Close this search box.
Africa Update

Firm Details

LEX Africa Logo
+ 27 11 535 8000
The Central, 96 Rivonia Road, Sandton, 2196, Johannesburg, South Africa

African empowerment policies compared – August 2010

African empowerment policies compared – August 2010

August 2010: Foreign investors across Africa are discovering that South Africa is not unique in setting economic empowerment conditions for investment. “Other African countries also have local ownership or partnership requirements, and this trend appears to be on the increase in certain countries,” says Pieter Steyn, director at Werksmans Attorneys in South Africa and Chairperson of Lex Africa, a network of leading law firms in 26 African countries formed in 1993.

Steyn says that forms of empowerment on the Continent range from South Africa’s “complicated but generally non-prescriptive” system to Zimbabwe’s new indigenisation law, which could force foreign companies to transfer up to 51% of their shareholding to indigenous Zimbabweans.

“But there are indications in even some of the Continent’s most investor-friendly countries that governments are considering how to increase the manner in which local citizens participate in or otherwise benefit from foreign investment,” he says.

Signs of change in Ghana
“Achieving greater local content is a matter of increasing concern in Ghana,” says Kojo Bentsi-Enchill, senior and managing partner at Bentsi-Enchill Letsa & Antkonah Attorneys, Lex Africa’s Ghanaian member. “The legal structure does not yet express these concerns but the investment guidelines that have recently come out of the oil industry show where the country’s heart is.”

The guidelines, which have been approved by Ghana’s government, propose that local participation in the oil and gas sector be increased to 80% by 2020, with the emphasis on sourcing goods locally and training and employing Ghanaians.

Bentsi-Enchill says there is a widespread feeling that Ghana needs to participate to a higher degree in and benefit more from the exploitation of its natural resources. “We can anticipate a squeeze on business immigration, and I think it is safe to predict that foreign companies will be asked to find Ghanaians for more equity shares and more jobs.”

Joint ventures mooted in Angola
Angola, one of Africa’s fastest-growing economies, has been introducing local empowerment requirements since about 2005, according to Djamila Pinto de Andrade, Partner at Lex Africa’s Angolan member Faria de Bastos e Lopes (FBL) Advogados.

She says there are no restrictions on foreign ownership of land or property in Angola. However, in the most profitable sectors such as mining, insurance and telecommunications, foreign companies are required to work in joint ventures with Angolans. “Angola needs foreign capital and know-how but government also wants to keep some control through joint ventures,” she explains.

Angolans must hold 51% of the share capital in mining and telecommunication companies and 30% in insurance enterprises. In oil and gas, there are no ownership restrictions on operator companies. However, companies that supply the oil industry with certain general services, such as catering, cleaning and transport, must be 51% owned by Angolans.

“All these requirements are stated in Angolan law,” says Pinto de Andrade, adding that investors seem comfortable with Angola’s local empowerment system and do not have problems with the joint venture arrangements.

Zimbabwe moves ahead with indigenisation
On the other hand, foreign investors in Zimbabwe are unimpressed with its attempts to prescribe 51% indigenous ownership earlier this year in terms of the controversial Indigenisation and Economic Empowerment Act.

“In February 2010, all companies with a value of US$500 000 or more were given 45 days to file notifications about their shareholding, value and so on,” says Sternford Moyo, Senior Partner of Scanlen and Holderness, Lex Africa’s Zimbabwean member. “If their majority shareholders were not indigenous people, they also had to advise the Minister about their indigenisation implementation plans.”

In short, these companies had to outline how they planned to transfer a controlling interest of 51% to Zimbabweans. “The response was not very good,” says Moyo, whose firm has assisted many foreign-owned companies to prepare their responses. “Recent reports suggest that less than 1 000 of the 9 000 companies operating in Zimbabwe have submitted their notifications.”

Moyo says this was despite the mid-May 2010 deadline being extended to 30 June 2010 to allow changes to be made in the indigenisation regulations.

One significant change is that all government Ministers, and not just the Indigenisation Minister, will now choose the members of the sectoral committees that will be appointed. Each committee will make recommendations on the ownership quota for its sector and the timeframe for achieving compliance. The committees will also recommend what credits foreign investors should receive for undertaking “socially and economically desirable activities”.

“The most frightening thing about the indigenisation legislation it is that it comes at a time when Zimbabwe is suffering a huge liquidity crunch,” says Moyo. “Where will the money come from to pay for the shares that foreign companies must sell? And with asset prices being so low, the timing could be hugely prejudicial to foreign-owned companies.”

Also cause for concern is that indigenisation could have the same chilling effect on market confidence as Zimbabwe’s land reform programme.

Collaboration is the key in Zambia
Meanwhile, next door, Zambia is taking an altogether different investment track, says Charles Mkokweza, Partner at Lex Africa member, Corpus Legal Practitioners. After all, the country’s copper mining industry has already experienced both extremes in the investment spectrum.

“Zambia has been through nationalisation with government owning the major factors of production, pure privatisation with overly generous incentives to investors, and ‘super tax’ on windfall profits which the investors considered to be penal. All of these three experiments have not worked because at least one of the key stakeholders has lost out in the process,” he says. “Now the government is seeking equilibrium where everyone – the country and investors – feels they are getting something out.”

Mkokweza says the current focus of the Zambian government is on a collaborative approach towards foreign investment. This is despite the domestic pressure on it to reintroduce the super tax on mining investors, which policy had been abandoned in the wake of the global recession, when an estimated 10 000 Zambians lost their jobs.

“Now that we are in recovery, the government will not just bow to pressure but will consult with the mining companies and do audits of their earnings,” he says. “Decisions on how to structure the investment environment will be done on the basis of these audits and negotiations.”

Kenya takes the middle ground
Another African country taking the middle ground in local empowerment is Kenya. Although it has been aggressively privatising its state-owned assets for the past 18 years, the country still has some restrictions on foreign ownership, says Mahesh Acharya, Partner at Lex Africa member, Kaplan & Stratton Advocates in Nairobi.

In the telecoms sector, at least 20% of company shareholding must be taken up by Kenyans and in insurance, the figure is at least one-third of the paid-up capital, he says. “Listed companies must also reserve at least 25% of their ordinary shares for local investors. Further, private companies that intend to purchase agricultural land in Kenya cannot have foreign shareholders unless presidential consent is sought.”

Other than these restrictions, there is no legal requirement for investors to involve locals, Acharya says. “However, in certain sectors such as mining, the relevant ministries may require proof of local participation.”

Sudan an exception to the empowerment norm
While some degree of local empowerment is increasingly becoming the norm in Africa, some countries have not taken this route. Sudan has virtually no empowerment requirements for foreign investors nor plans to introduce any, says Osman Mekki, Senior Partner at Lex Africa member, the House of Legal Consultancy & Services Ltd in Khartoum.

“No foreign investor needs a local partner or sponsor, and foreign investment companies can be 100% foreign owned,” he Mekki. “If you are coming in as an investor in oil and gas, for example, all you need is an exploration and production sharing agreement with the government.”

In fact, there is only one area of the Sudanese economy that is reserved for locals, and that is general trading and imports and exports. “But if you are importing materials for investment or production purposes, these are exempted,” Mekki says. “Sudan has a free market economy that is very friendly to investors.”

South Africa’s Pieter Steyn concludes: “Empowerment requirements across Africa are diverse, ranging from voluntary guidelines to mandatory compliance. Experience has shown, however, that even if there is no formal legal restriction or obligation, it is usually in the interests of investors to use local partners, skills and sourcing wherever possible. It is vital that foreign investment decisions are based on sound advice on the local legal, business, political and economic situation.  As a network Lex Africa provides a useful resource for investors to access such advice.”

« Return to News


Explore our news articles, specialist publications and browse through our webinars and gallery

What We Do

Explore our range of expertise, and see how we can help you.
Banking, Finance, Investment Funds & Private Equity
Business Crimes & Investigations
Competition Law
Construction & Engineering
Corporate Mergers & Acquisitions
Cyber Law, Block chain & Technology
Dispute Resolution
General Business Law
Healthcare and Life Sciences
Infrastructure, Energy & Projects
Insolvency & Business Restructuring
Intellectual Property
Labour & Employment
Local Investment Laws and Indigenisation
Media, Broadcasting & Communications
Mining, Environmental & Resources
Property Law and Real Estate

Member Countries

Explore our member firms by country

Burkina Faso
Equatorial Guinea
Guinea Conakry
Ivory Coast
South Africa