Providing a legal roadmap in Africa – May 2011

May 2011: A network of commercial lawyers across Africa, set up to assist clients to access new business and investment opportunities across the continent, was a concept that was arguably ahead of its time when initiated by Werksmans’ Attorneys nearly two decades ago.

Today this network of commercial lawyers – known as Lex Africa – straddles commercial law firms in 30 African countries.  Comprising one leading law firm in each country, Lex Africa provides legal coverage and services across the continent.  It operates on a non exclusive basis and is managed out of Werksmans Johannesburg office with a full time Lex Africa manager.

Says Des Williams, Chairman of Werksmans Attorneys: “Africa has become a very important practice area over the past couple of years in particular, and there is a lot of interest from South African as well as overseas law firms in Africa as an area that holds great potential.”

He says the considerable interest in Africa stems from a number of reasons.  “Firstly, in the rest of the world over the past two years or so, we have not been seeing the kind of growth and opportunities that are still available in Africa, with growth of 6% forecast for the continent Africa as a whole.

“These emerging markets are offering the returns that are attractive to investors, along with the opportunities.”  Among areas of notable activity, Williams says there is substantial M&A activity in Africa at present, with increasing interest in areas such as dispute resolution.

“in 2010, M&A activity was double what it was in 2009 and is likely to increase even further.  There is also a lot of private equity work.  As interest in Africa increases, so it presents a host of opportunities for private equity investors.

“There has been a definite uptick in activity, and its taking place across a number of fields, including M&A, banking and finance work, and dispute resolution work, among other areas.

Lex Africa was formed in the early 1990s, as SA came out of political isolation.  Says Williams: “We took the view that as an African firm, we needed to start looking at establishing African contacts and networks.  We were definitely the first of the major firms in SA to do that.”

Almost 20 years on, Lex Africa meets regularly, including its annual general meeting held in a different African country each year.  Members of the practice get together to discuss issues and developments and affect all of the member countries, as well as ways of working more effectively together and generating more work.

“It’s a good way of not only getting to know the members, but also getting to know those host countries better,” says Williams.

For example, at the Mining Indaba held in Cape Town in February, no less than 11 African countries were represented by Lex Africa, providing an opportunity for communication and networking.

In its formative years in the early 1990s, Lex Africa had a predominantly Southern African focus, centering on countries such as Botswana, Zimbabwe, Zambia and Mozambique.  “The big growth came when we started bringing in West African and particularly Francophone countries into the network, among then countries such as Ivory Coast and Senegal,” Williams says.

“The key is to find ways for the member firms to derive benefit, in addition to saving enormous time and resources for companies doing business in Africa.  If an international client is exploring acquisition opportunities in a number of African countries, in each of which a due diligence exercise needs to be undertaken, this could pose considerable challenges, especially if that client had to start contacting law firms in each of those individual countries.  “It would be time consuming and difficult to manage.

“What’s happening increasingly, is that those types of clients in those kind of transactions are using SA as the springboard into the rest of Africa.  We are able to manage that process through the Lex Africa network of member law firms.”

Williams says that it is difficult for South African law firms to set up their own offices in most African countries or to achieve their objective through formal mergers.  It is far more effective for clients to use an established network operating through established firms in key African regions, thereby avoiding much of the hassle and grind that would otherwise be involved in establishing African contacts.

Some of the main African transactions in which Werksmans has been involved between 2005 and 2010 include advising the South Africa Angola housing initiative in relation to a project proposed by the Angolan government that involved constructing up to 500 000 houses and the related infrastructure in southern Angola.

The firm also advised Liberty Holdings in respect of its acquisition of 50% of the issued share capital of Stanbic Investment Management Services.  It has also advised SabMiller on acquisitions and investments throughout Africa.

Various activities have included countries such as, Angola, Botswana, the DRC, Egypt, Kenya, Mozambique and Lesotho, among others.

Williams says that the level of activity remains buoyant despite the current conflagrations in North Africa, for instance, which could have a negative effect on investor sentiment and appetite.  “In fact there is a recognition among informed investors that the sub Saharan and north African worlds are totally different to each other.  The kind of issues prevalent in countries such as Egypt and Libya have very little bearing in sub Saharan countries.”

He adds that the issues of more concern for sub Saharan Africa are the type of political upheavals and unrest in countries such as Ivory Coast and Swaziland.

“However, investors who are interested in this market are aware that higher returns usually mean higher risk as well.  The appetite is still there for it.”

In Zimbabwe, for example, however uncertain and fluid the political climate might be “the economy has certainly stabilised”, says Williams.  “We know that there is a lot of activity and interest in Zimbabwe.  We have a number of dealings with Zimbabwe lawyers and with clients who are interested in doing business in that country.  Although there are a couple of troubling areas, broadly the picture in Africa is looking better now than it has for a long time,” says Williams.

“Almost all of the Lex Africa firms that we are talking to regularly are busy.  They are positive and are reporting a lot of activity.

“Another trend we are finding is that some of our Lex Africa members themselves are becoming more regional.  Their offices are not just confined to one African country – for example, the Madagascar member also has offices in Niger, Mali and the Central African Republic.”

Williams adds that although technology through the use of cellphones and laptops has changed the manner of doing business in Africa “at the same time, if you are going to be effective you still need to travel, get to know the market, see the necessary people and get involved.  This is what Lex Africa is all about.”