s reputation for being a business-friendly destination was achieved through its political stability, good governance and independent judiciary.
Mauritius ranks 25th out of 190 countries in the World Bank’s Ease of Doing Business Index for 2018. In Africa, the island takes pole position.
Mr. Erriah said challenges that government is seeking to rectify includes limitations in its workforce. “[The] challenges have been reported in finding suitably qualified personnel, for example, in the IT telecommunications, medical and other specialised sectors.”
He said local labour law was complex “and companies are recommended to hire highly qualified human resource personnel.”
In Mozambique, Célia Francisco, lawyer at Couto, Graca and Associados said business and investment in the country are not limited to the natural gas and natural resources sectors. She said while there was investment in the sectors, this also created business opportunities in the services sector which would likely facilitate projects in natural gas and natural resources.
“We can refer here services like: environmental, transport, personal security… import of matierials and others.”
Ms. Francisco said the country’s economy was “starting to show some signs of getting better.”
The Mozambican economy has grown since 2016 to around three percent, which according to the new projections from IMF is expected to continue on that path. The IMP predicts acceleration to approximately 9.9 percent in 2023, driven by exports in the Rovuma basin liquefied natural gas.
She said: “Accordingly to APIEX (Agency for Promotion of Investments and Exportation), up to the end of 2017 they had approved 156 projects, with an investment of USD 558 million in the following areas: 47 for Industry; 34 for Services; 22 related to agriculture industry, transport and communications; 18 on tourist and hotels; 11 regarding construction.”
The need to reform policies and laws was urgent, she said, “in order to guarantee that the legislation could follow these business and investment developments.
Government made changes to licensing for certain activities like trading of several products, accounting services, legal services, consulting services, arquitectural services, by minimising the time and requirements needed to acquire licenses.
Exchange Control regulation has been amended such that it is no longer a requirement that 50 percent of the income from the investment is converted into Meticais.
Commercial Codes have also been changed to focus on simplifying the procedures for incorporating companies.
The penultimate presentation on developments, opportunities, incentives and challenges in African trade was from Mark McKee who is with Armstrongs Attorneys in Botswana.
Mr. McKee said recent legislation and policies that ease the making of investments in Botswana included the replacing of the Tribal Land Act with an Act that now “contains clear and express provisions regulating the acquisition of tribal land by noncitizens.”
He said the new Act removed the uncertainty created over how noncitizens or investors could acquire or utilise tribal land.
Mr. McKee said the Botswana Innovation Fund Order was created to provide cash grants to innovation and technology companies registered with the Botswana Innovation Hub for the purpose of funding programs and courses that transfer skills to citizens.
“[The] Income Tax (SPEDU Region Development Approval) Order provides for a special corporation tax rate of five percent for companies or investors establishing a manufacturing, agriculture or tourism business in the SPEDU region.”
Finally, the Companies (Amendment) Bill amends the Companies Act by providing for online registration and the creation of online searchable registers. He said, when implemented this will significantly speed up the process of registering a company or undertaking searches of target companies.
Botswana’s investor confidence has also been boosted by four major initiatives taken on by government. These include: One Stop Shop whereby the Botswana Investment and Trade Centre has established a one stop centre to enable investors to secure government clearances and approvals with ease from at one location. This includes work and residence permits, company registration, IFSC certification and environment approvals.
“… government is also liberalising work and residence permits and in this respect is proposing to introduce a quota system whereby an investor automatically qualifies for a certain number of permits based on the size of its investment.”
Mr. McKee said the Business Facilitation Act is will “prescribe timelines for the issue of permits and approvals and should these timelines not be met such approvals or permits will be deemed to be automatically given.”
He said new legislation under Special Economic Zones will seek to incentivise and stipulate criteria for each of the zones. “Incentives will include low tax rates, guaranteed government off take agreements, preferential tariffs and exceptions on residence or work permits.”
While current investment sectors include tourism and mining, future investment sectors include agri-business, energy and ICT.
Mr. McKee admitted that while Botswana has more that falls into its favour than against it, there were a few challenges to investments that government was working on.
These included delays in obtaining environmental clearances and approvals, incomplete legislation in the Energy Sector, slow internet speeds that do not match the rate of growth for the region and delays in issuance of work and residence permits.
He said solutions were being worked on and included the currently incomplete legislation in the Energy Sector that is being addressed by the Botswana Energy Regulatory Authority. Internet speeds, said Mr. McKee, were increasing daily, and fibre networks was being aggressively expanded by both public and private players.
The final presentation was done by Fayaz Bhojani of FB Attorneys in Tanzania.
Mr. Bhojani said the fresh wave of energy sweeping through the country by means of a new President, saw some drastic changes take place. He said there is a drive to see tax collection improve, institute stricter compliance requirements, solidify government’s vision is to industrialise and reduce donor dependence, and emphasis on infrastructure development and a serious war on eliminating corruption.