investing in africa: regulatory and compliance issues presented by:

41
Investing in Africa: Regulatory and Compliance Issues Presented by: ABA International’s Task Force on Financial Engineering for Economic Development (FEED) April 18 th , 2012 9:00 AM – 10:30 AM Co-Sponsoring International Law Committees: Africa ·Anti-Corruption · International Corporate Counsel · International Secured Transactions

Upload: nora

Post on 27-Jan-2016

18 views

Category:

Documents


0 download

DESCRIPTION

Investing in Africa: Regulatory and Compliance Issues Presented by: ABA International’s Task Force on Financial Engineering for Economic Development (FEED ) April 18 th , 2012 9:00 AM – 10:30 AM - PowerPoint PPT Presentation

TRANSCRIPT

Page 1: Investing in Africa: Regulatory and Compliance Issues Presented by:

Investing in Africa: Regulatory and Compliance Issues

Presented by:

ABA International’s Task Force on Financial Engineering for Economic Development (FEED)

April 18th, 20129:00 AM – 10:30 AM

Co-Sponsoring International Law Committees: Africa ·Anti-Corruption · International Corporate Counsel ·

International Secured Transactions

Page 2: Investing in Africa: Regulatory and Compliance Issues Presented by:

Task Force on Financial Engineering for Economic Development (FEED)http://ambar.org/FEED

• FEED was created to provide resources to emerging markets in order to assist them in creating the framework for functioning capital markets and to facilitate their use of derivatives and other financial products to manage risks threatening sustainable development.

• The task force provides emerging market countries with advice concerning derivatives, capital markets, microfinance, and structured products free of charge.

• FEED is a virtual law practice that reunites the architects of much of the legal documentation and infrastructure of today’s derivatives markets.

• FEED members have a wealth of international experience with regard to financial markets and risk management.

Page 3: Investing in Africa: Regulatory and Compliance Issues Presented by:

SPEAKERS

Program Chair: Jeffrey Golden, FEED Co-ChairProgram Moderator: Adedayo Banwo, FEED Vice-Chair

Panelists (in order of presentations):

Todd J. PetersonHead of Emerging Markets, Edwards Wildman Palmer LLP (New York, USA)

Bert ChanetsaFinancial Services Board of South Africa (Pretoria, South Africa)

Lawrence Fubara AngaAelex Legal Practitioners and Arbitrators (Lagos, Nigeria)

Iwa Salami Lecturer in Commercial Law, Financial Law and Regulation

(University of East London, UK)

Page 4: Investing in Africa: Regulatory and Compliance Issues Presented by:

© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

Regulatory Challenges of Growing Investment in

Frontier Africa

Todd J. Peterson

Page 5: Investing in Africa: Regulatory and Compliance Issues Presented by:

Regulatory Challenges of Growing Investment in Frontier Africa

♦ Introduction

♦ Senegal: Regulations in a country moving from frontier to emerging

♦ Libya: Regulations in a newly organizing (or reorganizing) country

♦ Angola: Regulations for us or for them: the case of China?

♦ Summary

Page 6: Investing in Africa: Regulatory and Compliance Issues Presented by:

Regulatory Challenges of Growing Investment in Frontier Africa

♦ SENEGAL

♦ The Challenge: Develop a New Market

♦ Establish New Product

♦ Is a Monopoly Useful?

♦ Good Single Investment

♦ Need for Capital, but a Capital Markets Opportunity?

Page 7: Investing in Africa: Regulatory and Compliance Issues Presented by:

Regulatory Challenges of Growing Investment in Frontier Africa

♦ LIBYA

♦ The Challenge: Local Revenue

♦ Local Needs: Endless

♦ Religious (and Other) Regulatory Challenges

♦ Capital Markets Opportunity?

Page 8: Investing in Africa: Regulatory and Compliance Issues Presented by:

Regulatory Challenges of Growing Investment in Frontier Africa

♦ ANGOLA (and Others)

♦ Regulations which Allow Foreigners Access

♦ Anti-Monopoly Concerns (and Beyond Angola)

♦ What Seems to be the Typical Chinese Response

♦ A Capital Markets Opportunity for?

Page 9: Investing in Africa: Regulatory and Compliance Issues Presented by:

Regulatory Challenges of Growing Investment in Frontier Africa

♦ CONCLUSION

♦ Senegal: Regulations for Us or Them?

♦ Libya: Whose Regulations?

♦ Angola: The Challenges of Competing with China?

♦ The Western Experience

♦ Chinese (and Others)

♦ What Kind(s) of Capital Markets for Africa?

Page 10: Investing in Africa: Regulatory and Compliance Issues Presented by:

BY BERT CHANETSA

The Impact of Anti-Corruption Initiatives

Page 11: Investing in Africa: Regulatory and Compliance Issues Presented by:

Evergreen landscape for corrupt practices:

Shakespeare: Macbeth, Act 1, Scene 1: "fair is foul and foul is fair."

Mobutu Sese Seko: "go ahead and steal, but do not steal too much."

"politique du ventre".

Page 12: Investing in Africa: Regulatory and Compliance Issues Presented by:

South Africa, the procurement experience:

Social context

Section 217 (2) of the Constitution:

(a) " categories of preference in the allocation of contracts..."

(b) " the protection or advancement of persons...disadvantaged by unfair discrimination...“

Preferential Procurement Policy Framework Act, No 20854, 2000:

Section 2(1)( d)(i): " An organ of state must determine it's preferential procurement policy...the specific goals may include contracting with persons...historically disadvantaged by unfair discrimination..."

Preferential Procurement Regulations.

Broad Based Black Economic Empowerment Act, 2003

Page 13: Investing in Africa: Regulatory and Compliance Issues Presented by:

Impact of Preferential Procurement:

Positive: Significant numbers of HDIs are now economically active in diverse sectors from services (e.g. legal) to construction.

Negative: Rise of supply side and demand side corrupt practices, in the context of:

- fronting; and

- "tenderpreneurship"

Page 14: Investing in Africa: Regulatory and Compliance Issues Presented by:

Impact of corrupt practices generally

They impose additional costs "on citizens, businesses, governments and whole economies in the long run" (Centre for International Private Enterprise).

-misallocate resources;

-lower investment levels;

-increase public spending;

-lower growth levels; and

-undermine the rule of law

Page 15: Investing in Africa: Regulatory and Compliance Issues Presented by:

Combating corrupt business practices:

Prevention and Combating of Corrupt Activities Act No. 12 of 2004 "To provide for the strengthening of measures to prevent and combat corruption and corrupt activities..."

General offense of corruption

Offenses in respect of corrupt activities re public officials, foreign public officials, agents, members of the legislature, judicial officers, members of the prosecuting authority

Offenses of receiving or offering of unauthorized gratification by or to a party in an employment relationship

Offenses in respect of corrupt activities re contracts, procuring and withdrawal of tenders, auctions.

Page 16: Investing in Africa: Regulatory and Compliance Issues Presented by:

Anti-corruption agencies

-Office of the Auditor General;

-Office of the Public Protector;

-SA Police Service Commercial Crime Unit;

-Asset Forfeiture Unit;

-Special investigating Unit; and

-South African Revenue Service.

Page 17: Investing in Africa: Regulatory and Compliance Issues Presented by:

Complementary international initiatives:

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Joint African Development Bank/ OECD Initiative to Support Business Integrity and Anti-Bribery Efforts in Africa

Transparency International: Business Principles for Countering Bribery

International Organisation of Securities Commissions: Principles for Periodic Disclosure by Listed Entities

- South African Companies 71 Act 2008;- King Code of Corporate Governance Principles;- JSE Limited Listings Requirements

7

Page 18: Investing in Africa: Regulatory and Compliance Issues Presented by:

CONCLUSION

Competition for financial opportunity remains real

Evergreen landscape for corrupt practices

“All that is necessary for the triumph of (corruption) is that good men do nothing”

Ameliorative rather that obliterative impact of • local; and• international

Initiatives

Page 19: Investing in Africa: Regulatory and Compliance Issues Presented by:

New Legislative and New Legislative and Regulatory Frameworks: Regulatory Frameworks:

Nigerian Case Study Nigerian Case Study

L. FUBARA L. FUBARA ANGAANGA

Partner Partner

ǼLEX www.aelex.comwww.aelex.com

Page 20: Investing in Africa: Regulatory and Compliance Issues Presented by:

OUTLINE

• Africa

• Law of the Jungle

• Nigeria – Giant of Africa?

• Legal and Regulatory Framework

• Challenges- Wild Wild West

• Sector Reforms

• Conclusion/ Be Prepared

Page 21: Investing in Africa: Regulatory and Compliance Issues Presented by:

AFRICA• Facts

▫ Population-1,032,532,974 (2nd most populous continent)▫ Central- Borders the Mediterranean Sea ,Suez Canal, Red Sea along Sinai Peninsula,

Indian Ocean and Atlantic Ocean Straddles the equator, stretches from the northern temperate to southern

temperate zones ▫ Countries: 54 sovereign states ▫ Land: 3,025.8 million hectares (ha)▫ Water: Approximately 4 trillion cubic meters of water available every year, only 4% is

used, More than 60 international rivers traverse the continent. Nile is the world's longest river stretching 6,690 km.

▫ Resources: Oil, gas, diamonds, gold, iron, cobalt, uranium, copper, bauxite, silver, zinc, platinum, water

▫ Estimated that 36.2% percent of Africans live on less than $1 a day

• Paradox: (Water, water everywhere but not a drop to drink)▫ Rich in natural resources yet poorest▫ Central yet least accessible

• Opportunity ▫ Social and infrastructural deficit▫ Huge business opportunities in construction, telecommunications, power and transport▫ Young growing population (market)▫ Untapped natural resources, raw materials

Page 22: Investing in Africa: Regulatory and Compliance Issues Presented by:

LAW OF THE JUNGLE ▫ Significant political and economic changes in Africa

▫ Policy, legislative, regulatory and institutional reforms across continent

▫ Gradual shift in role of Government from monopoly operator and regulator to regulator ▫ Multiplicity of regulators and regulations ▫ Numerous economic and political groupings, some based on historical, or colonial heritage

such as Anglophone, Francophone and Lusophone

▫ Africa is home to about 30 regional, economic and political groupings including: African Union (AU)- 54 members (largest economic grouping) Economic Community of West African States (ECOWAS) – 15 members Common Market for Eastern and Southern Africa (COMESA)- 20members Southern African Development Community (SADC)- 15 South African States Southern African Customs Union (SACU) – 5 members East African Community (EAC)- 5 countries Organization for the Harmonization of Business Law in Africa (OHADA)- 16 African states

▫ Overlapping and sometimes contradictory policies at national, bilateral, regional and multilateral levels

▫ Increase in fiscal enforcements as source of revenue

▫ Anti-corruption and money-laundering, anti- terrorism (Financial Action Task Force, OECD Anti-Bribery Convention, African Union Convention on Preventing and Combating Corruption)

▫ Frequent regime changes raises concerns on stability of contract

Page 23: Investing in Africa: Regulatory and Compliance Issues Presented by:

NIGERIA- GIANT OF AFRICA?• Facts

▫ Population:170,123,740 (Most populous state in Africa)

▫ Next Eleven emerging economies (Goldman Sachs’ 2005 report)

▫ Ranks 125 (2011 World Bank Ease of Doing Business)

▫ Anti-corruption index: 143th of 182 countries (Transparency International)

▫ Per capita Income: $1,541

▫ Power: Peak generation 3,804 MW; Vision 20: 2020 target of 40, 000 MW (target investment US $3. 5 billion per annum for the next 10 years)

▫ Teledensity:70 per cent (95.3million subscribers in 2011)

• Trends

▫ Finally, recognition that State cannot provide all amenities or run business effectively

▫ 1995 - Nigeria Investment Promotion Commission, Decree No. 16 1995 ▫ 1999- Public Enterprise (Privatization and Commercialization) Act 1999 ▫ Last decade

Market reform in various sectors including oil and gas, power, telecommunications and infrastructure

Widespread legal and regulatory reforms at federal, state and local levels to encourage investment and regulate market

Page 24: Investing in Africa: Regulatory and Compliance Issues Presented by:

LEGAL AND REGULATORY FRAMEWORKCountry Entry/ Establishment Laws

• Companies and Allied Matters Act, Cap. C20, LFN 2004 • Nigerian Investment Promotion Commission Act Cap. N17 LFN 2004 • Foreign Exchange (Monitoring and Miscellaneous Provisions) Act,

Cap. F34, LFN2004 • National Office of Technology Acquisition and Promotion Act, Cap.

N62, LFN 2004• Companies Income Tax Act 2007

Sector-specific laws

• Electric Power Sector Reform Act 2005 • Infrastructure Concession Regulatory Commission Act 2005• Nigeria Communication Commission Act 2003 • Nigerian Oil and Gas Industry Content Development Act 2010 • Petroleum Industry Bill

Penal/Anti-corruptionlaws

• Criminal Code Vol. 4, Cap. C38 LFN 2004 • Corrupt Practices and Other Related Offences Act 2003• Economic and Financial Crimes Commission Act, Cap. E1, LFN2004

Other key legislation

• Public Procurement Act 2007• Public Enterprise (Privatization and Commercialization) Act 1999

Regulators • Central Bank of Nigeria• Department of Petroleum Resources• Nigeria Communication Commission• Nigerian Civil Aviation Authority• Nigerian Electricity Regulatory Commission • Securities and Exchange Commission

Other relevant government agencies

• Corporate Affairs Commission• Economic and Financial Crimes Commission• National Office of Technology Acquisition and Promotion• Nigerian Investment Promotion Commission

Dispute Resolution

• Various court rules• Arbitration and Conciliation Act, 1990• Signatory to NY Convention 1958• Reciprocal Enforcement of the Judgments Act 1922• Foreign Judgments (Reciprocal Enforcement) Act Cap. F35 LFN 2004

Page 25: Investing in Africa: Regulatory and Compliance Issues Presented by:

CHALLENGES: WILD WILD WEST ▫ Unpredictable legislative and regulatory landscape

▫ Multiple regulators and overlapping authority, contradictory/ inconsistent interpretation▫ Rule-making process- S.313 of the Investment and Securities Act 2007, S.96 Electric

Power Sector Reform Act 2005, S.134 Nigeria Communication Commission Act 2003

▫ Difficulty of obtaining information

▫ Interpretation of extant laws and regulations

▫ Weak institutions (poorly-trained- education, experience and exposure, poorly-remunerated staff)

▫ Political instability/ policy inconsistency- Sanctity of contract?

▫ Economic nationalism/ control- Nigerian Oil and Gas Industry Content Development Act 2010, Nigerian Maritime Administration and Safety Act 2007, S.6 National Office of Technology Acquisition and Promotion Act, 2004 (Power to review contracts)

▫ Resource control vs. Developmental Racism

▫ Corruption/ reputational risk ▫ 9 African countries in bottom 20 of Corruption Perception Index 2011▫ Nigeria- 40th most corrupt nation in the world (Transparency International Corruption

Perception Index 2011)▫ Extra-territorial reach of the UK Bribery Act and US Foreign Corrupt Practices Act

Page 26: Investing in Africa: Regulatory and Compliance Issues Presented by:

SECTOR: POWER/ TELECOMMUNICATIONS

Sector Legislation Subsidiary legislation Key Agencies

Power▫ Electric Power Sector

Reform Act 2005 -Legal basis for PSP and restructure of power in Nigeria

▫ Establishes regulator- Nigerian Electricity Regulatory Commission, and companies to carry on the role of bulk trading in transition and liability management -Nigeria Bulk Electricity Trading Co Plc and Nigerian Electricity Liability Management Company

▫ Road Map for Power Sector Reform 2010- Implements EPSRA

▫ NERC Business Rules

▫ NERC Reporting Compliance Regulations 2009

▫ NERC Application for License Regulation 2010

▫ NERC License and Operating Fees Regulation 2010

▫ Regulation for Captive Power Generation

▫ Customer Complaints Handling Standards and Procedures

▫ Customer Service Standards

▫ Ministry of Power

▫ The Power Holding Company of Nigeria

▫ The Bureau of Public Enterprises

▫ The Federal Ministry of Finance

▫ The Presidential Action Committee on Power

▫ Presidential Task Force on Power

Page 27: Investing in Africa: Regulatory and Compliance Issues Presented by:

SECTOR: POWER/ TELECOMMUNICATIONS

Sector Legislation Subsidiary legislation Key Agencies

Telecom-munications

▫ Nigerian Communications Commission Act 2003

▫ Legal basis for PSP and restructure of telecommunications in Nigeria

▫ Establishes regulator Nigerian Communications Commission

▫ Regulations on the Registration of Telecoms Subscribers

▫ Frequency Pricing Regulations

▫ Frequency Pricing Regulations (Amended)

▫ Regulations for Type Approval

▫ Regulations on Numbering

▫ Regulations for Telecommunications Networks Interconnection

▫ Regulations for Competition Practices

▫ Regulations on Universal Access and Universal Service

▫ Consumer Code of Practice Regulations

▫ Regulations on Enforcement Processes

▫ Regulations on Quality of Service

▫ Ministry of Communications

▫ Nigerian Communications Commission

Page 28: Investing in Africa: Regulatory and Compliance Issues Presented by:

SECTOR: OIL AND GAS• Legislation / Bill

▫ Nigerian Oil and Gas Industry Content Development Act 2010 ▫ Petroleum Industry Bill

• Nigerian Oil and Gas Industry Content Development Act 2010 ▫ Section 3(1): First consideration Nigerian independent operators▫ Section 3(2): Exclusive consideration to Nigerian indigenous service companies▫ Nigerian Company :a company formed in Nigeria with not less than 51% equity

shares by Nigerians▫ Requirement to pay 1% of total contract sum awarded in the upstream sector into

the Nigerian Content Development Fund

• Petroleum Industry Bill▫ 16 national petroleum laws in one document▫ New institutions- National Petroleum Directorate ; Nigerian Petroleum Inspectorate;

Petroleum Products Regulatory Authority; National Petroleum Assets Management Agency; Nigerian Petroleum Research Centre; Nigerian Midstream Regulatory Agency National Frontier Exploration Service;.

▫ Existing UJV structure to be incorporated into IJV▫ New taxes- Companies Income Tax 30%, Nigeria Hydrocarbons Tax

Page 29: Investing in Africa: Regulatory and Compliance Issues Presented by:

Current Regime PIB (Official) PIB (Inter-agency)

Deep Offshore & Inland Basin PSCs

50% 50% Higher of (1) 50%(onshore)/30%(offshore) of

chargeable profit and(2) 2% of gross income

JVs, Sole Risk Blocks, Marginal Fields

85% (65.75% for first 5 yrs)

85% (65.75% for first 5 yrs)

Higher of (1) 50%(onshore)/30%(offshore) of

chargeable profit and(2) 2% of gross income

Current Regime PIB (Official) PIB (Inter-agency)

Deep Offshore & Inland Basin PSCs

30% 35% – CIT @ 30%; plus– Higher of (1) 50%(onshore)/30%(offshore) of

chargeable profit and(2) 2% of gross income

JVs, Sole Risk Blocks, Marginal Fields

30% 45% - CIT @ 30%; plus- Higher of (1) 50%(onshore)/30%(offshore) of

chargeable profit and(2) 2% of gross income

Tax Rates (Crude Oil Operations)

Tax Rates (Gas Operations)

TAX OVERVIEW PIB

Page 30: Investing in Africa: Regulatory and Compliance Issues Presented by:

CONCLUSION/ BE PREPARED• Open for business

• Interplay between national (federal, state and municipal), bilateral, regional and multilateral policies, laws and regulations

• High profits/ returns (30%) vs. risks

• Increase in tax at all levels= increase in cost of doing business

• Need to consult local counsel abreast of local and global issues and ask the right questions

• Due process in the investment process

• Risk mitigation: BIT, Tax treaties, Insurance (MIGA) and effective dispute resolution system

• Choice of vehicle for investment and domicile of choice are crucial

Page 31: Investing in Africa: Regulatory and Compliance Issues Presented by:

Legal Perspectives on Capital Markets Integration in Africa

Dr. Iwa SalamiUEL

Page 32: Investing in Africa: Regulatory and Compliance Issues Presented by:

Introduction

Brief assessment of the integration of Africa in the international financial market

Recovery since the financial crisis but African financial markets remain small, unsophisticated and underdeveloped

Common regulatory challenges of African financial markets

Benefits of financial markets integration in Africa Types of financial markets integration Challenges of financial markets integration Proposals & conclusions 

Page 33: Investing in Africa: Regulatory and Compliance Issues Presented by:

The Integration of Africa in the Global Financial Market

Africa was previously absent from the international financial market (excluding South Africa)Reasons

Weak economies /bad governance Failure to implement international financial standards Weak financial regulatory regimes Poor institutions and laws Poor enforcement mechanisms

However changes began to occur a few years before the crisis.(six-fold increase in total capital in the form of FDI and FPI since 2000 (IMF) )

Page 34: Investing in Africa: Regulatory and Compliance Issues Presented by:

Reason for changes High rate of return relative to mature markets Opportunities for risk diversification Opportunities to partake in country prospects

and seek out undervaluation in specific sectors Increased growth prospects Growth trends are not synchronized with

advanced economies

Africa dubbed as ‘second generation emerging markets’ and ‘frontier market’

Page 35: Investing in Africa: Regulatory and Compliance Issues Presented by:

Recovery since the financial crisis of 2007 - 2009

Net portfolio inflows was volatile in the peak of the financial crisis in 2008 with significant net outflows

Quick recovery from the crisis has been recorded and according to the IMF:- Net portfolio inflows to sub-Saharan Africa is on the rise

Nonetheless African financial markets remain small, unsophisticated and underdeveloped

e.g. The market capitalisation of the Nigerian capital market (the second largest in sub-Saharan Africa) at 40 billion USD is half of (50% of) the market value of Goldman Sachs after the financial crisis.

Page 36: Investing in Africa: Regulatory and Compliance Issues Presented by:

Common Regulatory Challenges of African financial markets

Common Challenges Weak supervisory frameworks Weak enforcement of banking and securities regulation Poor corporate governance (banks and in companies) Poor disclosure

Other Challenges Illiquidity Small number of companies listed on stock exchanges ‘Non-listable’ companies

Would regulation solve all these problems? No, but it will certainly make a marked difference in the interest of foreign portfolio investors.

Page 37: Investing in Africa: Regulatory and Compliance Issues Presented by:

Benefits of financial markets integration in Africa

Pools together scarce savings Develops the domestic financial systems Promotes increased competition and innovation

of financial services Bigger markets & more investment opportunities

for investors Increases opportunities for risk diversification Improves the financial regulatory framework in

states Harmonises regional laws and institutions

Page 38: Investing in Africa: Regulatory and Compliance Issues Presented by:

Types of financial markets integration

A single regulatory and supervisory authority A single regulatory framework: harmonized regulation

and decentralized supervision Single rule book for trading and listing by merging

stock exchanges Cooperation by exchanges through cross-listing of

securities Market cooperation through cross-border trading

Requirements: All require harmonisation of laws or certain degrees of it

Mechanism: Most African states belong to more than one REC

Page 39: Investing in Africa: Regulatory and Compliance Issues Presented by:

Challenges of financial markets integration

Regional Effect of challenges of basic regional economic

integration framework No coordinated framework for financial integration on

an African wide scale Financial integration split along two lines: whether or

not a monetary union agenda exists among RECs

Domestic Countries at diverse stages of financial development Weak domestic capital markets regulatory regimes Weak legal systems protecting property, contract and

insolvency rights

Page 40: Investing in Africa: Regulatory and Compliance Issues Presented by:

Conclusions & Proposals

Strengthening the regional framework- The general REC legal and institutional framework - Framework for economic integration- Framework for financial integration

Strengthening domestic framework; Strengthening domestic legal framework; and Strengthening domestic financial regulation- Including enforcement- Corporate governance- Disclosure standards

Page 41: Investing in Africa: Regulatory and Compliance Issues Presented by:

Q&A

For questions or additional information on FEED, please email: [email protected]

http://ambar.org/FEED