Rigorous economic empowerment legislation in African countries can have the unintended consequence of scaring off good investors who feel the price is too high. Kananu Mutea, a partner in the Nairobi-based law firm Daly and Inamdar, and an expert in commercial dispute resolution, says Kenyan law in some sectors such as insurance, aviation, banking and maritime require that foreign companies registering in Kenya make allowance for local shareholding.
“When you look at the scale at which foreign companies operate, this is a big ask. Investors want to come in but, when they start going through the legalities, it frightens them that they may be compelled to have shareholders whom they know little or nothing about. And, often it is primarily politically exposed persons who can inject the kind of capital required to acquire shares in the entity.”
One of the issues that crops up in Africa is the balance or management of the process of increasing investment to facilitate development.
“Some countries, like Botswana and Rwanda, have been more inward looking strengthening institutions and processes. It may well be that economic growth in those countries has been comparatively slower than in countries where the policies are responsive to external drivers however, those models, in my view, are likely to be more sustainable in the long run. The Batswana and Rwandese have the view that their institutions are working in their interests.”
Kenya, has a fairly developed financial system, with inflows of capital from the west and more aggressively from eastern countries like China, India and Japan. With the interaction of different cultures there is often the challenge of overcoming the “disconnect” between locals and foreigners. This is necessary when you need collaborative efforts on mega-infrastructure projects with teams from different countries and backgrounds expected to surmount project related disputes to meet deadlines.
“Whether you are putting in a railway line or exploring for oil there has to be meaningful engagement with the people living in the area, otherwise you don’t have buy-in on the project. Inevitably there will be vandalism and general resistance to the success of the project.”
For this reason foreign investors who do well in Kenya tend to be adaptable and able to “go with the flow” accepting that there are different approaches to achieving the same end.
“I've encountered foreign clients who are rigid in their views and positions because they come from jurisdictions where things are done a certain way. They have difficulty accepting that what may be an accepted measure in their jurisdiction is not so here for the simple reason that our systems and processes are different, as is our culture.”
Indeed, she makes the point that, across Africa a condescending approach by investors inevitably puts local partners’ guard up.
“Each country in Africa has its own history and peculiar circumstances. The approach to investment in Kenya might not work for South Africa or Nigeria and so, adaptability and appreciation of local nuances goes a long way it making it easier to do business.”
An issue close to Mutea’s heart is the need for foreign investors to make an effort to understand the legislative framework of the country where they are injecting resources.
“Increasingly we find that investors treat the legislative framework as a suggestion.” She has had experiences where she has had to deal with legal problems that emanate from deliberate non-compliance with the law.
One of the biggest hurdles lawyers face, she says, is that the legal framework is not well understood by the business community. She concedes that some of the laws that Kenya has enacted recently have not been tested practically.
“I ask myself how we, as lawyers, can make the law more transparent and comprehensible to the business community. There is the perception that the legal process is riddled with uncertainty, unpredictability and lack of control particularly because of the view that there is pervasive and institutionalised corruption.”
This continued focus on corruption in the media, in her view, has obscured the willingness of many to understand the system of laws and the context within which many transactions take place.
“And it’s this unwillingness to understand that makes it easier for businesses to come up with a financial contingency to facilitate processes rather than comply with processes.”
Mutea is based in Nairobi but studied law in India at the University of Nagpur. She has had work experience as a visiting associate with London law firms.
“I am at home in Kenya. It is organized chaos and, while I cannot claim to understand it all the time, I understand it better than I do many other places,” she laughs.
Mutea concludes with this advice for foreign investors:
“Get a team of advisers to guide you through entry into Kenya. Many businesses place too much reliance on politically exposed persons and pay the price when the deals they have concluded go south. It is important to understand the framework, consequences and possibilities so that even if you choose to take risks you do so with the full understanding of the possible consequences. “
“Africa is not sanitized or scripted but people are authentic and not exceedingly conscious of being politically correct. Everyone has a place here.”