South Africa is not the only gateway into Africa, says Cliffe Dekker Hofmeyr's Deepa Vallabh.
Foreign investors wanting a foothold into Africa are considering Kenya and Botswana as landing spots.
It has been a long-held belief among international investors with a yearning appetite to enter Africa that South Africa is the gateway to rest of the continent.
Arguably, it’s not hard to see why this belief still resonates with investors wanting to expand their investments into Africa.
South Africa is a desirable landing spot for investors wary of venturing into African countries to the east and north, given the country’s relatively sophisticated economy, liquid financial markets and world-class infrastructure.
But in the past couple of years, other African countries have become a lot more stable and democratic in their politics and public policies. As a result, investments are being made in jurisdictions across Africa, often bypassing South Africa, said Deepa Vallabh (pictured), who heads up Cliffe Dekker Hofmeyr’s cross-border mergers and acquisitions division for Africa and Asia.
“In the last couple of years, there have been investors that have not considered South Africa as a gateway into Africa. Some of them have considered Kenya as a base. Some have considered Botswana because their political system has been stable for a long time,” Deepa told M&A Africa.
“The sentiment around political stability and political policy is very important for foreign investors and it is something they want to understand more deeply before they make their investment decision.”
“If investors are interested in east Africa’s telecoms sector for example, then there is no reason for them to set up operations in South Africa. They can set up in Nairobi. Then they can use that as a base to expand to Tanzania, Rwanda and the greater eastern bloc,” she said.
Deepa is a highly experienced lawyer who brings in more than 18 years’ experience in corporate and commercial law. At Cliffe Dekker Hofmeyr, she specialises in areas including mergers and acquisitions (both domestic and cross-border), corporate reorganisations and restructurings with a focus on cross-border M&A into Africa.
So, what is the biggest drawcard for investors looking in markets beyond South Africa? That the economies of some African countries are growing twice as fast than South Africa and showing potential in terms of maturity are among the main reasons.
For example, Nigeria, with a population of 158 million compared with South Africa’s 53 million, is expected to record gross domestic product (GDP) growth of 2.1 percent in 2018. South Africa is expected to pencil in GDP growth of 0.8 percent in 2018.
At the same time, Ghana and Kenya, among others, are competing with South Africa to host the African headquarters for many foreign multinationals.
Uncertainty over politics in South Africa and public policies has dented confidence in the investment community, resulting in investors becoming more risk-averse towards the country. But this doesn’t necessarily mean that international investors have written off South Africa, said Deepa.
“South Africa is still the preferred gateway into Africa. The reason for this is because of the developed infrastructure, service economy and a strong banking culture. The service economy and banking industry is comparable to first world jurisdictions and therefore South Africa has a very strong offering.”
Navigating a continent still grappling with a lack of data, over-regulation by some governments, and onerous restrictions on foreign investments can be daunting for investors wanting to invest in the African continent.
Deepa said it is important for investors to remember that there are 54 countries on the continent with their unique economies and sectors. “You can’t cast a commonality in Africa.”
She believes in foreign investors enlisting the services of advisory firms to overcome challenges in the continent. Advisory firms can help investors navigate complexities around legislation that can make or scupper deals, understanding political and social sensitivities in different jurisdictions and the local environment.
And when choosing an advisor, Deepa said investors must partner with someone that has deep structural knowledge on the local business culture and legislation and strong project management skills. The advisor must also have the skills to conduct due diligence methodologies that go beyond reviewing information about the entity being acquired, she added and may include on the ground due diligence of the business sector and the individuals involved in the business.