Africa is experiencing a boom in the telecoms sector. The continent lags behind the rest of the world in this area according to the global report (Measuring the Information Society: the ICT Development Index) on telecommunications availability, produced by the International Telecommunications Union in 2009 (the Report).
South Africa was the highest placed African country referenced in the Report with only 4.8 per cent of households having access to the internet. These poor statistics contrast with average economic growth rates of 8-10 per cent which are fuelling the need for better information and communication technology (ICT).
The global economic crisis and a lack of liquidity in financial markets has affected the ability to close large ICT projects on time and within budget; however the pace of new projects coming to market has been largely unaffected.
West Africa in particular is driving the pipeline of new projects. With economic growth above the 8 per cent level in many countries, telecommunications have had to keep pace with the expansion. There has also been some consolidation in the sector with larger operators such as Vodafone taking over South African incorporated Vodacom and MTN acquiring Arobase Telecom and internet service provider Afnet in Ivory Coast. International interest was confirmed in 2007 when the sovereign wealth fund Mubadala bought a licence to operate mobile, fixed line and broadband services in Nigeria for $400 million. Mubadala has since entered into a partnership with Middle Eastern telecoms giant Etisalat, now one of the biggest players on the continent.
From a practical perspective, what types of ICT projects are being carried out?
The development of satellite ICT service in Africa is no better illustrated than by the Regional African Satellite Communications Organisation (RASCOM). The aim of RASCOM is to design, implement, operate and maintain the space segment of the African telecommunications satellite system and to transfer into services by linking it, where necessary, with any other appropriate technology. There are several satellite projects currently being delivered in Africa.
From a technological perspective there are limitations to a heavy reliance on satellites. By their very nature there are shortfalls in supply if the satellite technology has a problem or requires maintenance. Furthermore, satellites alone cannot satisfy market demand.
Underwater sea cables
The next wave of investment in Africa will focus on the internet. There are currently at least 10 undersea cables being laid around the continent leading to billions of dollars worth of investment. These include the Seacom, EASSy and Teams projects in east Africa, Infraco and Uhurunet in south and west Africa, and Tunisie Telecom’s scheme in the north.
Key initial issues to consider on an underwater sea cable project include:
We are currently advising on a major underwater sea cable project.
Should you require advice relating to the industry, please contact:
Norton Rose LLP
New overseas investment rules for Chinese companies
New rules to encourage overseas investment
In recent years, overseas investment by Chinese companies has increased dramatically. The total amount invested in 2008 was US$52.15 billion. According to some commentators it may exceed the amount of inward investment into China for the first time in 2009. The Chinese government is actively encouraging overseas investment in certain sectors, partly as a method of utilizing China’s huge foreign exchange reserves and more recently to take advantage of depressed share and commodity prices around the world.
The ‘Administration Measures on Outbound Investment’ (Measures) released by the Chinese Ministry of Commerce (MOFCOM) on 16 March 2009 (coming into force on 1 May 2009) reflect the continued policy trend of encouraging overseas investment, whilst at the same time increasing governmental control over larger investments. The Measures generally make the outbound investment approval process quicker, clearer and (for smaller investments) easier to comply with, but at the same time allow the government to retain control of the decision making process.
The Measures apply to greenfield and M&A investments and replace the previous MOFCOM regulation ‘The Provisions on the Review and Approval of Outbound Investment to Establish Enterprises’ dated 1 October 2004 (2004 Regulations). Under the 2004 Regulations, MOFCOM’s role was more limited than under the Measures and project, operational and technical approval for overseas investments lay with the National Development and Reform Commission (NDRC) or the State Council. Approval from these organs was often slow and lacking in transparency.
Under the 2004 Regulations, MOFCOM (at national or provincial level depending on the sensitivity of the project, size of investment and the type of industry involved) was principally concerned with the structure of the investment being made and considering Chinese policies on industrial investment in particular countries. It is predicted that under the Measures, 85 per cent of transactions will be subject to provincial MOFCOM approval. Provincial MOFCOM approval is generally quicker and easier to obtain than national MOFCOM approval.
The Measures substantially increase MOFCOM’s role in the approval process. The NDRC is also currently revising its Overseas Investment Projects Examination and Approval Administrative Measures published in 2004. It is thought that the NDRC will further increase the threshold of the projects requiring national NDRC approval and further delegate to the local NDRC.
New MOFCOM approval process
Under the Measures, MOFCOM must now take into account the size of and type of investments when deciding which level of MOFCOM must give approval as opposed to considering the country of the proposed investment and the industry type.
- National level MOFCOM approval is required for the following categories of investments:
- in countries with no diplomatic relations with China;
- in certain countries or regions (MOFCOM guidance on which particular countries or regions come within this category is due to be issued in the future);
- any investments of over US$100 million;
- investments spread over multiple countries; or
- investments involving the establishment of offshore special purposes vehicles (SPVs).
In considering approval for one of the above categories of investments, the national MOFCOM is required to consult with the relevant Chinese consulates in the country targeted for investment. The time limit (excluding the consular consultation) for national MOFCOM approval is 30 business days. If an investment project involves the energy or mineral sector, MOFCOM must also consult with, and take the advice of, the relevant Chinese industrial association or chamber of commerce. This requirement also applies to energy and mineral investments requiring provincial MOFCOM approval (see below).
Provincial level MOFCOM approval is required for the following categories of investments:
- amounts of more than US$10 million but below US$100 million;
- investments in the energy or mineral sector; or
- investments that also need to attract other domestic investors.
Provincial MOFCOM is not required to consult with the relevant overseas Chinese consulate except where the provincial MOFCOM thinks it appropriate to do so or where the investment is in the energy or mineral sector. The time limit (excluding consular consultation, if applicable) for provincial MOFCOM approval is 20 business days.
The real beneficiaries of the Measures are those Chinese investors making small overseas investments of under US$10 million (which do not also fall into any of the other categories listed above). For such investments, the Chinese investor needs only to file an application form (without much of the supporting evidence required for larger investments) to provincial MOFCOM. The review of such applications should then be completed in three business days, which is a significant improvement on the previous timescale for approving small investments.
If approval is rejected by any level of MOFCOM, written reasons must be given and the investor is permitted to apply for the decision to be reconsidered or apply to court for a review of the decision.
One further important distinction to note from the 2004 Regulations is that approval (which will be evidenced by an outward bound investment approval certificate issued by the relevant MOFCOM) will automatically expire after two years from the issue of the certificate if the outbound investment has not been completed.
Supporting evidence required
The Measures prescribe in detail what evidence should be submitted to national or provincial MOFCOM (assuming the investment is not less than US$10 million). This includes:
- standard corporate information from the investor and the overseas target;
- the source of the investment funds;
- project details;
- an analysis and assessment of the investment environment of the country receiving the investment; and
- a statement that national sovereignty, security, public interests, PRC laws, state to state relationships, international treaties and the prohibition on technology/goods export will not be affected.
If the investment is by way of an M&A deal then MOFCOM will require further information, including a risk management evaluation and plan. The requirements listed at (b) to (e) were not required to be submitted to MOFCOM under the 2004 Regulations. These extra requirements give MOFCOM more discretionary power than under the 2004 Regulations and seem to shift responsibility for certain matters from the NDRC to MOFCOM.
Another important factor to note is that the Measures envisage that the Chinese investors will be responsible for the commercial and technical feasibility of the projects, which are excluded from MOFCOM review.
Likely impact of the measures
As with most Chinese laws and regulations, the impact of the Measures will depend on their practical implementation and operation by MOFCOM. Of particular concern is how the Measures will operate in conjunction with existing NDRC, State Administration of Foreign Exchange and (if relevant) State-Owned Asset Supervision and Administration Commission rules and regulations, some of which overlap with the Measures. MOFCOM is also going to publish guidance on the countries which should be targeted for overseas investment and co-operation together with those countries in which investments will require national MOFCOM approval.
As mentioned, it is believed that the NDRC regulations will be amended shortly, but in the meantime, investors face some uncertainty as to whether other approvals in addition to the revised MOFCOM approval will be required. Some comfort may be drawn from the fact that once the approval certificate is issued, the Measures state that the investor will enjoy the ‘supporting policies of the state.’ China has in recent years concluded many bilateral investment treaties with other countries - and the terms of such treaties will further affect the approval process, it is to be hoped in most cases, positively.
Overall the Measures have speeded up the approval process for all levels of overseas investment, most notably for smaller investments. This may encourage smaller state owned or private companies which may have previously found the regulatory requirements for overseas investments too burdensome. However, the increased level of some submission requirements for larger investments and the differing approval levels required for certain countries and (in particular) investments in the energy and mineral sector show that the Chinese authorities wish to retain a firm grip in shaping the destination and nature of overseas investments, especially those in the energy and mineral sectors.
Looking at the Measures together with various other recent amendments to PRC regulations (including the changes to lending rules promulgated by the Chinese Banking Regulatory Commission which make it easier for Chinese companies to borrow to fund overseas investments - further detail on which can be found here), it is obvious that China is pursuing a policy of relaxing various regulations to encourage Chinese companies to ‘go global.’ As a consequence expect to see more direct investment into Africa by Chinese businesses.
Norton Rose LLP