A decade of growth. Foreign investment in Africa

Transcription

1 A decade of growth Foreign investment in Africa

2 A decade of growth: foreign investment in Africa Most acquisitive nations 10 yrs $20.8bn 2,417 deals UK France China Sector hotspots Consumer Foreign investor spend $182bn Most targeted nations Egypt $46.5bn $58.0bn Metals and mining $6.4bn +214% $20.0bn Nigeria $22.1bn $33.9bn Oil and gas South Africa $59.1bn $29.6bn

3 Africa s rise Once considered to be on the margins of the world economy, Africa has witnessed a remarkable decade of growth and development. Against depressed M&A markets globally and low-growth rates in many developed economies, foreign investment has flooded into Africa. A number of Africa s economies rank among the fastest-growing in the world and it is an obvious investment partner for international dealmakers. The value of African inward investment has tripled in the last ten years (up 214 per cent in 2012 on 2003) reaching more than $182bn. Deal volumes have doubled up 109 per cent. They now stand at 2,417. Deal expenditure by non-african buyers increased by almost three quarters (71 per cent) in 2012 compared to 2011, despite a decline in global deal spend of 7 per cent over the same period. Last year, international investors were responsible for half of the total value of African M&A. They completed 255 deals worth $20bn out of a total of $39.5bn and 758 deals. This is up from $6.4bn and 122 deals in The outlook for Africa is optimistic the International Monetary Fund predicts sub-saharan Africa to register 5.5 per cent growth in 2013, rising to 6 per cent in This is compared to overall global growth of 3.3 per cent in 2013 and 4 per cent in The findings underpin why many in the market are expecting the next decade to belong to Africa. Foreign investor spend M&A trends for international investors targeting Africa 2003 $6.4bn 10 year total 283 $41, $31, % $20.0bn $182bn through 2,417 deals $20,841 $20,013 $16, $12,867 $11,370 $9,855 $11,699 $6,

4 Sector hot spots The continent s natural resources has made it a destination for M&A activity in the extractives sector. Foreign investors have targeted the metals and mining and oil and gas industries, with 752 deals totalling $33.9bn in metals and mining and 299 deals totalling $29.6bn in oil and gas. Collectively, $87.6bn across 1,190 deals has been invested in natural resources over the last ten years. But the picture is more complex than just international companies investing in capital-intensive sectors. Consumer-facing industries, such as telecoms, retail and food and drink are now beginning to rival natural resources, with $58bn invested across 569 deals in the last ten years. The value of investment targeting these industries has doubled with $3.8bn across 71 deals invested in 2012, up from $1.9bn and 33 deals in Healthcare has also boomed, with investment in 2012 at a decade-high. Foreign investors spent $0.7bn across 12 deals last year, having ignored the sector in 2003 and invested just $11.6m, across four deals, in Extractives and mining have been big drivers of growth. But consumer-related M&A could take the limelight as GDP per household grows, the middle class expands and consumer demand rises. Bruce Embley The rise of the African consumer 2003 $1.9bn 33 deals 2012 $3.8bn 71 deals Sector hotspots Consumer Metals and mining Oil and gas Top ten targeted industries by international investors $33,929 $29,600 $25,438 $20,761 $58.0bn $33.9bn $29.6bn 299 $17,454 $10, $4, $4, $3,543 $3, Metals and mining Oil and gas Wireless Banks Construction Telecoms materials Food and drink Transport Retail and infrastructure Hotels and lodging

5 Most acquisitive nations The UK, France and China have invested the most in cross-border African M&A over the last ten years. The UK leads, with 437 deals totalling, followed by France (141 deals totalling including the $15bn acquisition of Egypt s OCI Cement by Lafarge) and China (49 deals worth $20.8bn). The EU dominated as an originator of M&A in Africa in the first part of the decade it accounted for almost a quarter of total deal values in 2003 (22 per cent). But its share is falling at the expense of rising Asian participation in Africa. In 2003, Asian economies accounted for around a tenth of the total (12 per cent). But their share has risen to almost a quarter (22 per cent) in 2012 compared to a fifth (20 per cent) for EU countries. In the future you ll probably see the US and India invest even more. Japan, Indonesia and Malaysia are also important trading partners for Africa. Julian Makin Most acquisitive nations $20.8bn Top 10 international acquirers of African assets $30,503 $30, $20,781 $15, $12, UK France China United Kingdom $7, $5, $5, $4,870 $4,480 France China India United States United Arab Italy Switzerland Canada Kuwait Emirates 35

6 Most targeted African countries South Africa, Egypt and Nigeria were the most appealing destinations for foreign investors. South Africa attracted $59.1bn of investment over 836 deals, followed, both in value and volume, by Egypt, which received $46.5bn for 266 deals. Most targeted nations Unsurprisingly, there was a significant downturn in investment in Egypt during the instability of 2011 when international investors completed 34 deals worth just $0.29bn. Nigeria attracted an investment of $22.1bn across 90 deals. African economies are also driving M&A activity, with South Africa proving the most active African investor in the continent outside of its domestic market it invested $6.2bn across 153 deals. South Africa is a target country because it has the greatest stability and traditionally companies have found it easier to dip their toe into Africa from there. Though this may change, we are still seeing companies setting up offices in Johannesburg or Cape Town from which to do business in the rest of Africa. Egypt $46.5bn Top 10 most-targeted African countries by international investors $156,631 1,554 Nigeria $22.1bn 836 $59,092 $46,492 South Africa $59.1bn South Africa $22, $9,468 $4,114 $3,960 $3,043 $2,968 $2,743 $2, Egypt Nigeria Morocco Tunisia Sudan Algeria Uganda Mauritius DRC Industry Total

7 Risks, and how to deal with them Africa is an obvious investment partner for international dealmakers, but there are still risks when investing in parts of Africa. For instance, US regulators imposed $1.5bn in penalties on foreign companies accused of bribery in Nigeria s Bonny Island scandal. So be aware of what you can do to protect against bribery and corruption. For more information, please get in touch Plus, effective treaty protection is an essential way for investors to mitigate risk over political volatility. Currency and exchange controls can also block funds from being repatriated, and you need sophisticated structuring techniques. Jurisdictions have brought in measures too such as the new merger control regime for the Common Market of Eastern and Southern African, COMESA but this can create new challenges. The extra-territorial effect of anti-bribery and corruption laws means that what your local employee does somewhere in Africa could affect your business in, for example, the US. Co-head of Africa group T E shawn.derkinderen@freshfields.com Julian Makin Co-head of Africa group T E julian.makin@freshfields.com Bruce Embley Partner T E bruce.embley@freshfields.com Look closely at potential dispute situations; are you governed by a bilateral investment treaty that you can rely on to offer protection and can you get in front of an international arbitrator to enforce this? Bruce Embley freshfields.com is a limited liability partnership registered in England and Wales with registered number OC It is authorised and regulated by the Solicitors Regulation Authority. For regulatory information please refer to Any reference to a partner means a member, or a consultant or employee with equivalent standing and qualifications, of or any of its affiliated firms or entities. This material is for general information only and is not intended to provide legal advice., July 2013, 36068