When it comes to investment, the outlook for Africa for the next few decades at least, appears to be in line with this, with investors returning time and time again.
“Private equity firms are investing heavily into Africa, but it is most unusual for the holding vehicles to be established in the African country of operation”
We have seen, and are continuing to see, significant foreign investment in Africa. This is not only from European, Asian or American investors, but also investment by African investors into other African countries (most notably South African corporates expanding into the rest of Africa). However, the sun does not always shine over Africa, and there are challenges and potholes. It is here where proper corporate structuring and risk management are paramount.
Private equity firms are investing heavily into Africa, but it is most unusual for the holding vehicles to be established in the African country of operation. International investors prefer to set up their holding structures in well-regulated, stable and tax neutral jurisdictions such as Jersey, and then deploy the cash in a tax efficient manner (considering treaty networks) to the operational entities.
This creates a fantastic opportunity for African based entrepreneurs looking for foreign investment. The key sectors that private equity firms are targeting are natural resources, infrastructure (with an increasing focus on renewable energy due to the ongoing transformation in the energy and power utilities sectors), financial services, telecoms, healthcare and IT.
It is roughly estimated that US$45 billion is spent every year on infrastructure projects across the continent, however this is only 60% of the estimated US$75 billion that is needed to ensure Africa keeps pace with the projected demand. This, of course, creates lucrative investment opportunities.
Foreign investment into Africa, and specifically joint ventures between foreign investors and African enterprises, inevitably leads to more cross-border trade. Many institutions originally from Africa have become international through corporate restructuring, using highly rated financial centres such as Jersey, broadening not only their business base but also their investor base. This is especially true for larger corporates considering a listing on one of the international stock exchanges.
Many mining houses active in Africa have head offices in Jersey, which has given them better access to the capital markets. There is, however, no reason why entities active in the technology or infrastructure sectors could not also benefit from this.
These benefits are also not restricted to major corporates. Generally speaking, where a company is active in more than one country, there are likely to be a number of benefits to have a single holding entity based in a stable, well-regulated and tax neutral jurisdiction such as Jersey. Clearly, it is not straight-forward, but if the right advisers are on board, they will be able to guide you through the process, which will be a well-trodden path for them.
It has been said that, if you can only visit two continents in your lifetime, visit Africa twice. Although doing business in Africa unquestionably comes with its own challenges, I must agree with this sentiment even at a corporate level. Through proper corporate structuring and by walking the path hand in hand with seasoned advisers, a lot of these challenges can be overcome.
“Many institutions originally from Africa have become international through corporate restructuring, broadening not only their business base but also their investor base”