Written by Coenraad Bezuidenhout
Africa holds tremendous investment potential, but there are also pitfalls to negotiate. Experts Neethling van Heerden (Tax and Transaction Advisory Partner at Renmere), Moshie Ratsebe (Financial and Business Services Director at Botswana Trade and Investment Commission), Jan Fourie (Sub-Saharan Africa EVP at Scatec ASA), and Adrian Dommisse (Dommisse Attorneys Inc) shared key learnings on how to harness the opportunities while effectively managing risks at the recent Europe-Africa Impact Investment Summit held in Cape Town on 14 September.
Here are 10 actionable insights:
1. Understand the Tax Landscape: Recognize the potential for direct tax revenue collection through corporate and dividend taxes. Additionally, leverage available incentives and tax treaties to optimize returns on investments. Tax considerations are crucial for enhancing profitability.
2. Local Expertise is Invaluable: When investing in Africa, local knowledge is your best ally. Engage local experts to help structure transactions effectively and manage risks. They understand regulatory complexities and cultural nuances, which can significantly impact project success.
"Leveraging local expertise to ensure impactful transaction structures and effective risk management. The local knowledge can help investors navigate regulatory complexities and cultural nuances, ultimately enhancing the success and sustainability of projects” – Adrian Dommisse, Dommisse Attorneys Inc
3. Investments Should Benefit Communities: Approach investments in Africa as opportunities to positively impact local economies and communities. Consider tax incentives, make wise structuring choices, and collaborate with local experts to maximize the project's potential, but ensure mutual benefit and target fostering sustainable growth.
4. Lean into the Regulatory Peculiarities: Be prepared for regulatory challenges and be prepared that they may vary wildly from territory to territory. Understand exchange controls, which regulate the movement of assets out of the country, and their impact on your investment. Be transparent about motivations for approvals.
5. Manage Country-Specific Risks: Each African nation has unique social, political, and economic factors that can affect international investors. Establish offshore holding companies and leverage double taxation agreements to mitigate these risks effectively.
6. Focus on Job Creation and Environmental Impact: Investments in Africa, particularly in sectors like renewable energy, offer significant job creation opportunities. During project development, prioritize employment in local communities, contributing to a just energy transition and rural development. Also, emphasize rigorous environmental and social impact assessments for sustainability.
7. Collaboration is Key: Collaborate with local communities, authorities, and experts. Engagement with relevant associations, like venture capital and industry associations, and authorities, such as national treasuries and competition authorities, can help propose solutions and address regulatory challenges.
8. Maintain Social License to Operate: Ensure that you maintain a social license to operate within local communities. Delays in project execution can lead to financial consequences, making it crucial to manage expectations and employment in these communities.
9. Match Investment Environments to your Risk Appetite: Seek investment destinations that match with your risk appetite. There are investment destinations that present relatively low overall risk such as Botswana, Egypt, Kenya, Mauritius and Rwanda. Some have removed foreign exchange controls, maintain political stability, enjoy favourable sovereign ratings and visionary government policies to inspire investor confidence.
“It is important for investors to adopt an open mind. A country like Botswana might itself have a small population, yet it operates in a populous region to whose markets it has excellent access. Botswana’s simplicity and authenticity enables efficient governance and easier management. It has contributed to the country's success!” – Moshe Ratsebe, Botswana Investment and Trade Commission
10. Simplicity and Transparency: Keep investment structures simple, transparent, and authentic. Trust and predictability are key elements in building investor confidence. Implement good governance practices and foster a culture of integrity.