Investing in Africa: Regulatory and Compliance Issues Presented by:

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

2. 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.

3. SPEAKERS • Program Chair: Jeffrey Golden, FEED Co-Chair • Program Moderator: Adedayo Banwo, FEED Vice-Chair • Panelists (in order of presentations): • Todd J. Peterson • Head of Emerging Markets, Edwards Wildman Palmer LLP (New York, USA) • Bert Chanetsa • Financial Services Board of South Africa (Pretoria, South Africa) • Lawrence Fubara Anga • Aelex Legal Practitioners and Arbitrators (Lagos, Nigeria) • Iwa Salami • Lecturer in Commercial Law, Financial Law and Regulation • (University of East London, UK)

4. Regulatory Challenges of Growing Investment in Frontier Africa Todd J. Peterson

5. 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

6. 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?

7. Regulatory Challenges of Growing Investment in Frontier Africa • LIBYA • The Challenge: Local Revenue • Local Needs: Endless • Religious (and Other) Regulatory Challenges • Capital Markets Opportunity?

8. 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?

9. 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?

10. BY BERT CHANETSA The Impact of Anti-Corruption Initiatives

11. Evergreen landscape for corrupt practices: Shakespeare: Macbeth, Act 1, Scene 1: "fair is foul and foul is fair." Mobutu SeseSeko: "go ahead and steal, but do not steal too much." "politique du ventre".

12. 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

13. 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"

14. 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

15. 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.

16. 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.

17. 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

18. 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

19. New Legislative and Regulatory Frameworks: Nigerian Case Study L. FUBARA ANGA Partner ǼLEX www.aelex.com

20. OUTLINE Africa Law of the Jungle Nigeria – Giant of Africa? Legal and Regulatory Framework Challenges- Wild Wild West Sector Reforms Conclusion/ Be Prepared

21. 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

22. 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

23. 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

24. LEGAL AND REGULATORY FRAMEWORK

25. 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

26. SECTOR: POWER/ TELECOMMUNICATIONS

27. SECTOR: POWER/ TELECOMMUNICATIONS

28. 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

29. TAX OVERVIEW PIB Tax Rates (Crude Oil Operations) Tax Rates (Gas Operations)

30. 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

31. Legal Perspectives on Capital Markets Integration in Africa Dr. Iwa Salami UEL

32. 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

33. 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) )

34. 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’

35. 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.

36. 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.

37. 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

38. 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

39. 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

40. 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

41. Q&A For questions or additional information on FEED, please email: introl@americanbar.org http://ambar.org/FEED