Navigating the difficulties of the African market

6 September 2011

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Companies considering a move into Africa – or an investment in an African mining project – need to be aware of the in country-related challenges that surround doing business on the African continent before they launch in, according to international legal practice Norton Rose Australia, Cape Lambert Resources Limited and UBS.

Speaking at a breakfast as part of the Africa Downunder conference in Perth today, Douglas Hall, partner at Norton Rose Australia, said “It is a company’s ability to understand the local operating environment, such as how it navigates and embraces African infrastructure that ultimately determines its success.”

“Hard infrastructure is critical in getting product to market but these business necessities, like rail, water and electricity, aren’t always readily available. Companies must therefore decide what they’re looking for from their move into Africa – a quick return or a longer-term investment that involves building the required infrastructure,” he said.  “The lack of reliable infrastructure in Africa is just one of the challenges.  Understanding the local legal and fiscal regime and fostering relationships with local government and communities are also key to developing a sustainable operation on the African continent.”

Norton Rose Australia has successfully worked on major African deals to help miners with the project financing they need to do business in Africa – and the single commonality attributed to their success has been strong foresight, according to Hall.

“These are businesses that have properly considered what they want from their African investment. They’ve gone in with their eyes open and they’re aware of the challenges and opportunities that face them.”

Now running four projects and with several investments across Africa (including Sierra Leone, Liberia, Guinea, Mali, Cote d’Ivoire, Gabon and the Republic of Congo), Cape Lambert – a client of Norton Rose Australia – attributes its success to the way in which it has embraced the African way.  

“We built our strategy around the opportunities available to us. We looked at where we could access rail and ports and they are the locations we targeted,” said Tony Sage, Executive Chairman, Cape Lambert Resources Limited.

“We also embraced the social infrastructure that is centuries old in Africa. In the case of our Marampa project, the local community determined our workforce. They told us who would be working for us, not the other way around. This is a process we had to embrace and respect,” he said.

“I think anyone going into Africa needs to be respectful of local communities and their traditions. They also need the patience required of doing business in Africa. It’s a growth market and a fairly new region for doing business, so companies can’t expect the same level of sophistication in Africa that they expect at home. There are cultural, legal, governmental and general business differences that need to be taken into account,” concluded Sage.

Presenting their insights to an audience of almost 100 mining and investment companies, Hall, Sage and Tim Day, Director Investment Banking at UBS also shared expertise on funding options for African projects, institutional threshold issues for investments in Africa, consolidation and M&A themes and likely implications of Chinese and Indian interest in African assets.

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