investing in africa: regulatory and compliance issues presented by:
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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 PresentationTRANSCRIPT
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
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.
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)
•
© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP
Regulatory Challenges of Growing Investment in
Frontier Africa
Todd J. Peterson
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
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?
Regulatory Challenges of Growing Investment in Frontier Africa
♦ LIBYA
♦ The Challenge: Local Revenue
♦ Local Needs: Endless
♦ Religious (and Other) Regulatory Challenges
♦ Capital Markets Opportunity?
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?
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?
BY BERT CHANETSA
The Impact of Anti-Corruption Initiatives
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".
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
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"
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
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.
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.
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
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
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
OUTLINE
• Africa
• Law of the Jungle
• Nigeria – Giant of Africa?
• Legal and Regulatory Framework
• Challenges- Wild Wild West
• Sector Reforms
• Conclusion/ Be Prepared
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
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
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
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
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
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
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
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
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
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
Legal Perspectives on Capital Markets Integration in Africa
Dr. Iwa SalamiUEL
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
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) )
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’
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.
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.
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
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
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
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
Q&A
For questions or additional information on FEED, please email: [email protected]
http://ambar.org/FEED