Corruption-fearing Western executives are still squeamish about investing in Africa, but as the continent’s economies take off, legal firms hope to make big bucks from assuaging those concerns.
As debate rages about the sustainability of Africa’s economic rise, there is little doubt that the continent today offers investment returns that cannot be matched in most developed markets.
The IMF projects that sub-Saharan Africa will grow at 5.7 percent this year, outpacing most regions and rivaling Asia’s boom markets.
According to a recent KPMG study, private equity firms got a record US$3.03 billion back from African investments in 2011.
“As growth in other economies have slowed in recent years ... investors have been looking to emerging markets and economies that will provide higher return rates,” KMPG’s Dapo Okubadejo said. “Africa is continuously proving its business case for investment.”
Home-grown African firms are expanding and, notably, China’s state-backed extraction companies have piled in to the continent.
However, US companies in particular have been slow to jump in.
One reason for the delay is corruption, according to a recent survey by law firm Dentons and business advisory firm AlixPartners.
Their poll of 200 senior executives at multinationals based in the US showed a quarter of respondents cited corruption as a reason they avoid the continent.
“There is a perception gap among a number of US companies as to both the opportunities on the African continent and a perception gap as to the underlying risks,” Dentons partner Thomas Laryea said.
Of those firms that already do business in Africa, 75 percent said there was a need for more transparent local business culture.
“Concerns about corruption are clearly shaping companies’ decisions to invest in Africa,” the authors said.
Dentons and AlixPartners have their own business reasons for drawing wary investors to continent, but the paucity of Western law firms active in a Africa is cited as one reason for low rates of investment.
However, the lack of trusted local interlocutors may not be a factor for long.
It took around six decades, but in May last year Baker & McKenzie — by some measures the world’s largest law firm — opened its first office in sub-Saharan Africa.
The office, in Johannesburg, hopes to tap rich interest in the country’s energy, mining and finance sectors.
It is just one of a host of big-name legal firms making the leap.
Dentons already has ties with 19 associated firms in Africa, but Laryea said competition is heating up.
“Every other day we hear stories and announcements of other law firms that are establishing Africa practices,” Laryea said.
Services in the energy, infrastructure, resources and agriculture sectors, as well as financial sectors are in particular demand.
However, navigating government services, where perhaps most corruption pitfalls lay, may offer the broadest possible opportunities.
“Even if I’m doing a private sector deal on the African continent there is nothing that is purely private sector in that context,” Laryea said.
For legal services firms, at least, navigating red tape and corrupt administrations in Africa may prove to be big business.