GTR speaks to law firms across Sub-Saharan Africa about various regulatory and legal issues that pertain specifically to those looking to do business on the continent.
Jason van Dijk, director, Norton Rose Fulbright South Africa
African countries are increasingly recognising the importance of competition law as a means of ensuring economic growth and taking care that cross-border merger transactions do not impact negatively on consumers in developing African economies. Several African countries, as well as the Common Market
for Eastern and Southern Africa (Comesa), have enacted competition law recently and some trends are emerging.
Fines imposed on companies (and in some instances on individuals) for contravening competition law are significant and increasing. Many competition authorities are empowered to impose fines of up to 10% of the company’s annual turnover. Whilst a number of African competition authorities are still in relative infancy in terms of developing their activities, experience tells that as they gain momentum and experience, fines are likely to increase. This has been seen in the well-developed realm of South African competition law, where total fines in excess of R4.6bn have been imposed in its relatively short 14-year history, with R1.8bn of these fines being levied in 2013 alone. Compliance with competition legislation is therefore essential, and companies should be conducting in-house reviews of their agreements and business processes, and providing training to employees on the dos and don’ts of relevant competition law, to ensure that they avoid the risk of incurring a fine.
Raids on company premises are likely to be on the rise. Several jurisdictions have granted regulators the power to conduct searches and can seize both hard copy and electronic documentary evidence relevant to an investigation of a complaint, even where this information is highly confidential. Dawn raids are a powerful tool used by authorities around the world to uncover evidence where there is a suspicion of anti-competitive conduct taking place. The South African Competition Commission has used these powers effectively, for example in exposing cartels in the cement and tyre industries. The Zambian Consumer Protection and Competition Commission raided two major fertiliser companies as part of an investigation into alleged cartel conduct in 2013. Companies accordingly need to be trained to deal with a raid should one take place on their premises, which should include appropriate document management processes and employee training.
International co-operation between competition authorities is becoming common. Regulators share information about industry trends, evidence that has been uncovered on multinational cartels, as well as techniques for detecting anti-competitive conduct. Many African authorities are honing their skills and developing their know-how on specific industries and the prosecution of anti-competitive conduct. Interaction with global competition regulators through bodies like the International Competition Network will assist African authorities to enhance their efficiency and their investigative techniques.
Corporate leniency policies are increasingly being applied by African competition authorities in order to offer companies immunity from fines in terms of competition legislation where they are the first company in a cartel to confess to price-fixing or market allocation. This has been a highly effective and successful tool that has been used both off and on the African continent, leading to the cracking and prosecution of some of the most covert anti-competitive cartels. South Africa and Egypt have implemented corporate leniency policies, and jurisdictions such as Namibia and Mozambique are currently drafting theirs.
Applicability of competition legislation is vastly more extensive than companies think. In most African jurisdictions, competition legislation applies to all economic activity in, or having an effect within, the relevant jurisdiction. This means that even where a company does not necessarily have a physical presence in a jurisdiction, if they do business with a local party, or even agree with a competitor not to do business in a particular jurisdiction, the competition law of that state is likely to apply to such business activities or agreements.
Companies conducting business on the African continent therefore need to be aware of the evolving competition laws. Compliance is critical in order to avoid paying hefty penalties and to avoid the reputational harm and expense (both financial and in the form of management time) that is the inevitable result of defending a competition law complaint.
Recognition of foreign law and/or judgments in Kenya
Cosima Wetende, partner Kaplan & Stratton
As a general rule, Kenyan courts recognise and give effect to a foreign governing law clause. The clause is not conclusive if the result of recognising the foreign law would be fundamentally at variance with domestic public policy or if the intention of the parties is to evade mandatory provisions of Kenya law. The choice of foreign law has to have a real or substantial connection with the contract as a whole.
Where parties to a contract submit to the jurisdiction of a foreign court, the courts will generally enforce this agreement and will, in their discretion, stay any proceedings instituted in breach of that agreement unless satisfied that it is just and proper to proceed.
A foreign judgment by a court of competent jurisdiction is conclusive and may be sued upon in the Kenyan High Court except in circumstances where it is, for example, not given on the merits of the case, is obtained by fraud, if founded on an incorrect view of international law or a refusal to recognise the law of Kenya if applicable, where proceedings are opposed to natural justice, or where it sustains a claim founded on a breach of the law.
If the country in which the judgement or order was given has signed a reciprocal judgment enforcement agreement with Kenya, and the judgment inter alia relates to civil proceedings where a sum of money is payable or where movable property is to be delivered to any person, the judgment is enforceable as if it
were issued by the High Court in Kenya. The decision is enforceable without retrial or examination of the merits subject to any objections by the counterparty relating to, among other things, service, notice, public policy, penalties or fraud.
Exchange controls and foreign currency restrictions in Uganda
Andrew Kibaya & Priscilla Namusikwe, partners, Shonubi Musoke and Co Advocates
Governments in Africa may impose various controls and restrictions with regards to foreign currency and the foreign exchange industry. These include control of possession of foreign currency by private persons, restricting currency exchange to government-approved agencies, imposing tariffs, duties and import quotas on foreign trade, and restrictions on the amount of currency that can be imported or exported.
The reasons for these restrictions vary but the need to strengthen local currencies and create exchange stability by limiting exchange rate volatility has always been cited. The controls and restrictions will however directly affect the preparedness of a foreign business to invest, the level of its investment in a country and the ability to mobilise foreign funding.
Historically, exchange controls were popular in many African countries. In the 1990s, with many governments moving towards economic liberalisation, there was a decline in the emphasis placed on these controls and restrictions. The Ugandan case illustrates this paradigm shift from a highly restrictive to a fairly open environment backed by legislation and deliberate government policy.
The foreign currency and exchange policy in Uganda is fairly liberal and is administered by the central bank under specific legislation. Generally, there is free movement of and trade in foreign currency. Market tendencies determine exchange rates save for dealings with government entities where rates are set by the central bank and the Uganda Revenue Authority but which largely reflect what the market dictates. Residents and non-residents are free to hold foreign currency accounts in the local banking system. Foreign investors can therefore readily transfer their funds in and out of the country – a clearly conducive atmosphere for international trade.
Even then, the central bank is by law vested with the authority to impose restrictions on the importation and exportation of both local and foreign currency. The existing power to create limitations has, it would appear by policy, not been exploited and there are no present projections that it would be. This shift from restricted to free systems is statutory and the reluctance to use the powers of restrictions is deliberate. The existence of the powers is also purposeful and these powers can in fact be invoked.
Dealing in foreign exchange business is restricted to licensed persons and anti-money laundering laws require such dealers to report suspicious transactions to the central bank.
The Ugandan position is largely representative of a great number of African countries.
Conversely, countries like Ethiopia still operate a strict foreign currency regime characterised by restrictions on possession of and trading in foreign currency. In these countries, besides directly hindering trade and finance, government practices lead to the creation of black markets which may further diminish investor confidence.
In nearly all of Africa, there is the genuine need to protect local economies by creating controls and restrictions, but the strong wave of liberalisation is ever loosening this grip and dictating government policy.
Taking security – problem assets
Adam Lovett, partner, Norton Rose Fulbright Tanzania
The Tanzanian legal system is based on English common law. Consequently the forms of security that can be taken (mortgages, fixed and floating charges, and pledges) and the classes of assets over which security can be granted, will be familiar to most trade finance lawyers and bankers operating in common law jurisdictions. The following are some of the issues that are worth specific mention.
Land: Land ownership remains restricted in Tanzania and may only be owned “for investment purposes” by non-Tanzanians. Historically, such
title could be held directly under a “certificate of title” by the investor or by way of “derivative title” issued by the Tanzania Investment Centre. However, current government policy is that land owned by foreign investors must now be held only under derivative title. In order to encourage investors to re-register title they hold directly the Ministry of Lands has adopted a policy of refusing to register security against land held by a foreign investor under a certificate of title. Similarly the Ministry of Lands will refuse to register a transfer of land held under a certificate of title to a non-Tanzanian. Whilst this does not impact the value of the underlying asset, it does introduce additional lengthy procedures and an on-going regulatory burden.
Fungible assets: A company may create security over fungible assets by way of a floating charge, however the lender will only have recourse to the assets that are subject to the charge once the charge crystallises and attaches to the assets actually identifiable and in existence at that time.
Alternatively, either an individual or a company may grant a pledge; this requires that the property is delivered into the possession of the lender or its agent. Where pledged goods are mixed with a third party’s goods the parties are accorded a pro rata entitlement to the mixed goods according to their respective contribution to the pooled assets. Where goods are mixed and cannot be delivered back, the innocent party has a statutory right to be compensated for the value of their goods.
Future property: Rights to future property can be granted as security under a floating charge. However, future property cannot be pledged, and this leaves pledges that purport to create security over property that was not in existence on the date the pledge was created vulnerable to challenge on the basis that the pledgor did not have title to the property at the time the security was created.