Investing in Africa updater

Publication | June 2009


This investing in Africa update is to be regularly issued to contacts and clients of Norton Rose LLP.

If you would like to receive future editions please forward your contact details to:

Naomi Bennett
Tel +44 (0) 20 7444 5507

If there are any particular issues or countries you would like us to cover, please let us know.

Part A: Hot topics


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:

  • UNCLOS - United Nations Convention on the Law of the Sea 1982 - ensuring the laying of the cable is within the prescribed zones and unlikely to infringe interests in a coastal States exclusive economic zone.
  • Capacity Purchase Agreements - ensuring there is a strong market for the sale of capacity and providing the proposed customer base with consistent capacity purchase agreement template.
  • EPC Contract - ensuring there is a strong EPC contractor managed under preferably one (or a limited set of contracts) contract for the design, build and preferable maintenance of the entire cable.
  • Timetable/Survey - ensuring a suitable project manager and survey vessel are available to conduct initial surveys. Possible delays are usually attributable to bad weather.
  • Cable crossing Agreements - which govern the relationship, duties and responsibilities between the project company and a party whose cable is already situated on the seabed and which the project company’s cable will cross. They work on the basis of each party giving indemnities to the other.
  • Cable Maintenance - the project company contracting with a major cable maintenance organisation to maintain the cable.
  • Insurance - ensuring a comprehensive insurance package is available.    

We are currently advising on a major underwater sea cable project.

Should you require advice relating to the industry, please contact:

Martin McCann
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:

  1. standard corporate information from the investor and the overseas target;
  2. the source of the investment funds;
  3. project details;
  4. an analysis and assessment of the investment environment of the country receiving the investment; and
  5. 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.

Yi Wang
Norton Rose LLP

Part B: Country focus

Ghana - Regulation of oil and gas industry - GNPC

The oil and gas industry is currently in the spotlight in Ghana, with recent discoveries of oil in various places throughout the country. As it currently stands, the GNPC has a dual role of being an upstream player itself in the industry (i.e. being involved in the exploration and production of petroleum), and performing acts as a regulator, as envisaged in the current legislative framework. There has therefore been a call by relevant parties for the separation of GNPC’s regulatory function from its commercial function, to ensure both functions are carried out effectively and independently.

By way of background, GNPC is the national oil company and was established as a State-owned entity and given legal backing by two main statutes - The Ghana National Petroleum Act, 1983 (PNDCL 64) and the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84).

The PNDC  Law 64 mandates GNPC “to undertake the exploration, development, production and disposal of petroleum’’. Under PNDCL 84, the regulation of upstream and midstream sectors resides with the Minister of Energy though the work is carried out by GNPC. The sector Minister has the right to prescribe and enforce regulations that relate to exploration and production of petroleum. In practice, the role of GNPC has been traditionally to monitor and regulate the petroleum industry on behalf of the Minister of Energy as set out under PNDCL 84 but more recently GNPC has itself been a player in the upstream and midstream (please see below for a definition of midstream) petroleum sectors.

The Ghana Petroleum Regulatory Authority Bill (the Bill) was drafted last year by the New Patriotic Party (NPP) when it was the ruling party. The National Democratic Congress (NDC) government has indicated that it will review the draft Bill to ensure that the interests of all stakeholders are adequately protected before presenting the draft Bill to Parliament.

One of the main purposes of the Bill is to establish an independent body, the Ghana Petroleum Regulatory Authority (GPRA) to regulate upstream and midstream oil and gas activities. Upstream is defined in the Bill to include exploration, development and production of petroleum and midstream activities. Midstream is defined in the draft Bill to include petroleum activities between the well-head and refinery, transportation and storage petroleum. The draft Bill also aims to “create an enabling environment for increased private sector participation and investment in the petroleum sector and to strengthen the regulatory framework for healthy competition and quality assurance”.

The Statutory Corporation (Conversion to Companies) Act, 1993 (Act 461) listed GNPC as one of the statutory corporations to be converted into limited liability companies but the successor company has not been set up and GNPC has not changed its mode of operating. The draft Bill refers to the conversion of GNPC to a company limited by shares and provides that the assets, properties, rights, liabilities and obligations of GNPC are vested in the successor company. The draft Bill provides that the successor company shall be incorporated under the Companies Act, 1963 (Act 179) as the Ghana National Petroleum Company to manage the commercial aspects of the upstream and midstream petroleum activities and the operation of Government interest under the new act. The Company shall be subject to and managed in accordance with the Companies Act.

The draft Bill is generally seen as a move forward in the right direction in having encapsulated the views and opinions of industry experts, academia and the general public as to how the new resource should be managed for current and future generations and ensuring the oil and gas industry in Ghana continues to thrive successfully.

Elikem Nutifafa Kuenyehia
Tel no: +233 21 254 036

Nutifafa Klutse Woanyah
Tel no: +233 21 253 943

Part C: Practice note

Market disruption

In our last edition we looked at the how the economic crisis had led to market disruption provisions being invoked on a significant number of loan facilities. The problem arose because for a period of time last year there was a breakdown in the interbank market with banks being very reluctant to quote rates for interbank loans or lend money to each other as the solvency of a large number of the major banking institutions was questioned. As a consequence either the basis for determining LIBOR  or similar benchmark rates was disrupted or banks did not see that benchmark as reflective of the cost of funds to that bank.The problem was exacerbated by poor drafting in the standard Loan Market Association (LMA) documents that formed the standard agreements for most loans that were syndicated, and which favoured banks to a very large extent. The hiatus caused by this has died down to a large extent as the markets have settled and the solvency of most banking institutions has started not to be questioned due to governments stepping in to either in effect nationalise or guarantee their solvency. However, the basic difficulties of the risk allocation on rate setting remain to be resolved with borrowers seeking a better deal at a time when credit remains scarce and banks are generally seeking harder lending terms.

The concept of using LIBOR and similar benchmarks for setting rates has sat at the centre of the banking market for a very long time. It presumes a solvent banking sector and a thriving interbank market supported by a liquid international capital market. In principle the concept is also one of the borrower taking interest rate change risk throughout the term of the loan, although for a fee the banks might provide a fix rate hedge if needed, for example in project finance deals. If you consider that very few interest rates are inflation linked the relationship with the real economic cost of money becomes tenuous and it is hardly surprising that such massive imbalances in creditors and debtors developed and the bubble burst so spectacularly last year. What remains to be seen is if the market returns to the same old process of allocating credit in such an inefficient way.

While this bigger debate unfolds, or not as the case may be, lenders and borrowers are trying to get to grips with a more efficient and equitable way to benchmark rate setting. In the early days of the crisis some turned to the credit default swap market as a means of determining what the perceived market risk is for a debtor. The market is far from “liquid” or for that matter accurate and such an approach is not likely to have wide appeal. It is also difficult to overlay an effective hedge. Another problem persists in that the benchmark rate, say LIBOR, and market disruption may be defined differently under loan documents to the way it is defined under related swap documents. This mismatch has not really become an issue in practice but remains a potential risk should markets have another crisis and there has been no alignment of benchmark rate calculation. There are also on-going discussions between the LMA and the Association of Corporate Treasurers on behalf of corporate borrowers to agree new provisions for incorporation in standard loan documents, the outcome of which is awaited with interest.

In the meantime we are left to ponder whether the calculation of benchmark rates and the way we go about financing was a consequence of the crisis rather than contributing to the cause of the crisis.

Chris Brown
Norton Rose LLP

Part D: Client profile


In March 2009, GuarantCo Ltd (GuarantCo) signed a facility (the Counter-Guarantee Facility) with two highly rated financial institutions in order to expand its capacity to provide credit enhancement to infrastructure projects in emerging market economies across the globe.

GuarantCo is a Mauritian company which invests in low income countries by supporting local currency loans and bonds through a range of guarantee products, and also by providing funds for technical assistance to develop and structure transactions that could also include a contingent/guarantee product provided by GuarantCo.

While there are a number of banks and agencies, both in the private and developmental sectors, which focus on infrastructure finance, GuarantCo is bespoke in that it deploys guarantee products exclusively to support finance in local currencies. Providing support in local currencies helps recycle savings productively in its target countries and helps avoid reliance on hard currency debt which can prove crippling for projects to repay if their home currencies devalue. A focus on local debt markets also helps lock in funding, skills and experience from indigenous financial institutions and reduces reliance on international banks and financial institutions.

GuarantCo operates under the Private Infrastructure Development Group, a coalition of donors mobilising private sector investment to assist developing countries to provide infrastructure vital to boost their economic development and combat poverty. Initial funding for GuarantCo was provided by the governments of the Netherlands (through the Dutch development bank FMO), Sweden (through the Swedish International Development Cooperation Agency), Switzerland (through the Swiss State Secretariat for Economic Affairs) and the UK  (through the Department for International Development). This funding provides the core equity and the initial resources from which to pay any claims made by beneficiaries of guarantees provided by GuarantCo. The Counter-Guarantee Facility will initially double GuarantCo’s capacity to $146 million, with the potential to increase the capacity to up to $400 million within the framework of the agreement.

The Counter-Guarantee Facility is a form of commercial support by way of counter-guarantee, and operates as follows:



In the scenario set out in the diagram above, the Financier provides funds to the Developer, for the purposes of carrying out a specific infrastructure development. GuarantCo then guarantees all or part of the payment obligations of the Developer to the Financier. The financial institutions then in turn guarantee the obligations of GuarantCo to the Financier. Whilst no contractual obligation exists between the financial institutions and the Financier, the financial institutions agree with GuarantCo that any claims made by the Financier against GuarantCo will be met by direct payment by the financial institutions to the Financier, to the extent GuarantCo is unable to meet such obligations itself. GuarantCo will then be required to repay the financial institutions within a certain period of time, and provides security against its liabilities to the financial institutions from time to time.

GuarantCo has to date entered into (or is in the process of negotiating) various guarantees, which, had the Counter-Guarantee Facility not been executed, would have been supported by GuarantCo’s existing equity backing. However, a mechanism exists in the Counter-Guarantee Facility for these existing guarantees to be incorporated into the portfolio of guarantees backed by the Counter-Guarantee Facility. Each existing guarantee and any new guarantee must meet certain criteria to form part of the guarantee portfolio, and GuarantCo is prohibited from providing any guarantees which do not form part of the guarantee portfolio guaranteed by the Counter-Guarantee Facility.

The Counter-Guarantee Facility allows GuarantCo to leverage off the strong credit ratings of the financial institutions while it builds its portfolio of guarantees, and enables GuarantCo to build a larger portfolio than it would otherwise have been able to do so, both of which will assist the establishment of an independent external credit rating for GuarantCo, which is the intended outcome. As such, this is a key milestone in GuarantCo’s development as an investor into emerging market economies.

GuarantCo’s focus on infrastructure development in emerging market economies obviously means that Africa is a core target area, and indeed Africa is the primary focus of GuarantCo; generally, Africa lacks behind other continents in the area of infrastructure and the deficiency is particularly great in the area of sanitation, electricity and rural road access.

While the problems faced by most African countries are commonly and widely known, and dominate the perceptions of the continent as a whole, many African countries have to date done much to create a more business-friendly environment to promote local investment as well as foreign direct investment, and many have made substantial and impressive progress towards political and economic stability. As part of the efforts to revive and strengthen economic activity they have scaled down bureaucratic obstacles and interventions in their economies, initiated privatization programmes and are putting in place pro-active investment measures. These efforts, in combination with other significant factors such as the recent commodities boom, have in many countries led to a positive turnaround after a long period of economic contraction. Further, from the viewpoint of foreign companies, investment in Africa seems to be highly profitable, - in fact more profitable than in most other regions, although clearly it must be looked at country by country, sector by sector and opportunity by opportunity.

For further information on this product, please contact Douglas Bennet direct on

Daniel Metcalfe
Norton Rose LLP

Chris Brown
Norton Rose LLP


For further information, please contact:

Chris Brown
Norton Rose LLP
Tel +44 (0)20 7444 3822

Martin McCann
Norton Rose LLP
Tel +44 (0)20 7444 3573

Jake Howard
Norton Rose LLP
Tel +44 (0)20 7444 5091

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