Transcript 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.

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
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-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)
Regulatory Challenges of
Growing Investment in
Frontier Africa
Todd J. Peterson
© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP
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
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Chinese (and Others)
♦
What Kind(s) of Capital Markets for Africa?
The Impact of AntiCorruption Initiatives
BY BERT CHANETSA
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 Regulatory
Frameworks: Nigerian Case Study
L. FUBARA ANGA
Partner
ǼLEX
www.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
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Gradual shift in role of Government from monopoly operator and regulator to regulator
▫
Multiplicity of regulators and regulations
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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
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Anti-corruption and money-laundering, anti- terrorism (Financial Action Task Force, OECD AntiBribery Convention, African Union Convention on Preventing and Combating Corruption)
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Frequent regime changes raises concerns on stability of contract
NIGERIAGIANT
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
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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 FRAMEWORK
Country Entry/
Establishment Laws
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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
•
•
•
•
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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
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•
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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
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Public Procurement Act 2007
Public Enterprise (Privatization and Commercialization) Act 1999
Regulators
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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
•
•
•
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Corporate Affairs Commission
Economic and Financial Crimes Commission
National Office of Technology Acquisition and Promotion
Nigerian Investment Promotion Commission
Dispute Resolution
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•
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•
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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
Penal/
Anti-corruption
laws
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
Power
Legislation
▫ Electric Power Sector
▫
▫
Reform Act 2005 -Legal basis
for PSP and restructure of
power in Nigeria
Establishes regulatorNigerian 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
Subsidiary legislation
▫ NERC Business Rules
▫ NERC Reporting
▫
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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
Key Agencies
▫ Ministry of Power
▫ The Power Holding
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▫
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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
Telecommunications
Legislation
▫ Nigerian Communications
▫
▫
Commission Act 2003
Legal basis for PSP and
restructure of
telecommunications in Nigeria
Establishes regulator Nigerian
Communications Commission
Subsidiary legislation
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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
Key Agencies
▫
▫
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
TAX OVERVIEW PIB
Tax Rates (Crude Oil Operations)
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
Tax Rates (Gas Operations)
Deep Offshore &
Inland Basin PSCs
Current Regime
PIB (Official)
30%
35%
PIB (Inter-agency)
–
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
CONCLUSION/ BE PREPARED
•
Open for business
•
Interplay between national (federal, state and municipal), bilateral, regional
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
and
Legal Perspectives on Capital
Markets Integration in Africa
Dr. Iwa Salami
UEL
Introduction
 Brief assessment of the integration of Africa in the
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

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
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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
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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