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ALN is an alliance of independent top-tier African law firms.
BOTSWANA | BURUNDI | ETHIOPIA | KENYA | MALAWI | MAURITIUS | NIGERIA | RWANDA | SUDAN | TANZANIA | UGANDA | ZAMBIA
VOLUME NO 14 | ISSUE 3 | OCTOBER 2015
Inside this IssueTHE AFRICA HOTLISTWhere to Place your Bets
GLOBAL BUSINESS IN THE UAEChanges to the Business and Legal Environment
WHY INVEST IN AFRICA?Views from a Regulator and an Investor
EAST OR WEST, SOUTH IS BEST?Investing through South Africa
ISLAMIC FINANCE IN KENYANew growth opportunities
FAST ON THE METRORecent legal developments in Ethiopia
TIGHTENING THE COPPER BELTDevelopments in Zambia’s mining laws
And so much more ...
A WORD FROM THE CHAIRMAN
Africa and her potential cannot be ignored. With the continent accelerating towards the realisation of its potential, the business world has taken notice and continues to look for and find linkages to the continent. These connections have been integral to Africa acting as the engine for growth for the rest of the world.
With many businesspeople using Dubai as a base from which to pursue opportunities across Africa, the city has quickly evolved into a financial and operational hub serving as a strategic link between the continent and investment interest in the East. Global businesses are also settling on Dubai as the ideal launch pad for African operations. Indeed Dubai has become a catalyst for the growth of trade between African nations and the rest of the world.
It is with this in mind that ALN established its regional office in Dubai, a decision that served and continues to serve both our African and international clients well. This has allowed ALN to promote business with the continent and serve as a bridge between investment interest in the East and opportunities in Africa. In addition to this, we have continued to host our international conference in the city for the second consecutive year following its great success last year. Our conference continues to provide an environment in which investors searching for information and lucrative investment opportunities on the continent are able to meet with African business people and stakeholders, and broker business deals. We also, due to our understanding of the continent, are able to promote discussions on opportunities on the continent and solutions that help investors navigate the business environment in Africa. We, as the leading alliance of top tier independent law firms in Africa, are also best placed to connect business people with the best legal advice offered by our over 600 lawyers working from fifteen cities across Africa, who live and work in Africa and therefore best understand the issues on the ground. We also have strong representation across Africa and are therefore able to provide you with first class excellent legal services.
This edition of Legal Notes serves to highlight our legal expertise, the ALN Conference, as well as the various positive changes we are experiencing at ALN; such as the adoption of a new member in Ethiopia and the move of ATZ Law Chambers, our member in Tanzania.
I hope that you will enjoy reading this edition and that it will provide you with a great deal of insight into the legal developments in Africa.
Dr. Cheick Modibo DiarraALN [email protected]
Africa: Building Bridges
LegalNotes 1
Africa: Bridging the GulfIt gives me immense pleasure to extend a personal warm welcome to you. Thank you for attending the ALN Annual Conference on 21st and 22nd October 2015. AC&H and ALN are honoured to be your hosts.
This year’s theme is: “Africa: Bridging the Gulf”
Africa remains the leading FDI destination globally, and with her economies abuzz with old and new opportunities. Africa undoubtedly remains a “hot” investment destination.
Dubai is acknowledged globally as a strategic investment hub permitting companies in the GCC, Asia and Europe to route investments into Africa. The UAE’s first world infrastructure and conducive taxation regime, which includes a network of double tax agreements with a number of African countries makes it the perfect conduit for investment into Africa. Further, the DIFC with its common law based legal and judicial system provides comfort to investors in terms of enforcement of legal rights.
The UAE is becoming one of Africa’s leading investment partners, and accounted for 6% of total FDI into Africa in 2014. At ALN and AC&H, we have worked and advised on numerous investment transactions into Africa. AC&H was also instrumental in bringing about the signing of the Memorandum of Guidance between the DIFC Courts and Kenyan Courts in relation to the mutual recognition of judgements. The Memorandum was signed at the 2014 ALN annual conference in Dubai.
And with you, we aim to continue to be part of the African success story. We have arranged an interesting array of panellists, including leading investors, bankers and government officials who will discuss topical business and trade issues relevant to Africa.
And of course, I cannot sign-off without assuring you that we will make all efforts to make your stay pleasant and comfortable.
Shukran!
Atiq Anjarwalla
Managing Partner, AC&H Legal Consultants
Africa: The Whole Nine YardsWelcome to this Edition of Legal Notes.
Africa as a whole remains a hot investment destination, and we at ALN continue to beat the African drum and share the story of Africa’s development.
The ALN Annual Conference is taking place in Dubai, UAE in October 2015.
With this in mind, we have prepared a bouquet of articles highlighting the opportunities for growth and the legal developments in ALN countries.
In our editorial feature article, Africa’s Hotlist, we focus on 4 of the top 10 investment destinations in Africa: South Africa, Nigeria, Kenya and Ethiopia.
We speak to Senior Partners in ALN firms in these countries, and get their candid thoughts on why their jurisdictions have received so much investor focus, and what they are doing to stay at the top.
We are delighted to feature a double dose of investment insight in our Guest Column, having been privileged to interview two leading faces of investment in Africa: Mrs. Anne Muchoki, director of the Kenya Investment Authority, and Mr. Ashish Thakkar, Founder and Managing Director of Mara Group, which has business operations in 25 countries in Africa.
This, and so much more from our member countries makes this Edition an insightful read.
As always, ALN is on hand to walk with you “the whole nine yards” in getting your deal through.
Anne KiunuheEditorPartner, Anjarwalla & [email protected]
2 LegalNotes
CONTENTS
This publication is designed to inform readers of legal issues in various African jurisdictions. The contents of this newsletter are intended to be of general use only and should not be relied upon without seekingspecific advice on any matter. If you would like to subscribe to Legal Notes or any other ALN publication, visit www.africalegalnetwork.com. For further information on Legal Notes, contact [email protected]
Editorial Team: Anne Kiunuhe - [email protected] | Elizabeth Karanja - [email protected] | Wanjiru Mutung’u Kariuki - [email protected] | Faith Kaari Ben - [email protected]
THE AFRICA HOTLISTWhere to Place your Bets ........................................................................................................................................................................................................................................3
WHY INVEST IN AFRICA?An Regulator’s View - Anne Muchoki; Ken Invest ..................................................................................................................................................................................................6
WHY INVEST IN AFRICA?An Investor’s View - Ashish Thakkar; Mara Group .................................................................................................................................................................................................7
YOU CAN’T HAVE IT ALLLocal participation issues in African investment ......................................................................................................................................................................................................8
EAST OR WEST, SOUTH IS BEST?Investing through South Africa .............................................................................................................................................................................................................................10
ALL EYES STILL ON RWANDAFostering investment via new legal regime .........................................................................................................................................................................................................12
REIN IN THE NAIRANew foreign exchange controls in Nigeria ...........................................................................................................................................................................................................14
ISLAMIC FINANCE IN KENYANew growth opportunities ...................................................................................................................................................................................................................................16
NEW HOPE FOR THE MINERSUganda lifts ban on export of unprocessed minerals ..........................................................................................................................................................................................18
GLOBAL BUSINESS IN THE UAEChanges to the Business and Legal Environment ................................................................................................................................................................................................20
ALN SPECIALALN Annual International Conferences and 2015 hosts .....................................................................................................................................................................................21
UNDERGROUND FORTUNESRegulation of the mining sector in Kenya ........................................................................................................................................................................................................22
WHEN MANY CEASARS AGREEKenya’s expanding network of double tax treaties ..............................................................................................................................................................................................24
LOOKING INTO THE PRISMNew transparency laws in Tanzania’s mining sector ............................................................................................................................................................................................26
FAST ON THE METRORecent legal developments in Ethiopia .................................................................................................................................................................................................................28
WHAT’S IN THE PIPELINENew oil & gas laws in Tanzania .............................................................................................................................................................................................................................30
TIGHTENING THE COPPER BELTDevelopments in Zambia’s mining laws ...............................................................................................................................................................................................................32
ROLLING OUT THE RED CARPETProposed Changes to Special Economic Zones in Kenya ....................................................................................................................................................................................33
TENANCY LAWS IN ZAMBIAA Landlord Nightmare, a Tenant’s Prerogative .....................................................................................................................................................................................................34
SECURITY UNDER THREATTests to Mortgagee Rights in Uganda ..................................................................................................................................................................................................................36
NAVIGATING THE SHIFTING GOAL POSTS Murky M&A Regulation in Tanzania.....................................................................................................................................................................................................................38
LegalNotes 3
THE AFRICA HOTLISTWhere to Place your Bets
IntroductionAfrica, as a whole, remains THE hot investment
destination, enjoying an extended courtship
with many investment partners. But whilst the
“honeymoon” is not yet over, to be wise, the
Continent needs to make good preparations to
ensure a sustainable “marriage”.
Firstly, the numbers: According to the FT’s fDi
Intelligence, even as the global FDI market grew
by a margin 1% in 2014, Africa enjoyed a 65%
increase in capital investment, to an estimated
USD 87 Billion, accounting for 13% of global
FDI. Over 450 companies invested in Africa in
2014, with a total of 660 FDI projects.
Among the top 10 investment destinations in
sub-Saharan Africa are Nigeria, South Africa,
Kenya and Ethiopia.
In this edition of Legal Notes, we take a closer
look at these hot destinations. What makes
them so attractive? What are the challenges?
How can they stay at the top? We pose these
questions to Senior ALN Partners who have
Elizabeth Karanja Assistant DirectorJMiles & [email protected]
Anne Kiunuhe PartnerAnjarwalla & [email protected]
Karim Anjarwalla Peers say: “He is very diligent and hard-working and his thoroughness distinguishes him.” - Chambers Global 2015
but will definitely revolutionise company and
business law and further cement Kenya’s
position as a hub”, Mr. Anjarwalla adds.
South Africa is another gateway which leads
as the top FDI destination in Africa. Aside from
resource wealth and a good legislative
framework, its mature financial infrastructure is
a major driver for investment. According to
Mr. John Smelcer, Partner at Webber Wentzel in Johannesburg, the country is home
to some of the continent’s biggest lenders and
insurers. This has not only encouraged FDI, but
has also seen South African corporates
diversifying their portfolios offshore. An
example of this is Brait’s recent private equity
acquisition of retail and fitness industry assets
in the UK.
Ethiopia boasted over 30 major FDI projects in
2014, totalling USD 2.8 Billion. Mr. Mesfin
Tafesse, founder of Mesfin Tafesse & Associates in Addis Ababa attributes the
growth to relative political stability, existing
market demand, and attractive incentive
packages to investors.
With a large labour force, a burgeoning middle
class and abundance in natural resources,
decades of experience in these powerhouse
economies, and get their valuable insight.
What is with the allure?Mr. Karim Anjarwalla, Managing Partner at
Anjarwalla & Khanna in Nairobi, attributes
Kenya’s USD 2.2 billion worth of FDI in 2014,
and its position as a gateway to Africa to several
factors, including: resource wealth;
decentralisation of power with the devolved
system of government; a growing middle class;
Kenya’s geo-political position as a port country
and logistical hub; and improvements in law
and policy. “A new Companies Act was enacted
in September 2015. It is a welcome development
from the old law, which is based on the 1948
English Companies Act. It has teething issues,
New Business Laws In Kenya!Business Regulation In Kenya Is Set To Significantly Change With The Introduction Of New Laws In September 2015, Including:
• The Companies Act, 2015, Which Overhauls The Current 1948 Companies Act.
• The Insolvency Act 2015 Which Consolidates And Overhauls Laws Relating To Insolvency In Kenya Previously Contained In The Bankruptcy Act And The 1948 Companies Act.
• The Business Registration Service Act, 2015 And The Special Economic Zones Act, 2015.
• Anjarwalla & Khanna will host a seminar in November 2015 to discuss the new laws.
4 LegalNotes
Africa’s largest economy, Nigeria, does not
disappoint. It raked in over USD 10 billion in
FDI. Mr. Gbolahan Elias, Senior Partner at
G. Elias & Co. in Lagos also attributes investor-
friendly government policies and Anglophone
education and skills as among the big drivers
for investment in Nigeria.
Hot sectors and trends among investment partnersWith most countries in Africa having
development agendas to reach middle-income
status in the next 10 to 20 years, a huge focus
for investors and governments has been
exploitation of natural resources, and the
development of physical infrastructure.
According to Mr. Tafesse, Ethiopia’s 5 main
sectors are presently manufacturing (in which
projects doubled from 2013), agriculture,
electricity and power, infrastructure and mining.
Some of Ethiopia’s large projects include the
Gilgel Gibe 3 project which has been
commissioned with 1,850 MW of power into
the national grid, and the Great Renaissance
Dam (GERD) which will inject 6,000 MW of
power into the national grid.
Africa for renewable energy projects.
Mr. Anjarwalla notes this to be in line with the
Government’s Vision 2030 development blue
print, which places a lot of focus on developing
geothermal and wind energy. Other major sectors
were: finance, in which Anjarwalla & Khanna
advised on the Government’s USD 2 Billion
sovereign bond and subsequent tap-in for USD
750 million; IT and telecommunications; and real
estate.
According to Mr. Elias, major sectors and
transactions in Nigeria included FMCG, in which
G.Elias & Co. advised on the development of Arla-
Tolaran dairy products factory in Lagos, and real
estate, in which Eagle Hills Abu-Dhabi; a UAE real
estate company, entered into a joint venture with
the Federal Government of Nigeria to develop
Centenary City, Abuja’s city within a city.
.
Which sectors need an increased focus?There has been a lot of focus on industrial
development sectors like manufacturing,
infrastructure, oil & gas and mining. This is
welcome as it has created large scale
employment and given Africa a great
opportunity to exploit untapped resources.
However, the past year has seen shocks in the
minerals and metals market, with the global
price of iron ore falling by over 40% due to
weakened demand from China, and further
shocks in the oil & gas market, with the price of
oil falling by 60% in the six months between
June 2014 and January 2015.
Further, Africa still does not have a strong base
of investment in essential sectors like agriculture,
basic housing, education and health. Although
these sectors are top priorities under the United
Nation’s Millennium Development Goals
(MDGs), they have been largely ignored when it
Gbolahan Elias is highly regarded for his “intellect, experience and ability to deliver.”Chambers Global 2015
comes to FDI. Putting it in perspective, out of
the major FDI projects in 2014, food and
tobacco accounted for 2% of total FDI, being
USD 2.6 Billion. It is not surprising, as FDI is
profit driven. There needs to be more
government engagement and promotion for
FDI in these sectors, in order to achieve holistic
development.
Mr. Smelcer notes that there is a great need to
invest in education and training, especially as
Africa is forecasted to have the world’s largest
labour force by 2040. “In South Africa,
secondary school enrolment is only 40% and
UNESCO forecasts that Africa will be home to
half of the world’s illiterate. This trend has to be
reversed,” he says. Mr. Anjarwalla agrees on
the need to focus investment in essential
sectors. In agriculture, he points out that the
need for development is not just in developing
the large scale agriculture projects, but in
improving all value chains, including processing,
packaging, transportation and storage.
According to Mr. Tafesse, “the [Ethiopian]
Government’s policy focus on the manufacturing
industry accounts for low priority of some of
these sectors. There needs to be attractive
incentive packages and strong promotional
work, backed by information”. Agro-processing,
cotton farming and low cost housing have huge
potential in Ethiopia, which is being under-
utilised.
The deal with the Middle East The Middle East has definitely been coming in
strong into Africa and the UAE flew the flag at
number 7, with USD 5 Billion invested over 32
projects. This was a 10% increase from
investment in 2013, and represented 6% of
total FDI into Africa. The top UAE investments
into Africa are Nigeria’s Centenary City in Abuja
by Eagle Hills Abu Dhabi and Julphar
Pharmaceutical’s investment in Ethiopia. In
Kenya, Al Futtaim acquired a stake in Kenya’s
CMC Motors in 2014 for USD 90 million. Majid
Al Futtaim (MAF) Retail has leased 16% of the
Two Rivers mall in Nairobi ahead of its completion
in October 2015.
From Saudi Arabia, ACWA Power and its
partners have won two contracts to build two
concentrated coal power plants in Morocco, and
South Africa has seen a lot of activity in
financial services, oil & gas, energy &
infrastructure and FMCG. Mr. Smelcer notes
Abraaj Group’s private equity acquisition of
Libstar and its subsidiaries, who are heavily
involved in FMCG in South Africa as one of the
landmark transactions. Another notable FMCG
transaction was SABMiller’s soft drinks unit’s
merger with the Coca Cola Company’s South
Africa operations to create an African bottling
giant.
In Kenya, energy has perhaps been the biggest
sector. For 2014, the country was ranked first in
Mesfin Tafesse Commentators describe him as “a first-class lawyer and a top choice in Ethiopia.” - Chambers Global 2015
LegalNotes 5
are building a third in South Africa. From Qatar,
Qatar National Bank (QNB), the Gulf’s largest
bank became a dominant shareholder in
Ecobank Transnational Incorporated ,the leading
pan-African bank after increasing its stake to
23.5 %.
There is expected to be a lot more investment
from the Middle East coming into Africa.
The buzz on local contentAfrican governments have been keen to foster
local inclusion in development projects, and an
issue that has been the subject of recent debate
is local content.
For South Africa, the Government has developed
a range of policy instruments to support
localisation, in addition to BBBEE, there are
localisation targets in the Preferential
Procurement Policy Framework Act which
targets localisation in renewable energy.
Mr. Smelcer considers that by and large,
investors are not deterred by local content
requirements as long as there is policy certainty
and continuity.
Kenya also has sectoral local content legislation
proposed in the mining and oil & gas sectors.
Although local content is a good thing for
training, employment and skills & technology
transfer, it should properly considered, and
balanced to be in tune with local realities. As an
example, Kenya has developed draft local
content regulations within its Petroleum
(Exploration, Development & Production) Bill
2014. Under the proposed regulations, a
petroleum agreement or licence will only be
granted to a company where at least one of the
shareholders is an indigenous company (51%
local owned) with at least 5% equity participation
in the oil company. There are also provisions for
80% local participation in executive and senior
management positions and 100% local
participation in non-managerial and other
positions. There is a need to weigh up
whether certain skills are available locally and
perhaps stagger the requirements, so that local
content is mutually beneficial and not misused
for the benefit of a few well-connected
individuals.
Staying ahead of the gameAfrica is regarded by many as “high risk, high
reward”, but the risks have improved drastically
over the past 5 years. Of course, the continent is
not a one-size fits all, and experiences vary from
country to country.
For Nigeria, the key areas for improvement as
seen by Mr. Elias are infrastructural deficits;
poorly developed regulations; insecurity; slow
moving court systems and corruption. There
needs to be better resourced courts; consistency
of government policy; and greater government
commitment in tacking insecurity.
Insecurity remains an issue for Kenya, but
Mr. Anjarwalla notes that there have been
improvements, with the Government dedicating
USD 2.28 billion to the army and the police in its
2015/2016 budget. What the Government
needs to work on better, is managing the
perception of insecurity. Other areas that need
work in Kenya are: corruption, which the
increasing digitisation of Government services
should reduce; and improving efficiencies and
transparency in the judiciary.
The Ethiopian Government is already hard at
work on improving the business environment in
the context of its Growth and Transformation
Plans (GTPs) I and II. GTP I (2010 – 2015) and
GTP II (2015 – 2020) are Ethiopia’s stepped 10
year plans focused on achieving middle income
status by 2025. At present, the Government is
aggressively establishing industrial parks in all
the 11 regions in Ethiopia. There are efforts in
reforming the civil service and judiciary. Further,
the Ethiopian Investment Commission is
providing a one stop service of investment
incentives. Land acquisition for investors as all
land is the property of the State, cannot be
subject to sale or exchange, and is allocated to
investment projects on a government priority
basis. Mr. Tafesse reasons that a solution to this
could lie in the development and expansion of
industrial zones.
ConclusionAfrica is still the hottest frontier.
The continent is abundant with resources, some
of which are still being discovered. There is a
growing population and a rapidly expanding
middle class. There is a base for both skilled and
unskilled labour, and a ready market for goods
and services. With investor appetite and
improving government policies and engagement,
the best is yet to come.
John SmelcerHeads the Oil & Gas Sector Group at Webber Wentzel and his expertise in Africa related projects has been recognized by Chambers Global and IFLR1000.
6 LegalNotes
Q: Why invest in Africa?Mrs. Muchoki: Investors are driven by returns. Africa has high returns. African now has the youngest population in the world. GDP per capita income is growing and people have more purchasing power. With innovative financial solutions like Mpesa, everyone has their bank in their hands.
Q: Which sectors are seeing the most focus? Mrs. Muchoki: A major sector is Infrastructure. Various governments have ambitious development agendas. Companies like GE are heavily invested in power projects. Agriculture is now receiving increased attention, with investment projects set in Kenya for pyrethrum, cotton (1 million acre Galana farm), and the Sondu Miriu irrigation scheme. In Health, GE and Phillips have invested in cutting edge medical equipment leasing. Telecommunications and IT is also a major sector, and the Kenya government is making headway in its plans to develop Konza City, which is set to be Africa’s Silicon Valley. In September 2015, at the UN Headquarters in New York, President Kenyatta received a prestigious sustainable development award from the International Telecommunications Union for the government’s use of ICT in sustainable dev elopment. The President also announced plans to launch Enterprise Kenya, a fund aimed at supporting innocation in ICT.
Q: Africa has had diplomatic visits from the East and the West. What effect have these diplomatic efforts had on investment?Mrs. Muchoki: it is simple, business people listen to politicians. Diplomatic visits bring with
WHY INVEST IN AFRICA?
them a show of confidence and legitimacy - if your President can go there, so can you. In July 2015, President Obama made a “homecoming” visit to Kenya where he also presided over the 6th Annual Global Entrepreneurship Summit. This had an impact as American investors pledged more to Kenya. This year Kenya will host the World Economic Forum (WEF) Ministerial meeting in December, the first time this has been held in Africa. At the UN General Assembly in September 2015, President Kenyatta and President Shinzo Abe of Japan agreed that Kenya will in 2016 host the Tokyo International Conference in African Development (TICAD), the first to be held in Africa.
Q: Are there particular investment sectors you feel are largely ignored in Africa and that the government or investors should focus on? Mrs. Muchoki: Sectors such as agriculture and health which were previously on a back burner are now taking centre stage. More than sectors, are the people. There should be greater empowerment and opportunities for women and the youth. Over 75% of the population is the youth. They need mentorship and opportunities in employment and entrepreneurship. Our diaspora is staggering with high calibre decision making professionals. They should be motivated to come back and impact their skills at home in Africa.
Q: What are the main impediments to current and future investment in Africa?Mrs. Muchoki: Availability of information is a big issue. There needs to be better developed
information portals for investors to access information on areas of potential investment, and requirements and regulations for investment in chosen sectors. In Kenya, there is a cabinet committee chaired by the President which is looking into this, and KenInvest is working toward a one-stop-shop of investor information. Sector-wise, the Kenyan Ministry of Mining is also working on a central database of mining information. Most governments have worked hard in the recent past to tackle setbacks to investment such as poor legislation and regulation, fragmented business set-up requirements and poor infrastructure.
Q: In your view, how best can African government and their peoples derive the highest benefits from foreign investments?Mrs. Muchoki: There needs to be more training and mentorship of locals. Local content and inclusiveness laws are necessary. KenInvest is working on a National Investment Policy to be concluded in December 2015 that is aimed at effecting more local participation. For this to be feasible, local businesses need to pull their weight, and work harder to be investor – ready. The trend of local businesses not having income returns, audited accounts and other international business best practices needs to end.
Q: Any last gems of advice?Mrs. Muchoki: Kenya is like a champagne bottle waiting to pop. Our biggest asset is people. Come here, engage the people, and your investment will flourish.
Africa has had a lion’s share of global FDI. But that is not enough.
The continent still needs more investment in order to meet its
development objectives. What have governments done in order to
ensure this? What plans do they have for the future? We speak with
Mrs. Anne Muchoki, Chairperson of the Kenya Investment Authority
and an investment advisor in her own right, on an African country’s
take on investment. Anne Muchoki is also a director at KCB Bank. She
holds a BA (Hons) Degree in Politics and Economics from the University
of London and an MBA from Brunel University, London, as well as an
MSC in Commercial Property Management from Liverpool, John
Moores University. She is an Associate of the Royal Institution of
Chartered Surveyors and a registered real estate agent.
Anne MuchokiChairperson Kenya Investment Authority (KenInvest)
A Regulator’s View
LegalNotes 7
identify the skills gap as being one of the key risks to doing business in Africa. When Mara set up a call center business from scratch a few years ago, we had to recruit several thousand people in ten different countries. The skills did not exist but we put training mechanisms in place and today there is an oversupply of the skills we require.
Q: In your view, how best can African government and their peoples derive the highest benefits from foreign investments?Mr. Thakkar: Equitable and strategic partnerships are important for Africa to reap the highest benefits from foreign investments. On a company level, we have found this model of partnerships works for us. We look for partners with international companies with substantial industry expertise and merge this with our deep local understanding of the region. Small and medium enterprises make up 90% of Africa’s businesses. This is an attractive sector with tremendous potential if the right investments and policies are deployed. They need to grow and be more sophisticated. We need a practical and innovative way to address the skills and training gap for many of our youth. I strongly believe mentorship can provide the crucial horizontal and vertical interaction amongst peer groups and industry leaders and will lead to fewer mistakes in the long term.
Q: Any last gems of advice?Mr. Thakkar: Africa is the next big thing, there is no doubt about that. For foreign investors, the biggest mistake is to treat it as a homogenous entity. We have many different cultures, parliaments, political and regulatory systems. You cannot engage with Africa from a distance - you need seek first-hand knowledge of the market. With that, the future is very bright.
Q: Why invest in Africa?Mr. Thakkar: There has never been a better time to invest in Africa. The population is growing and more people are moving to cities, where they are taking up jobs, making more money, and demanding housing, energy, food, telecommunications and financial services.
Q: Which sectors are seeing the most focus? Mr. Thakkar: Over the next decade, we will see the commercial, residential and industrial real estate market taking off. Telecommunications is growing, and will continue to do so. There is definitely an agricultural revolution taking shape in Africa, which is essential for food security. Financial services is nascent, which is why in 2013, Bob Diamond and I launched Atlas Mara, with the goal to be sub-Saharan Africa’s premier financial institution. Two-thirds of adult Africans do not have a bank account, let alone access to savings, credit or insurance. We plan to be a game-changer in this sector by providing innovative banking services.
Q: Africa has had diplomatic visits from the East and the West. What effect have these diplomatic efforts had on investment?Mr. Thakkar: Diplomatic efforts have made their mark. The U.S Africa Summit, convened by President Barack Obama is a great example of concerted efforts to change the nature of investments on the continent. There was a clear message from the Summit - Africa offers exciting investment possibilities for US companies. To generate shared prosperity and guarantee a stable business environment, investment must be responsible in order to create a more equitable investment climate in Africa.
WHY INVEST IN AFRICA?
Q: Are there particular investment sectors you feel are largely ignored in Africa and that the government or investors should focus on? Mr. Thakkar: The future is youth and technology. Success stories of mobile payment show that, if deployed appropriately, the mobile ecosystem has the potential to address Africa’s development challenges and drive economic growth. Mobile penetration is already showing promising results - at 52% in 2012 and is expected to grow to around 79% by 2020. Our exciting new venture, Mara Sokoni will capitalize on Africa’s growing technology sector, dominated by the youth, and will provide an eco-system of technology platforms designed to connect Africans across the continent through e-commerce, m-commerce, last mile logistics, and a social media platform.
Q: What are the main impediments to current and future investment in Africa?Mr. Thakkar: On a macro level, infrastructure remains a key obstacle to investment and trade within Africa. On a micro level, many businesses
The Africa investment scene is more vibrant than ever. Why is this so? We are privileged to get an investor’s view from Mr. Ashish J. Thakkar, Executive Chairman of Mara Sokoni and Founder of Mara Group and Mara Foundation. Mr. Thakkar started his first business in 1996 at the age of 15 with a $5,000 loan. Since then, he has driven the growth of the Mara Group from a small IT business in Uganda to a globally recognised multi-sector investment group. Mara Group employs over 11,000 people across 25 African countries in sectors spanning technology, banking, real estate and infrastructure. Mr. Thakkar also serves as Chair of the United Nations Foundation, Global Entrepreneurship Council. Ashish J. Thakkar
Founder & Managing Director Mara Group
An Investor’s View
8 LegalNotes
IntroductionAfrica has developed exponentially over the past
10 years. From 2001- 2010, 6 of the world’s 10
fastest-growing economies were in sub-Saharan
Africa.
What is undeniable is that Africa is no longer
the investment “wild west” of the 20th century
and early 2000s, when inexperience, corrupt
governments and desperation for investment
caused laxity in regulations, endemic corruption,
and carte blanche investment contracts. Now,
with improvements in education, law and
constitutionalism, and access to information,
most African countries have a more literate
and knowledgeable populace, with high
expectations of its governments and of investors.
Africa has the youngest population in the world.
Local participation issues in African investment
Elizabeth KaranjaAssistant Director JMiles & [email protected]
YOU CAN’T HAVE IT ALL
According to the World Bank, between 2000
and 2008, Africa’s working age population (15-
64 years) grew by 25% from 443 million to 550
million. The continent’s labour force will reach
1 billion by 2040, more than China and India.
These people need employment, food and
social and environmental security.
Governments have reacted through the
development of legislation on local content
and local participation; taxation and royalties;
environmental protection; protection of rights
and interests of local communities; and labour
and immigration legislation. Most of the
legislative and policy changes, and in some
instances, some of the community action has
been legitimate. However, in some instances,
investors have been the subject of politically
motivated legislative changes and community
demonstrations. Investors should therefore
carefully consider these new emerging issues,
and make conscious efforts to be compliant with
local legislation and circumstances. In certain
other unjustified circumstances, contracts
together with international treaty regimes
can offer investors adequate protections for
investment.
Growing local content legislationAlthough the nature of local content may
differ among countries, this entails recruiting
and training locals, procuring local goods
and services, local equity participation, and
provision of social amenities such as health and
water facilities. Local content legislation is now
common in oil and gas production, mining,
agriculture, and telecommunication.
Among the sector specific local content
legislation are: Ghana’s Petroleum (Local
Content and Local Participation) Regulations
2013 which apply to the petroleum sector;
Uganda’s Petroleum (Exploration, Production
and Development) Act 2013 which provides
for employment of Ugandans and contracting
local goods and services; and Tanzania’s Model
Production Sharing Agreement 2013 which has
local content requirements in the extractive
industry.
There is a trend in some countries towards
extending local content in nearly all sectors
as seen in South Africa’s Broad Based Black
Economic Empowerment (BBBEE) policy and
Nigeria’s Local Content Act which covers local
content in foreign investments generally.
Hamisi MgandiLawyerJMiles & Co.
LegalNotes 9
Some legislative or social community action can
make investment unviable. To guard against
this, investors are advised to:
(a) negotiate comprehensive contractual
provisions when contracting with
governments, such as: change in law;
change in tax; and force majeure;
(b) in large development investments, negotiate
government support letters or government
guarantees;
(c) take advantage of investment risk insurance
and investment risk guarantees provided by
large development finance institutions, such
as the World Bank’s Multilateral Investment
Guarantee Agency (MIGA) and AfDB’s
political risk insurance cover;
(d) take advantage of protections offered
under Bilateral Investment Treaties (BITs),
if there are any between the investor’s
State, and the target African State. BITs
offer protections such as fair and equitable
treatment, protection from nationalisation,
among others; and
(e) take advantage of investment dispute
resolution mechanisms such as under the
International Centre for Settlement of
Investment Disputes (ICSID). About 45
African countries have signed the ICSID
Convention.
Conclusion With a better understanding of local legislation,
access to information and the right advisors,
investment in Africa should continue to be
highly rewarding.
Developing labour and immigration laws and policy Most African countries have been enacting
progressive employment legislations that adopt
majorly the International Labour Organisation
(ILO) Conventions. These laws regulate
minimum wage; minimum working hours; paid-
up leave and overtime; and protection against
fair termination of employment contracts.
Labour issues that have caused interference in
foreign investment include the right to form
or join trade unions and the right to strike.
Perhaps the most famous is the August 2012,
mining workers’ protests in South Africa, which
resulted in over 70 fatalities and affected billions
of dollars of revenue for Lonmin, the world’s
largest supplier of precious metal (the Marikana
protests).
Various countries, including Kenya, have
immigration laws which allow employment
of expatriates on the basis that there are no
skilled locals for the post, and which require,
as a condition for work permits, the training of
locals.
.
Taxation reforms Tax laws have seen several reforms
featuring increased government participation,
introduction of indirect taxes, increased
royalties based on gross rather than the net
back value, increased income tax rates and
transfer pricing, introduction of capital gains
tax, and benefit-sharing requirements with the
local communities.
For example, in 2012, Ghana increased its
royalties from 3% to 5% of the revenue
accrued and its corporate income tax rate for
mining from 25% to 35%. Zambia raised its
withholding tax from 0% to 15%. In January
2015, Kenya introduced a capital gains tax of
5% on property and equities and a separate
CGT regime for extractive industries which is
effectively 30% for residents and 37.5% for
non-residents. The Finance Act 2015 however
abolished CGT for listed securities effective 1st
January 2016.
Increased protection of rights and interests of local communitiesTThere has been increased recognition and
protection of the rights and interests of
communities living around major investment
projects. Such developments include recognition
and protection of rights of aboriginal peoples to
land based on traditional values and customs;
enhanced protection of the right of the locals
to participate in all decisions that are likely to
affect them; and the locals’ right to free, prior
and informed consent in major investments.
Most environmental laws contain provisions for
environmental and social impact assessments
and public participation.
Investment protection mechanismsInvestors should strive to comply with local
laws and regulations and understand the
realities on the ground, including any social
and community issues which may affect
the investment.
Hamisi MgandiLawyerJMiles & Co.
[JMiles & Co.] provides specialist services in the fields of international arbitration, investigation and legal consultancy out of Africa. JMiles & Co. has represented clients in investment arbitration, and international commercial arbitration before tribunals of the ICC, LCIA and ad hoc arbitration. JMiles & Co. is also a member of ICC Fraudnet.
10 LegalNotes
IntroductionSouth Africa has always been positioned as a
platform for organisations to move into other
parts of the continent. As a result, depending
on the industries in which they operate, many
organisations have chosen to establish their
regional headquarters there. It is not difficult to
see why.
Why the attraction?South Africa has strong capital
markets and a robust services
sector. It is home also to the
continent’s biggest lenders
and largest insurers. This
financial infrastructure
coupled with growth
opportunities not only in
new sectors (such as oil and
gas), growing sectors (such
as agribusiness, food &
beverage, retail, transport,
telecommunications and
others) and traditional sectors
(such as mining and metals), is
what makes South Africa an
attractive base for foreign direct
investment into the country and onto
the continent.
Adherence to the rule of law and South Africa’s
strong legislative framework has always played
a positive role in securing foreign direct
investment. The 2014 Foreign Direct Investment
(FDI) Confidence Index by A.T. Kearney ranks
South Africa as the thirteenth most attractive
destination for FDI globally. Pricing and
EAST OR WEST, SOUTH IS BEST?Investing through South Africa
consumer purchasing power also count in
South Africa’s favour.
As a result of these factors, business leaders
remain optimistic about future prospects
despite short-term challenges, and the
country definitely remains a gateway into
Africa.
Other countries, such as Nigeria and Kenya, are
also seen as potential gateways into their
regions and rather than be seen as competitors,
each of the gateways should find ways to
collaborate on telling the African growth story
for the benefit of the whole continent.
A number of South African corporates
have also diversified their portfolios
by acquiring assets offshore.
Examples of these include
transactions completed by
Woolworths, Oceana, and
Brait, the latter of which
represents a private equity
firm acquiring retail and
fitness industry assets in
the United Kingdom.
Sectors driving growth in South
AfricaFinancial services, private
equity, oil and gas, energy and
infrastructure, and retail are the
sectors which are most actively
driving growth. We have noticed that
industries serving the emerging middle
class, particularly the fast-moving consumer
goods (FMCG) market in Africa, have received
increasing focus.
One example of this is the Abraaj Group’s
acquisition of Libstar and its subsidiaries, which
is a precedent-setting private equity transaction
Christo ElsSenior PartnerWebber [email protected]
LegalNotes 11
banking or insurance spaces under one
regulatory body.
Essentially, all legislation and additional
regulation of legislation often creates work for
law firms and we are aware of numerous new
laws and regulations which will come into force
in the near future.
Challenges faced by foreign investorsAfrica has numerous legal systems and the
challenges investors face can differ depending
on which region or country is involved.
Stumbling blocks could include not knowing
which legal system applies, as well as the
uncertainty relating to the application of
regulations. However, uncertain regulations and
related delays are found throughout the world,
and are not Africa specific.
There is huge potential for economic growth in
Africa, which is a large and complex market.
Regulations alone do not generally hinder
business in the region and could essentially be
enabling, provided that there is certainty
regarding their application. At times the
uncertainty of application, and the delays that
are caused by this, are what hinders business
rather than the regulations themselves.
ConclusionDoing business in Africa is no more risky than in
many other countries or jurisdictions. Africa
comprises many emerging economies which, by
their nature, provide less certain environments,
but these risks are offset by the higher growth
margins which can be attained.
and represents a unique investment into the
FMCG sector in Africa by a global fund. This
transaction, among others, demonstrates
investor confidence in the pan-African FMCG
sector. It also comes at a time when the number
of private equity deals in Africa is the highest
since the global financial crisis of 2008. A
further example in the FMCG sector is the
merger of SABMiller’s African soft-drink units
with South Africa’s second-largest Coca-Cola
bottler and with the Coca-Cola Company’s local
operations to create an African bottling
champion.
Although the mining industry is currently under
severe pressure due to the commodities cycle,
this sector still drives significant work flow as
mining companies restructure their operations.
Legislation supporting investment in South AfricaAll investment plans announced by the
government have the ability to have a positive
impact on the economy. In particular, the
increased investments into infrastructure and
the renewable energy projects announced by
[Webber Wentzel] is one of South Africa’s leading law firms providing clients with innovative solutions to their most complex legal issues.”Chambers Global 2015
the government should see significant
opportunities for job creation and economic
growth.
South Africa is gearing up for major inward
bound investment off the back of the Gas IPP
programme being driven by the Department of
Energy and the National Treasury that will seek
bids to import LNG into South Africa’s market,
develop gas-fired power and be a catalyst for
developing South Africa’s gas economy. The
investment opportunity will be sizeable and
provide investors with a way to gain exposure
to the significant potential presented by the
emerging frontier oil and gas industry in South
Africa and the wider region.
The Promotion and Protection of Investment
Bill should also provide more certainty around
investments and is expected to be further
refined and debated; the amendments to the
Black Economic Empowerment Codes of Good
Conduct came into force earlier this year and
may cause companies to re-evaluate their
status in relation to the amendments; and the
Financial Sector Regulation Bill (Twin Peaks)
seeks to regulate financial institutions in the
12 LegalNotes
[K-Solutions & Partners] stands out in Rwanda for its highly respected business law practice, which includes activity in banking, mining, telecoms and real estate.” Chambers Global 2015
Introduction
Rwanda is a raving success story on the African
continent. The country emerged from decades
of intense civil war and genocide against the
Tutsi in 1994, to a period of remarkable
stability, which has provided a backdrop for
steady economic growth.
Real GDP has increased at an average of 8%
over 2008-2014 period and nominal GDP
reached USD7.5 billion in 2013. The growth of
GDP per capita in 2013 was USD 693 from USD
644 in 2012 and the GDP target is USD 1,240
by 2017. Rwanda is expected to reach about
USD 1.12 billion of FDI by end of the year 2015,
compared to just over USD 103 million in 2004.
It is no wonder that Rwanda was ranked to be
among the top ten African best investment
destinations in an August 2015 report by South
Africa-based Rand Merchant Bank.
The economy is dominated by value added
ALL EYES STILL ON RWANDAFostering investment via new legal regime
Julien KavarugandaManaging PartnerK-Solutions & [email protected]
Emmanuel MuragijimanaAssociateK-Solutions & [email protected]
agricultural and service activities. There has also
been increased FDI in other sectors such as
natural resources. A good legal and regulatory
regime is central to investment, and Rwanda
has been growing steadily in this regard.
Rwanda has also been ranked among the safest
countries in the world according to the Gallup
Global Law and Order 2015 report. Rwanda has
also been recognised by the UN Secretary
General as the 5th largest contributor of peace
keepers worldwide.
Finally, Rwanda has been on several occasions
ranked among developing countries in the
world that are dynamic performers when it
comes to social and economic growth.
A new legal framework for investment
Rwanda’s investment law has been in place since
2005. There were challenges in that: investment
law incentives were not directed to priority
activities; additional incentives given to companies
created market distortions; and some incentives
created loopholes that only a few big businesses
exploited to reduce their tax.
It was decided that the law should be repealed and
replaced with a more flexible and adapted law
which incentivized priority sectors and removed
identified loopholes. It is in that perspective that
the law n° 06/2015 of 28/03/2015 relating to
investment promotion and facilitation (the
Investment Code) was formulated in May 2015, to
replace the law of 2005.
Set priorities
Under the old investment law, the Rwandan
Development Board (RDB) was established in
2008 to facilitate and fast track new investment
projects. RDB has chosen energy, agriculture,
tourism and ICT as priority sectors in which to
target investment.
The rationale of the Investment Code is to have
more targeted incentives that will not only aid
investment promotion but also provide
opportunity for the emerging sectors to grow
and thrive.
Under the Investment Code, all business sectors
shall be open to private investment regardless
of the origin of the investor (local and foreign).
Investors are encouraged to invest in priority
economic sectors such as export, industrial
manufacturing, energy, tourism, mining,
transport, information and communication
technologies, financial services and construction
of low-cost housing.
LegalNotes 13
RwandaRwanda’s government has
implemented impressive regulatory
reforms since 2008. These include
a new Intellectual Property law, a
law on arbitration and conciliation
in commercial matters (2008), a law
establishing the Kigali International
Arbitration Centre (2010) and a new
company law adopted in 2009. The
World Bank Group ranked Rwanda
amongst the world’s top business
climate reformers in 2011 and 2012.
Currently, Rwanda is ranked 46th out
of 189 economies in the World Bank’s
Doing Business Report 2015.
Rights and protection of investors
Under the Investment Code, a foreign investor
may invest and purchase shares in an investment
enterprise in Rwanda and shall be given equal
treatment with Rwandan investors with regard
to incentives and investment facilitation.
Investors’ capital is protected. Under Article 8 of
the Investment Code repatriation of capital and
assets is allowed upon fulfilling all tax
obligations in Rwanda. Investors have a right to
own private property, whether individually or in
association with others. The Investment Code
guarantees that no action to expropriate an
investor’s property in public interest shall be
taken, unless the investor is given fair
compensation in accordance with relevant
laws.
Investors’ intellectual property rights and
legitimate rights related to technology transfer
are also required to be guaranteed.
Investment registration
In order to qualify for the incentives provided
for by law, an investor is required to register
with the RDB. An investor who fulfils the
registered investment enterprise shall be
amicably settled. When an amicable settlement
cannot be reached, parties are required to refer
the dispute to arbitration as agreed upon in a
written agreement between both parties.
Rwanda is also enforcing foreign awards in less
than 30 days. Where no arbitration procedure is
provided under a written agreement, both
parties should refer the matter to the competent
commercial court in Rwanda which can issue a
decision in 2-3 months.
Conclusion
Rwanda has come a long way since 1994. It has
established a stable government, secured peace
and safety in its territory. It has made great
strides in restoring and reforming the economy
and in 2010 was named by the World Bank as
the world’s top reformer. It has articulated an
inspiring vision of its future – Vision 2020 – that
sees the country reaching middle-income status
over the next 5 years.
The country is on the cusp of development, and
with the new Investment Code, there are
greater things to be seen in the future.
Emmanuel MuragijimanaAssociateK-Solutions & [email protected]
registration requirements referred to in the
Investment Code is required to be issued with
an investment certificate within 48 hours from
the date of receipt of the complete application
by RDB.
Investment incentives
Under the Investment Code, investors who
have secured investment certificates are eligible
for the various incentives, including: preferential
corporate income tax rate of 0%; preferential
corporate income tax rate of 15%; corporate
income tax holiday of up to 7 years; corporate
income tax holiday of up to 5 years; exemption
of customs tax for products used in Export
Processing Zones; exemption of Capital Gains
Tax; Value Added Tax refund; accelerated
depreciation; and immigration incentives.
The Investment code provides for the conditions
applicable for each incentive.
Dispute resolution
According to the Investment Code, any dispute
arising between a foreign investor and one or
more public organs in connection with a
14 LegalNotes
[G. Elias & Co.] They approach every assignment with the same degree of professionalism.” Chambers Global 2015
Introduction
May 2015 marked a watershed in Nigeria’s 55
year old political history. For the first time, a
democratic transfer of federal executive power
took place from the ruling party to an opposition
political party.
Despite the smooth political transition rising
inflation, falling crude oil prices, dwindling
foreign revenues and a weak currency -the
Naira- remain prevalent.
The Central Bank of Nigeria (CBN) has
introduced several measures to check
speculation in the Naira and the consequent
impact on the Nigerian economy. This article
discusses the regulatory measures taken by the
CBN and examines their impact on trade and
investment.
REIN IN THE NAIRANew foreign exchange controls in Nigeria
Onyinye ChukwuSenior AssociateG. Elias & [email protected]
CBN’s directives to regulate foreign exchange
One of the functions of the CBN, as the primary
regulator of the Nigerian banking and financial
services sector, is to build the nation’s reserves
and maintain a stable Naira. Between February
and August 2015, the CBN issued several
regulations (CBN Circulars), which:
(i) restricted the use to which repatriated
export proceeds in foreign currency
domiciliary accounts could be put;
(ii) restricted access to the CBN-regulated
foreign exchange or interbank market by
exporters who fail to repatriate proceeds of
oil and non-oil exports within the specified
timelines;
(iii) prohibited the payment in foreign currency
for goods bought or services in respect of
transactions consummated in Nigeria;
(iv) imposed limits on Naira denominated credit
and debit card transactions outside Nigeria;
(v) excluded from the official foreign exchange
market, the purchase of foreign exchange
for specified items including eurobonds,
foreign currency denominated bonds and
share purchases; and
(vi) prohibited cash deposits of foreign currency
in domiciliary accounts.
It is hoped that the CBN Circulars will, at least
in the interim, stem the tide of foreign capital
outflows from Nigeria and stabilize the value of
the Naira relative to other major international
currencies. The regulatory actions are also
aimed at encouraging local production of goods
and services, not just for the local market but
also for the export market, thus generating
much-needed foreign revenues.
Key concerns in Trade and Investment
The CBN Circulars have been criticized as
“knee-jerk” reactions to the economic problems
that have arisen largely due to inadequate (or
lack of) planning by the managers of the
Nigerian economy, Nigeria’s over-dependence
on crude oil revenues and the absence of an
indigenous export-oriented manufacturing
sector. Nigeria’s oil-based economy is highly
dependent on imported goods and services.
Access to and control of foreign exchange is
thus critical to ensuring growth of Nigeria’s
economy.
LegalNotes 15 LegalNotes 15
NigeriaNigeria is one of the gateways
to investments in Africa due to
its enormous human and natural
resources, the large population
and a ready market for goods and
services alike. The Nigerian economic
climate is investment-friendly and
the government has been proactive
in its bid to attract foreign direct
investments. The significant reforms
in most sectors of the Nigerian
economy in the last 10 years have
led to a large inflow of foreign direct
investment into Nigeria, particularly in
the telecommunications, oil and gas,
and, more recently, the electric power
sector as a result of which Nigeria
is now ranked as Africa’s largest
economy with a GDP of over US$ 500
billion.
The CBN’s prohibition of foreign currency
deposits in domiciliary accounts may hamper
legitimate requests for foreign exchange and
transactions that do not readily lend themselves
to big-ticket foreign currency purchases from
the interbank market. Medical bills and school
fees are ready examples. Other unintended
‘victims’ of the CBN policies are small businesses
and medium scale enterprises. In the absence of
a strong manufacturing base, businesses risk
failure by reason of the foreign exchange
controls. Fortunately, the CBN has sought to
address this concern by emphasizing that
legitimate applications for foreign exchange will
be entertained and given priority.
Another concern is that the measures may lead
to the creation of an alternative (unofficial)
foreign exchange market. This would ultimately
lead to speculation and unnecessary pressure
on the local currency.
There is also the risk of default under existing
contracts where payment obligations may
become impossible to perform as access to
foreign exchange for items covered under the
contracts are barred.
Conclusion
The measures taken by the CBN offer short
term respite to the weak Naira, but they will not
achieve long term solutions to Nigeria’s forex
liquidity crisis. What is required is a diversified
economy, with a strong manufacturing and
agriculture base. Prior to the discovery of crude
oil in Nigeria, export revenues from agricultural
produce constituted up to 50 per cent of
Nigeria’s foreign earnings. That is no longer the
case.
The agricultural sector needs to be revitalized
with increased bank lending to it and the
provision of support services by relevant
government agencies. The obvious benefits of a
diversification policy are employment creation,
increased productivity in the manufacturing and
agricultural sectors, foreign earnings from
manufactured goods and agricultural produce
geared towards the export market. It is only
then that wealth can be meaningfully created
and foreign earnings increased. This should be
the economic policy thrust of government, in
order to generate sufficient foreign exchange to
meet the demands of the Nigerian economy.
16 LegalNotes
ISLAMIC FINANCE IN KENYA
Nicole GichuhiAssociateAnjarwalla & [email protected]
ties with the Middle East and South-East
Asia; a growing Muslim population; financial
literacy on Shariah-compliant products amid
policymakers; and the reformist attitude of the
Central Bank of Kenya (CBK) and the Capital
Markets Authority (CMA).
Kenya as a hub for Islamic Finance
Kenya has been nurturing its ambition of
becoming a regional Islamic finance hub for
some time now. It has 2 fully fledged Shariah-
compliant banks; 7 conventional banks
offering Islamic finance; and several licensed
takaful (Insurance) and retakaful (re-insurance)
businesses.
In 2015, the CMA launched its master plan,
as part of a broad 10-year strategy designed
to boost capital markets in Kenya’s economy.
Under the master plan, the CMA declared
its intention to make the country a centre of
excellence in Islamic finance, a key priority.
Under its new real estate investment trust (REIT)
regulations, the CMA provides for the creation
of Islamic REITs.
In insurance, the Insurance Regulatory Authority
has also rolled out Takaful Operational
Guidelines to allow Takaful windows to
operate in the country. The Takaful Operational
Guidelines are still awaiting Parliamentary
approval. Once the guidelines come into force,
it is likely that we will see new Takaful windows
being opened.
In April 2015, the Government signed a
memorandum of understanding with the State
New growth opportunities
Introduction
Islamic finance is the new frontier for growth and has witnessed considerable progress in the
global finance industry in recent years. According to the AfDB, in 2014, the global Islamic finance
investments were estimated at about USD 2 trillion and are estimated to surpass the USD 4 trillion
mark by the year 2020, with Africa accounting for about 2.4% of global Islamic banking assets and
2.8% of Islamic fund management assets.
The Islamic finance market has been growing in Kenya, powered by several factors including:
existing funding gaps, particularly in power, infrastructure, health and SMEs; strong economic
LegalNotes 17
[Anjarwalla & Khanna] It continues to prove itself as one of the top firms in the country.”Chambers Global 2014
of Qatar on the establishment of the Nairobi
International Financial Centre (NIFC). The
NIFC is one of the flagship projects of Kenya’s
Vision 2030 development blueprint. The NIFC
is expected to have a well-functioning financial
system to attract international capital issuers
and investors, as well as act as a gateway for
financing into the eastern and southern Africa
regions.
For the Islamic finance industry, these
developments signify the Government’s
commitment to advance Kenya’s position as an
Islamic finance hub.
Opportunities for growth
There is great potential for Islamic finance in
investment financing for both the Government
and the corporate sector in Kenya to satisfy the
current project funding deficit. According to the
National Treasury Cabinet Secretary of Kenya,
the country’s annual infrastructure budget
deficit currently stands at around USD 2 billion.
Against this backdrop, Kenya has been gearing
up to issue its debut sovereign Islamic bond
(Sukuk), following in the footsteps of Senegal’s
successful USD 208 million Sukuk in 2014 and
South Africa’s USD 500 million Sukuk. Sukuks
are Shariah-compliant bonds that do not pay
interest to investors, but instead pay out profits
based on income from underlying assets. If
issued, Kenya’s Sukuk will act as a catalyst
for corporate institutions to follow suit and
promote much needed overseas investment in
Kenya’s infrastructure.
This will be an exciting area to watch as the
country’s infrastructure and energy financing
needs will make Sukuks increasingly viable,
especially if the country is keen on attracting
funds from investors who favour Shari’ah
compliant instruments as well as potential
Sukuk issuers.
The private sector has also witnessed activity
in Shariah compliant bonds. Kurwitu Ventures
Limited, which is listed on the growing market
segment (GEMS) of the Nairobi Securities
Exchange, has issued Shariah compliant bonds.
FCB Capital, the investment branch of First
Community Bank, Kenya’s second fully fledged
Islamic bank, has launched plans to issue a
series of local currency Sukuk as well as Islamic
capital market products for the GEMS.
Challenges
Despite positive growth, Islamic finance faces
challenges at both regional and global levels. In
Kenya, the Islamic finance industry is governed
by national and international regulatory
and supervisory frameworks developed for
conventional finance. Unlike conventional
financial models, Islamic finance models strictly
adhere to investment principles based on risk-
sharing and not risk-transfer.
These Shariah principles emphasize on bans on:
charging interest (Riba), products with excessive
uncertainty (Gharar), gambling (Maysir), and
financing of prohibited activities (Haram), and
are not always in harmony with the national
laws. For instance, section 16 of the Banking
Act of Kenya requires banks to pay interest
on savings accounts, provided the minimum
balance is maintained. This is contrary to
Shariah law which strictly prohibits the payment
of interest.
Additionally, the current Kenyan tax framework
does not afford a level playing field for Islamic
finance products and services, which are
susceptible to adverse taxation because they
involve multiple transfers of the assets backing
them. The laws need to be updated to accord
tax neutrality to Islamic finance transactions.
Based on the above, there is a critical need to
align existing laws to support Shariah models
in order to develop Islamic finance further.
Other African governments including Tanzania
and Uganda are reviewing their laws to
accommodate Islamic finance, further attesting
to the fact that the business case for Islamic
finance in East Africa is indeed proven.
Other key challenges facing the growth of
Islamic finance in Kenya include: lack of clear
CBK guidelines on disclosure of profits earned
on Islamic assets; lack of a clear understanding
of the core Shariah principles since they
differ from conventional banking models; the
misconception that Islamic finance is available
for Muslims only; and shortage of trained or
experienced professionals in the Islamic finance
field.
A good outlook ahead
Despite some challenges, the market for Sharia-
compliant financial services will continue to
grow. A key feature of global Islamic finance
is the Sukuk market, which supports private
foreign direct investment flows, not only from
investors in capital surplus countries such as
Bahrain, Qatar, Saudi Arabia and the United
Arab Emirates, but also from institutional
investors in markets such as Malaysia, the
United Kingdom and the United States.
There is also potential for the development of
secondary markets for trading Sukuk bonds,
which will likely provide more comfort for
investors.
Aside from the Sukuk market, the Islamic
market holds potential in the medium-run.
As incomes rise, consumers will demand
more sophisticated financial products at more
competitive prices. Given the sizeable Muslim
population in the country and arising awareness
of Islamic finance, there is definitely room for
the growth.
18 LegalNotes
The challenge, however, has always been and
remains, how best to exploit the sector to its full
potential.
The ban on unprocessed minerals
Notwithstanding the promise and endowment
in mineral resources, Uganda’s mining sector
seems beset with a host of both legal and policy
setbacks. Since 2011, it has been grappling
with the effects of a Government ban on the
export of unprocessed mineral ore.
The justification for the export ban was that
mineral ore was an exhaustible resource that
faced a real risk of depletion by the miners,
without any long term contribution to the
infrastructural development of the country.
According to the Government, exporting ore
was equivalent to selling “mere soil” with no
significant returns to the economy in terms of
value addition and employment opportunities.
The Government hoped that the ban would
enable sustainable growth through job creation
in the mining sector, particularly iron ore,
vermiculite, gold, copper, tin, tungsten, nickel,
zinc and tantalum.
Non-compliance with the ban would have
adverse consequences, particularly on the
renewal of a licence.
Impact of the ban
Investors in the mining sector protested the ban
arguing that it was a major hindrance to
business. It is estimated that 90% of junior
exploration companies that existed in 2010
closed down as a result of the ban.
Introduction
Uganda’s mining sector has for a long time held much promise. Its mineral wealth consists of a
variety of both metallic and industrial minerals. A recent aerial survey of 80% of Uganda confirmed
that its mineral potential includes among others, 6 million tonnes of copper, 5.5 million tonnes of
cobalt, and an additional 110 metric tonnes of iron deposits, over and above the 300 metric tonnes
previously discovered. Uganda also has 5 million troy ounces of gold and an additional 55 million
metric tonnes of vermiculite, 3.5 million tonnes of tin and 25 million tonnes of limestone.
Apollo N. MakubuyaPartnerMMAKS [email protected]
Fiona N. MagonaSenior AssociateMMAKS [email protected]
Uganda lifts ban on export of unprocessed mineralsNEW HOPE FOR THE MINERS
LegalNotes 19
According to investors, the Government’s value
addition plan requiring investors to establish
local processing plants to refine the minerals
into value added products for export, was not
feasible. In their view, the volume of electricity
required for the plants may not be available in
Uganda, and would inflate the already
substantial investment required to set up the
necessary facilities.
The ban significantly slowed down operations,
causing mining companies to terminate
contracts, lay off workers and restructure loans
with commercial institutions. This was
aggravated by the fact that the ban was a
blanket ban on the exportation of all
unprocessed minerals in the country, with no
time limits or indication as to when the ban
would end.
Actions of the Stakeholders in the Mining Industry
The effects of the ban galvanised investors and
other stakeholders in the sector to lobby for a
lifting of the ban. The miners under the Uganda
Chamber of Mines and Petroleum argued that
earnings from mineral exports had significantly
dropped since the implementation of the ban,
and that smuggling of ore was likely to rise
since formal exports had been blocked. They
maintained that there was no risk of the
resources being depleted, since the volumes of
exports were still low and most of the mining
activities were at exploratory stage.
The Good News
Following intensive lobbying by the private
sector, the 4-year ban on unprocessed mineral
ore in Uganda was partially lifted at a meeting
with the President, government officials, and
various stakeholders in the mining sector in late
August 2015.
The President was agreeable to lifting the ban,
with the exception of iron ore and copper. He
explained that the continuing ban on iron ore
was due to the high freight costs of importing
steel particularly in light of the various dams
being constructed in Uganda, using steel. He
noted the fact that iron ore was sold at USD 33
per metric tonne yet its product Steel sells at
about USD 700, which translated to a loss of
approximately USD 667. Regarding the ban on
copper, the Chinese had been requested to
process the “blister copper” into “cathode
copper” instead of importing the latter.
The President supported the decision for the
partial ban arguing that other economies had
benefited from similar bans, for instance
Indonesia, which banned the export of bauxite
to China in a bid to have it locally processed by
Chinese investors into aluminium. The ban
generated jobs and spurred on the economy.
Way Forward
The partial lifting of the ban has been well
received by sector players. According to
independent research and reports, Uganda’s
revenue from mineral exports had fallen from
Uganda Shillings 208.5 billion in 2011/2012
financial year to Uganda Shillings 168.4 billion
in 2014/2015. Uganda could now raise as much
as USD 2.15 billion in royalties from iron ore
(USD 800 million), gold (USD 550 million),
vermiculite (USD 200 million) and limestone
(USD 600 million).
The question whether the continuing ban on
iron ore and copper will achieve the objective of
maximising gains on refined materials, remains
to be tested. Whilst a cloud of anticipation
for a complete lifting of the ban looms,
the general consensus across the African
continent is that refined minerals fetch higher
revenues on the global market, hence countries
endowed with mineral wealth are encouraged
to focus on wealth creation through value
addition to their minerals, and skills transfer
through the employment of the communities
involved.
Pending the complete lifting of the ban, the
partial ban has removed a bottleneck for
investors engaged in the mining and
development of other minerals within Uganda,
placing it back on a competitive platform with
other major mining players in the region. The
ban has also brought into sharp focus the issue
whether there are adequate structures and
systems in place to encourage and support
investment in the mining sector. Earlier in
2015, representatives of small scale and
artisanal miners met with senior government
officials, with a proposal for the establishment
of a national mineral processing plant that
would be capitalised to buy the unprocessed
minerals from them. This option remains to be
explored together with legislative, policy
changes and other considerations required to
enable the full exploitation of the sector’s
potential.
20 LegalNotes
It is envisaged that the ADGM will, in due course, develop into a centralised business zone to channel investments into the UAE. As the ADGM evolves with time, it will be interesting to see whether the ADGM is positioned at par with the decade-old DIFC, or whether it emerges as a distinct player in the UAE financial services space, creating a niche for itself.
The ADGM, in time, may provide a platform for businesses where other existing free zones may not be adequate or suitable. We may see the landscape evolve to one which is similar to London’s 2 distinct financial markets: the Alternative Investment Market (AIM) and the London Stock Exchange (LSE), whereby the former has a less stringent, faster and more cost-effective listing process as compared to the latter.
New Companies Law in DubaiIn March 2015, the UAE government issued a new Commercial Companies Law: Federal Law No. 2 of 2015 on Commercial Companies(the New Companies Law), replacing the pre-existing Federal Law No. 8 of 1984.
One of the main changes introduced in the New Companies Law is in relation to the number of shareholders (minimum and maximum) which a limited liability company (LLC) can have. The minimum number of permitted shareholders has been reduced from 2 shareholders to 1; thus resulting in greater benefits for UAE nationals who wish to start a business independently under the LLC umbrella. In relation to Public Joint Stock Companies (PJSCs), the rules relating to share capital, founders, management, Initial Public Offerings (IPOs), financial assistance and takeovers have also changed, which should allow the founders
IntroductionThe United Arab Emirates (UAE) has long been regarded as a global business gateway, not just for foreign investors coming into the Middle East but also to investors who desire to explore other jurisdictions such as Africa and South Asia. Some of the reasons for this have been the UAE’s favourable tax regime, the development of special economic zones and free zones, a vibrant financial and professional services industry based in free zones like the Dubai International Financial Centre (DIFC), and a progressive legal system that is steadily evolving to adapt to the demands of the modern day investor.
2015 has seen various changes in the UAE legal sphere, many of which are geared towards fostering investments in the UAE. This article briefly highlights some of the changes.
The Abu Dhabi Global Market The Emirate of Abu Dhabi has established the Abu Dhabi Global Market (ADGM). The ADGM is a financial free zone with developed infrastructure, a favourable business environment and a sound regulatory framework for new businesses.
The ADGM has a 3-pillar system:
• the Financial Services Regulatory Authority, which regulates and monitors compliance with applicable laws, rules and regulations;
• the Registration Authority, which manages all aspects of incorporation, registration and licensing of legal entities; and
• the ADGM Courts, which provide business friendly dispute resolution services.
Darryl BarrettoAssociateAnjarwalla Collins & [email protected]
Changes to the Business and Legal EnvironmentGLOBAL BUSINESS IN THE UAE
of PJSCs to exercise greater control after their shares are listed on the stock exchange. This should encourage UAE companies to list on local markets and serve as an incentive for strategic partners to invest in such companies.
Prior to the issue of the New Companies Law, there was much speculation surrounding foreign ownership restrictions and whether it would be removed completely or at least relaxed. Despite the changes to the law on other matters discussed, the foreign ownership limits under the New Companies Law remain unchanged. As such, foreign investors are still generally limited to 49% ownership in an onshore UAE company.
Draft Foreign Investment LawForeign investors are awaiting the issue of the draft Foreign Investment Law, which is currently in its final stages and is expected to be issued towards the end of 2015. If approved, the Foreign Investment Law would allow 100% foreign investments in UAE onshore companies which are involved in specific business activities or sectors.
While it is not yet clear which sectors will be impacted by the Foreign Investment Law, the expectation is that the sectors will relate in some manner to social infrastructure, such as education and healthcare.
ConclusionThe recent developments discussed above are geared towards further establishing the UAE as a favourable business destination and investment gateway to other jurisdictions. Of course, further changes are anticipated since the UAE continuously strives to adapt itself to the evolving global business environment.
LegalNotes 21
ALN SpecialALN ANNUAL INTERNATIONAL CONFERENCESALN’s international conferences are held annually with the aim of connecting Africa to the international market and promoting business with and on the continent. Each year, our conferences bring together top business leaders and professionals, with deep experience of working in Africa. Our conferences continue to provide an environment in which investors searching for information and lucrative investment opportunities on the continent are able to meet with African business people and stakeholders, and broker business deals.
During our conferences, we are able to promote panel discussions on opportunities on the continent and solutions that help investors navigate the business environment in Africa due to our deep understanding of the continent. Our panel discussions highlight hard business issues, practical experiences, and live opportunities based on the candid insights and experiences of the panelists, most of whom have extensive African investment experience and reflect the hot spots for business on the continent.
In November 2014, ALN together with AC&H Legal Consultants, ALN’s regional office in UAE, hosted its first international conference outside Africa at The Palace, Dubai. The event was a great success attracting over 300 delegates from all over the world and many dignitaries from Africa and the UAE.
Building on the success of this event, ALN will once again be hosting its Annual Global Conference - “Africa: Bridging the Gulf” at the Park Hyatt, Dubai in October 2015. The two day Conference will bring together business leaders, decision makers, strategic advisors from Africa and international investors from the UAE, GCC, China, Singapore, Japan, South Korea, India, Europe, UK, and USA; who all share a common passion for doing business in Africa.
It will also provide a forum for investors and other stakeholders to hold conversations on industry sectors and regions that provide the greatest investment potential in Africa. In addition, it will highlight the challenges facing business and investment on the ground in Africa, and explore the avenues to navigate through Africa’s dynamic business environment.
Please visit our website www.africalegalnetwork.com for more information on our events.
ALN 2015 ANNUAL GLOBAL CONFERENCE: MEET YOUR HOSTS!
Anjarwalla Collins & Haidermota Legal Consultants (AC&H)
AC&H is the regional office of ALN. The firm was founded in 2011 with Mr. Atiq Anjarwalla as Managing Partner, in order to better service the growing needs of ALN clients. Our lawyers are qualified in Lebanon, Kenya, Nigeria, United Kingdom, India and Pakistan.
AC&H provides solutions to clients seeking to use the UAE as a global platform to expand existing operations or, to set up new businesses in the free zones of the UAE. The team is well versed in corporate and commercial matters including: Hospitality, FMCG, Energy, Healthcare, Education, Private Equity, Intellectual Property and Banking & Finance.
At AC&H and ALN we are committed to assisting clients in Bridging the Gulf to and from Africa.
The family of AC&H and ALN warmly welcomes you to Dubai!
22 LegalNotes
IntroductionKenya is rich in minerals and natural resources
including: mineral sands, titanium, gold,
limestone and fluorspar. However, these
resources did not in the past see a steady focus,
and until recently, mineral exports contributed
to less than 1% of the country’s GDP.
International recognition of Kenya’s mining
potential was heightened in 2014, with Base
Resources’ exportation of 25,000 tonnes of
titanium from Kenya to China.
The recent mineral finds have over time
highlighted the need for a progressive mining
law regime that would boost foreign investment,
whilst at the same time ensuring that Kenya
and its people benefit from the mineral
exploitation.
Up until 2013, the administration of the Mining
Act fell within the mandate of various ministries,
such as the Ministry of Environment and Natural
Resources. With the restructuring of the
UNDERGROUND FORTUNESRegulation of the mining sector in Kenya
national government in 2013, this mandate
has since been transferred to a standalone
Ministry for Mining, a sign of the growing
importance of the mining sector to the Kenyan
economy. However, Kenya has still been
operating under an antiquated Mining Act
(Cap.306, Laws of Kenya), which is in need of
improvement.
Earlier in 2015, a new Mining Bill was to
proceed to a third reading in Parliament,
setting the stage for the Bill to be passed into
law later in the year. Under the Constitution,
legislation to govern agreements relating to
natural resources is to be enacted by
Parliament within five (5) years of the date the
Constitution came into force (27th August,
2010). Parliament has extended the
constitutional deadline for enactment of such
legislation by a further one (1) year from 27th
August, 2015. As a result of the constitutional
extension, the legal regime governing the
mining sector under the current Mining Act
remains in force.
Below are some of the highlights of the Mining
Bill as it affects the current Mining Act, which
may be of interest to local and foreign investors.
A change in the ownership of mineralsUnder the current Mining Act, all unextracted
minerals (other than common minerals) are
vested in the Government, subject to any rights
granted or recognized under any law in any
other person.
The Mining Bill proposes that all minerals in
Kenya are held by the national government, in
trust for the people of Kenya.
Expanded powers of the Cabinet Secretary for Mining Under the current Mining Act, the Commissioner
of Mines and Geology is the officer responsible
for the general administration of the Act
including, among other things, the granting,
issuing, revoking, suspending or renewing
prospecting rights, exclusive prospecting licenses
and leases.
The Mining Bill proposes that the Cabinet
Secretary for Mining shall be the Principal
Officer with wide ranging functions, including
those previously exercised by the Commissioner
of Mines and Geology. These include: (i) the
general administration of the proposed law; (ii)
making regulations to prescribe procedures for
the negotiation, grant, revocation, suspension
or renewal of mineral rights; (iii) designating
areas reserved for small or large scale operations;
(iv) restricting or excluding mining areas from
operations; and (v) declaring certain minerals to
Akash DevaniSenior PartnerAnjarwalla & [email protected]
Fidel MbayaPrincipal AssociateAnjarwalla & [email protected]
LegalNotes 23
be strategic minerals for socio economic
development or national security purposes.
Changes in the granting of prospecting and mining licencesUnder the current Mining Act, a prospecting
right may only be issued to an adult (or person
acting as an agent for a partnership or company)
who in the opinion of the Commissioner for
Mining and Geology is able to understand the
Act and its regulations and has not previously
been issued with a prospecting right.
The Mining Bill has expanded this definition and
proposes that a mineral right shall be granted
to; (i) an adult of sound mind who is an
undischarged bankrupt and has the required
technical capacity, expertise, experience and
financial resources and is not otherwise
disqualified under any other written law; or (ii)
a company registered and established in Kenya
that is not in the process of winding up and is
not in liquidation. The directors of such
companies shall demonstrate the required
technical capacity, expertise, experience and
financial resources. This provision seems to be
aimed at reducing the incidences of speculation
in the mining sector.
Under section 18 of the current Mining Act, an
exclusive prospecting licence may be granted by
the Commissioner to any person who holds a
prospecting right.
The Mining Bill proposes to provide for licences
and permits that authorise the right holder to
engage in either large scale or small scale
operations. The specific licences and permits are
as shown in Fig1. and Fig2:
Mineral rights on private and community landThe Mining Bill proposes that mineral rights
shall not be granted with respect to private or
community land without the express consent
of: (i) the landowner (in the case of private
land); and (ii) the authority obligated by law
relating to community land and the National
Land Commission if the community land is
un-alienated (in the case of community land). In
both cases, the applicant will have to enter into
legal binding agreements with the affected
landowners or community, for the conduct of
prospecting operations and for payment of
compensation.
Fidel MbayaPrincipal AssociateAnjarwalla & [email protected]
TYPE OF LICENCE DURATION OF LICENCE
RIGHTS CONFERRED BY LICENCE
Prospecting licence Not exceeding 3 years Exclusive rights to carry out prospecting operations
Retention licence Not exceeding 2 years Exclusive rights to conduct prospecting opera-tions and apply for a mining licence
Mining licence Not exceeding 25 years or the forecast life of the mine, whichever is shorter
Exclusive rights to conduct mining operations in respect of minerals or mineral deposits
Fig1.Large Scale Operations
Fig2. Small scale operations
Licences for large scale operations may be issued to both local and foreign investors, save for such conditions and restrictions as are set out in the Mining Bill.
TYPE OF PERMITS DURATION OF PERMIT
RIGHTS CONFERRED BY PERMIT
Prospecting permit Not exceeding 5 years and renewable for a further term
Rights to carry out prospecting operations
Mining permit Not exceeding 10 years
Exclusive rights to conduct mining operations
The Mining Bill proposes that persons eligible for permits for small scale operations must be local investors who are citizens of Kenya or body corporates wholly owned by Kenyan citizens. However, we understand that Parliament in its debate of the Mining Bill, is reviewing this position to allow up to 40% ownership by foreign investors of body corporates engaging in small scale operations.
Local participation in the mining sectorThe Mining Bill proposes that the Cabinet Secretary shall prescribe limits on capital expenditure in
mining companies. Mining companies whose planned expenditure falls over the prescribed limits
shall, within 4 years of obtaining a mining licence, offload at least 20% of the company’s equity at
the local stock exchange. An extension of time for offloading equity may be granted by the Cabinet
Secretary where the market conditions do not allow for a successful completion of an offering at
the local stock exchange.
The Mining Bill also proposes that, as condition of a grant of a mineral right by the Cabinet
Secretary, a mineral right holder shall ensure transfer of skills and capacity building to citizens of
Kenya and shall submit a detailed programme for recruitment and training of citizens of Kenya,
while the Cabinet Secretary shall prescribe regulations governing the term and number of
expatriates. Additionally, the Mining Bill provides that the holder of a mineral right shall give
preference in employment to citizens of Kenya.
ConclusionIf passed into law, the Mining Bill is bound to cause drastic changes in the Kenyan mining sector
as we know it. Present and future investors will need to familiarise themselves with these changes
and plan for the transition. We are keenly following the developments around the proposed new
law and will endeavour to keep you appraised of the progress.
24 LegalNotes
WHEN MANY CEASARS AGREEKenya’s expanding network of double tax treaties
Kenyan trend on DTTs
With the aim of encouraging increased foreign
investment in the country, Kenya has concluded
DTTs with a number of countries as shown in
Fig. 1 below.
Where a business is operating in both Kenya
and in a contracting state that Kenya has a DTT
with, the respective DTT will set out the tax
calculation methods, definitions and the rate
for various taxes that will be applicable to
individuals and companies resident in the
contracting state. DTTs offer certainty for
foreign investors as they will be cushioned from
Paul MutegiAssociate Anjarwalla & [email protected]
Introduction
In a bid to further encourage foreign investment,
Kenya has been ramping up its efforts to agree
double tax treaties (DTTs) with investor
countries. Kenya at present has 9 DTTs which
are in force, and 10 other DTTs which are
awaiting entry into force.
A DTT is an arrangement entered into between
two countries, which affords relief from double
taxation of income tax and any taxes of similar
character, imposed by the laws of the respective
countries. Under most DTTs, the provisions rank
higher than local legislation and therefore, in
case of an inconsistency, both contracting
states have an assurance that the DTT text will
be honoured by the other party. Indeed, in
Kenya’s case, the Income Tax Act (Chapter 470,
Laws of Kenya) (the ITA) specifies that a DTT will
override the ITA with respect to a tax rate
prescribed in the DTT.
amendments on the Kenyan domestic taxation
law.
DTTs ordinarily provide for Mutual Assistance
Procedures (MAP) available to a tax payer
whenever a tax dispute arises that may lead to
double taxation of the same income. MAP is
particularly important where there is uncertainty
about the meaning of certain DTT or local tax
legislation. The DTT requires that the two
governments reach a mutually agreed position
to avoid double taxation of the same income.
DTTs also provide for exchange of information
between contracting states and thereby
Kenneth NjugunaPrincipal AssociateAnjarwalla & [email protected]
DTTs in force DTTs signed awaiting entry into force
United Kingdom Islamic Republic of Iran
Germany Seychelles
Canada Nigeria
Denmark South Africa
Norway United Arab Emirates
ZambiaEast African Community member States:
Burundi
Rwanda,
Tanzania
Uganda
India Netherlands
France Mauritius
Sweden Kuwait
South Korea
Fig1. Kenya Double Tax Treaties (DTTs)
LegalNotes 25
Paul MutegiAssociate Anjarwalla & [email protected]
Subject matter UK% Germany & Canada %
Denmark, Norway, Sweden & Zambia%
India% France %
Management & Professional fees 12.5 15 20 17.5 20
Royalties 15 15 20 20 20
Rent on immovable property 30 30 30 30 30
Rent on movable property 15 15 15 15 15
individual or by a person not ultimately owned
by the individuals. A ‘person’ is defined to
include an individual, company, partnership,
trust, government, or similar body or association.
It should however be noted that this restriction
ordinarily does not apply for a company that is
listed in the contracting state.
The intention of the restriction is to prevent
abuse of DTTs through treaty shopping whereby
taxpayers exploit the differences between
various countries’ DTTs and channel investments
through the least tax burdensome, without
corresponding investment in either contracting
state. While the intention behind this new
restriction is noble, it risks rendering some DTTs
ineffective. In particular, the United Arab
Emirates, Seychelles and Mauritius are
destinations for setting up holding companies
for international investors based elsewhere in
the world. By virtue of this provision, such
international investors would not benefit from
the DTT. This would place Kenya at a
disadvantage with respect to treaty benefits,
where investments are channeled through such
countries.
Conclusion
Kenya is clearly making strides towards further
positioning itself as an investment hub in Africa.
Investors seeking to invest in Kenya stand to
benefit heavily from the expanding Kenya DTT
network. However, one of the impediments
Kenya faces in fully capitalizing on its DTT
network is that there is an apparent lethargy in
executing all the relevant diplomatic documents
necessary for a DTT to come into force, leading
to an undue delay between execution of the
DTT and its effective date. This needs to be
remedied to allow residents of the relevant
contracting states the opportunity to benefit
from their state’s DTT.
KenyaKenya’s economy, East Africa’s largest,
has experienced considerable growth
in the past few years. The country
enjoys some particular advantages
including a reasonably well-educated
labour force, a vital port that serves
as an entry point for goods destined
for countries in the East African and
Central African interior, abundant
wildlife, miles of attractive coastline,
increasing discoveries of natural
resources and a government that is
committed to implementing business
reforms.
assisting tax administrators with the prevention
of tax evasion.
We provide a summary of withholding tax rates
applicable under various Kenyan DTTs in Fig2.
Qualification to benefit under a DTT
The Finance Act, 2014 introduced a restriction
on the applicability of DTTs that Kenya has
concluded with other countries. Under the new
restriction, benefits under a DTT concluded
between Kenya and another contracting state
shall not be available to a resident person of the
other contracting state if 50% or more of the
underlying ownership of that person is held by
an individual or individuals who are not
residents of that other contracting state.
‘Underlying ownership’ is defined as an interest
in the person held directly, or indirectly through
an interposed person or persons, by an
Fig2. Withholding Tax Rates under DTTs
26 LegalNotes
LOOKING INTO THE PRISMNew transparency laws in Tanzania’s mining sector
Adam GoldnerSenior AssociateATZ Law [email protected]
IntroductionMining plays a significant part in Tanzania’s
economy. Tanzanite is arguably the country’s
trademark precious stone. It is blue-violet,
extremely rare, and is still found only in the
Mererani Hills of Northern Tanzania.
According to the Tanzania Chamber of Mineral
and Energy, aside from tanzanite, Tanzania’s
mineral resources include; gold, iron ore, nickel,
copper, cobalt, silver, diamond, ruby, coal and
uranium. Despite vast resources, the country’s
mining sector contributes 2.8% to the country’s
GDP. This is expected to rise considerably in
future years.
Mining legislationTanzania has over the past several years enacted
legislation aimed at streamlining the sector. The
Mining Act, 2010 and its regulations primarily
govern Tanzania’s mining sector. In addition, the
Income Tax Act, 2004 and the Environmental
Management Act, 2004 also contain specific
provisions that relate to the mining sector.
In August 2015, Tanzania is the introduction of
the Tanzania Extractive Industries (Transparency
and Accountability) Act, 2015 (TEI Act), which
amends the Mining Act, the Income Tax Act and
the Electricity Act, 2008. Its introduction is
largely in response to the low contribution of
the industry to the National Growth Domestic
Product as compared to sector growth;
inadequate capacity of the Government to
regulate the sector; and lack of transparency in
disclosing information relating to investment in
extractive industries and revenues accrued from
natural resource extraction.
This legislation has been met with mixed
reactions, putting issues of transparency and
accountability to the fore.
Overview of the Mining ActThe licensing regime established under the
Mining Act provides for the following mining
licences:
(a) prospecting licences – these licences
allows the holder to prospect for minerals
in the defined area;
(b) retention licences – these licences are
granted to protect an identified mineral
deposit, which cannot be immediately
developed due to technical constraints or
market conditions;
(c) primary mining licences – these licences
are for small-scale mining;
(d) mining licences– these licences are for
medium-scale mining operations;
(e) special mining licences – these licences
are for large-scale mining operations; and
(f) processing, smelting, and refining licences
– a mineral right holder is required to set
aside a certain amount of minerals for
processing, smelting or refining within
Tanzania.
LegalNotes 27
There are relatively few foreign ownership
restrictions in the mining sector. However, the
Mining Act provides that gemstone mining
licences shall only be granted to Tanzanian
citizens, unless the Minister is of the view that
specialised skills, technology or a high level of
investment are required. In such situations, a
gemstone mining licence can be granted to
both a Tanzanian citizen and a non-citizen
where the latter’s share does not exceed 50%.
Further, primary mining licences are only
granted to Tanzanian citizens and partnerships
or corporate entities that are exclusively owned
by Tanzanian citizens.
Apart from these restrictions, licences can be
given to foreigners without the need for local
equity participation.
The changes under TEI ActThe TEI Act establishes the Extractive Industries
(Transparency and Accountability) Committee,
which is tasked with ensuring that benefits of
the extractive industry are verified, duly
accounted for and prudently utilized for the
benefit of the citizens of Tanzania.
Each year, companies meeting a prescribed
threshold will be required to provide the
Committee with a reconciliation of the
payments made to Government against the
revenues received by Government. If the
reconciliation report identifies a “material
discrepancy”, the TEI Act sets out an
investigation and enforcement procedure
involving the Committee, the Controller and
Auditor General and the Minister for Energy
and Minerals.
Under the TEI Act, extractive industry companies
are required to submit annual reports to the
Committee containing information on local
content, corporate social responsibility and
capital expenditure. For the purposes of
transparency, the Committee is required to
publish: all concessions, contracts and licences
relating to extractive industry companies;
individual names and shareholders who own
interests in extractive industry companies; and
details of the implementation of Environmental
Management Plans.
Finally, the TEI Act requires all Mineral
Development Agreements and Production
Sharing Agreements or any other agreements
signed prior to the coming into force of the TEI
Act, shall be subject to disclosure requirements
except for information that is confidential as
the Committee may determine.
ConclusionWhilst the introduction of measures to promote
transparency and accountability in the
extractives sector are important steps in tackling
corruption, there are concerns regarding the
implementation of the TEI Act.
hese concerns include the uncertainty regarding
what the reconciliation threshold will be, what
the consequences of the Committee deciding
that there is a “material discrepancy” between
the revenues received by Government and
payments made to Government and how the
Committee will determine what information is
confidential and should be exempted from the
TEI Act’s disclosure obligations.
We will be closely watching the implementation
of the TEI Act, and endeavour to keep investors
updated on its impact on the mining sector.
28 LegalNotes
The key obligations this Proclamation requires
reporting entities are:
(a) To submit their financial reports to the
Accounting and Auditing Board of Ethiopia
in accordance with the Standards and the
Schedule to be issued and set by the Board;
(b) To ensure that their financial statements are
audited as per International Standards for
Auditing approved by the Board; and
(c) To deliver their financial statements and the
consolidated financial statements (if required
to prepare) to the Board for registration
within the 20 working days from the date
the financial statement are required to be
signed.
Directors of reporting entities are obliged to
ensure that the aforementioned obligations are
fulfilled.
Property: Registration of Urban Landholding
The Proclamation to provide for Registration of
Urban Landholding (Proc. No. 818/2014) was
enacted in February 2014.
According to the Proclamation, all urban lands
shall be mapped with a cadastral map,
landholdings registered and certified in the
name of landholders along with corresponding
rights, restrictions and responsibilities. The
Proclamation provides that a landholding use
right or immovable property ownership right on
landholding may not be set up against third
parties unless registered in the register of
landholding. The land-holding registrations are
designed mainly in order to ensure:
Introduction
On 21st September 2015, Ethiopia proudly
launched Addis Metro, the country’s 32-
kilometre, USD 474 million, light rail system. It
is a first in sub-Saharan Africa, and fourth in
Africa after Morocco, Algeria and Tunisia. Addis
Metro is the most recent among many major
development projects Ethiopia has embarked
on in the recent past, and is a testament to the
country’s growth trajectory.
In line with development objectives, the
Government of Ethiopia has attempted to
promote investment by implementing an
investor-friendly taxation, trade and credit
system, and by simplifying and clarifying
business and administrative procedures for
investors. Just like Addis Metro, the years 2014
and 2015 saw major developments in the law
to promote investment.
Solomon Zewdie MenheshaSenior AttorneyMesfin Tafesse & [email protected]
Yemisrach TassewSenior AttorneyMesfin Tafesse & [email protected]
Kidist SheferawAttorneyMesfin Tafesse & Associateskshiferawmt-ethiopialawoffice.com
Recent legal developments in EthiopiaFAST ON THE METRO
Customs: New Customs Proclamation
Effective December 2014, the
Customs Proclamation No.
622/2009 was repealed and
replaced by a new Customs
Proclamation No. 859/2014.
The new Customs Proclamation
has brought in major changes
including among others:
provisions allowing temporary
exportation of goods for
manufacturing or processing
abroad; customs procedure for
processing of imported goods
for home use under customs
control; customs procedure through an
electronic information exchange system;
simplified customs procedures for selected and
registered persons; imposition of corporate
liability; and reduced liability of managers.
The changes are expected to ease importation
into the country.
Finance: New Financial Reporting Proclamation
Also effective December 2014, a new law on
financial reporting was enacted with the
objective of establishing a sound, transparent
and understandable financial system.
This Proclamation is applicable to all reporting
entities both in private and public sectors, other
than public bodies and micro enterprises,
established in accordance with Ethiopian laws
or operating in Ethiopia and required by law to
submit financial reports.
LegalNotes 29
(a) Uniform protection of landholding rights of
private, joint holders, associations,
government and non-governmental
institutions; and
(b) Landholders’ security of landholding right
and recognition of title to immovable
property by certifying the right through
registration.
Amendments of Anti-corruption Laws of Ethiopia
Parliament promulgated three new laws that
amended the power and mandate of the
Federal Ethics and Anti-Corruption Commission
to investigate and prosecute corruption crimes,
broadening the coverage of corruption law to
include acts that were not previously criminalized
as well as introducing new rules of procedures
for prosecution and investigation of corruption
crimes.
These laws are: (a) the Federal Ethics and Anti-
Corruption Commission Establishment
(Amendment) Proclamation No. 883/2015; (b)
the Revised Anti-Corruption Special Procedure
and Rules of Evidence (Amendment)
Proclamation No. 882/2015; and (c) the
Corruption Crimes Proclamation No 881/2015.
Of significant importance, the Commission is
empowered to investigate and prosecute
corruption crimes committed by “Public
Organizations”. These are broadly defined in
the Corruption Proclamation as including
privately owned businesses which administer
public funds for public purposes. Examples of
such organizations include, banks, insurance
companies, real estate and others. This is a
major departure from the previous mandate of
the Commission which was restricted to the
investigation and prosecution of employees
working in government institutions.
Proclamation on Industrial Park Development in Ethiopia
The House of People’s Representative adopted a
bill on industrial parks which entered into force
in April 2015. The Industrial Parks Proclamation
No. 886/2015 is the first detailed law in relation
to the establishment, development,
administration and supervision of industrial
parks in Ethiopia.
Before the coming into force of this
proclamation, the Investment Proclamation No
769/2012 and its amendment devoted a PART
for industrial development zone and addressed
the establishment, administration and
regulation of industrial development zones. The
laws were amended in 2014 to address mainly
the issue of industrial development zones in
detail. The Investment Proclamation in particular
opened development of industrial zones for
private investors.
The newly enacted Industrial Parks Proclamation
addressed in detail the parties involved in the
development and operation of industrial parks,
their rights and obligations, the regulatory
government bodies mainly involved in the
establishment, administration and supervision/
regulation of industrial parks, the registration
requirements, work permit and residency issues,
guarantee and protection from expropriation,
use of foreign exchange and acquisition of land
through lease system.
Amendment of the Private Organization Employees’ Pension Scheme
The Private Organization Employees’ Pension
Scheme was introduced in Ethiopia in June
2011 under Proclamation No. 715/2001 (to
cover employees of private organizations. In
2015, the Proclamation was amended to
address problems that have been faced in the
practical application of the Proclamation and to
ensure uniform social security coverage of all
employees of private organizations. Major
amendments include:
(a) managerial employees are now included in
the Pension Scheme;
(b) organizations who fail to deduct and
deposit the amount to the pension fund are
subject to fines;
(c) upon termination of contract, pension
contributions of the employer and employee
are non-reimbursable; and
(d) there are changes in the mode of calculating
pension benefits when there is a salary
increment.
Conclusion
It has been a good year for Ethiopia, both for its
development agenda, and its legal regime. It is
expected that the positive strides will continue,
and investors should look forward even better
in the future.
30 LegalNotes
Introduction
Tanzania is currently ranked among the top
countries in Africa when it comes to potential
for development of natural gas. Offshore
exploration activities had led to the discovery of
at least 53 trillion cubic feet (tcf) of natural gas.
It is estimated that the recoverable reserves will
be in the range of 100 tcf by the end of 2015.
Investment in Tanzania’s offshore gas is expected
to range between USD 10-20 Billion in the next
10 years. This has sparked a lot of interest,
especially from UK and Chinese companies.
Despite this, until very recently, there has been
no legal framework that adequately covers
development of natural gas.
The legal framework for petroleum and gas
exploration and development in Tanzania is
governed by two key legislations: the Petroleum
(Exploration and Production) Act [Cap. 328 R.E.
2002] which governs the upstream petroleum
sector, as it relates to any naturally occurring
hydrocarbon (whether in gaseous, liquid or
solid state or mixture); and the Petroleum Act
2008 which deals the with downstream
petroleum sector. This legal framework however
left a gap with respect to midstream activities
and natural gas.
The Government of Tanzania (the Government)
has for quite some time intended to pass new
legislation, the efforts of which were marked by
the drafting of the Natural Gas Supply Act,
2009 which was later amended to Natural Gas
Act, 2012.
Most recently, the Government passed the
Petroleum Act, 2015 (the PA) which repeals the
Aggrey ErnestAssociateATZ Law [email protected]
New oil & gas laws in TanzaniaWHAT’S IN THE PIPELINE
PEPA and PA 2008 and also introduced provision
governing midstream activities. The Tanzania
Extractive Industries (Transparency and
Accountability) Act, 2015 and Oil and Gas
Revenues Management Act, 2015 have also
been enacted, aimed at regulating the
petroleum sector.
Although the above new statutes have been
assented to by the president, they are not yet in
force. We discuss the salient features in this
article.
The Petroleum Act, 2015
The 2015 Petroleum Act repeals the 2002
Petroleum (Exploration and Production) Act
(upstream) and the 2008 Petroleum Act
(downstream). It seeks to consolidate and put
in place a single, effective and comprehensive
legal framework for regulating the oil and gas
industry in the country.
The objective of the new Petroleum Act is to
make provision for upstream, midstream and
downstream gas activities. The activities that
are intended to be regulated include processing,
liquefaction, re-gasification, transportation,
storage, distribution, supply, import, export and
trade in natural gas. The upstream petroleum
operations that the proposed enactment seeks
to regulate include petroleum exploration,
development and production.
The Petroleum Act establishes the following
new institutions:
(a) The Oil and Gas Bureau: this will be
constituted within the Office of the
LegalNotes 31
President so as to advise the Cabinet on
strategic matters relating to the oil and gas
economy.
(b) The National Oil Company: The Petroleum
Act designates Tanzania Petroleum
Development Company (TPDC) as the
official National Oil Company. It also sets
out the new roles and functions of TPDC.
(c) The Petroleum Upstream Regulatory
Authority (PURA): this which will be a body
corporate charged with regulating and
monitoring the petroleum upstream sub
sector. It will advise the Minister responsible
for petroleum affairs on negotiations of
Production Sharing Agreements and other
contracts, as well as the renewing,
suspending and cancelling of exploration,
development and production licences.
The Petroleum Act introduces new roles for the
Energy and Water Utilities Regulatory Authority
(EWURA). EWURA shall take supervisory
authority over midstream and downstream
petroleum and natural gas activities, and shall
perform technical, economic and safety
regulatory functions in respect of petroleum
activities.
The TPDC has exclusive rights over petroleum
rights granted. An entity wishing to carry out
petroleum operations must do so in partnership
with TPDC, where TPDC is required to maintain
at least 25% participating interest. However, it
is unclear if this is a back in interest or a right at
the outset.
Cabinet approval is required prior to the
Minister entering into an agreement in respect
of the granting of a license, the conditions of
that licence, and any other related matter.
Under the Petroleum Act, an application for a
petroleum exploration licence should not be for
more than 40 blocks. However, the Minister has
the discretion to consider a licence covering
between 40 and 80 blocks where he is satisfied
that special circumstances exist which require
them to consider the application. Licences for
the midstream and downstream activities are to
be for period of up to 25 years.
The Tanzania Extractive Industries (Transparency And Accountability) Act, 2015 (The Extractive Industries Transparency Act)
The objective of the Act is to ensure that there
is transparency and accountability in the
extractive industries through the establishment
of the Extractive Industries, Transparency and
Accountability Committee (the Committee).
This Act responds to challenges in managing
extractive industries, including low contribution
of the industry to the National GDP,
inadequate capacity of government institutions
in administering the sectors, lack of
transparency in disclosing information relating
to the investment of extractive industries and
revenues accrued from natural resources
extraction.
The Extractive Industries Transperency Act
requires all extractive industry companies to
submit annual reports containing information
on local content and corporate responsibility to
the Committee. It also requires companies in
the extractive industry to submit capital
expenditure at every stage of the investment.
All extractive industry companies are required
to publish to the public all concessions,
contracts and licences relating to the industry
and details of shareholders and those who own
interests in the companies.
The Extractive Industries Transparency Act also
amends the Mining Act, 2010; the Electricity
Act; and the Income Tax Act, 2004 in order to
achieve its objectives.
The Oil and Gas Revenues Management Act, 2015 (The Revenues Management Act)
The objective of the Revenues Management Act
is to give effect to the Oil and Gas Revenue
Management Policy which is intended to ensure
that revenue derived from the oil and gas
industry is optimally collected and used in a
manner that does not endanger fiscal and
macroeconomic stability.
The Revenues Management Act establishes the
Oil and Gas Fund, with the objectives of:
ensuring that fiscal and macroeconomic stability
is maintained; the financing of investment in oil
and gas is guaranteed; social and economic
development is enhanced; and resource for
future generations is safeguarded. All deposits
of revenue into, and the disbursement of funds
from the Fund are to be made in a transparent
and accountable way.
The penalty for defrauding or attempt to
defraud the Government in relation to the
proceeds of the Fund or the use of the
information relating to the Fund for personal
gain is a fine of not less than the amount
involved or to an imprisonment for a term of
not less than 30 years.
Conclusion
It is an exciting time in Tanzania with the
on-going discoveries of oil and gas reserves.
Tanzania has the potential of being a leading
supplier of LNG into the global market. It is
therefore important for Tanzania to have a
reliable legal framework that governs the sector.
The new laws are a step in the right direction,
and we hope to see more legislative
developments that keep us with the
development trends.
[ATZ Law Chambers] This firm advises local and international clients on areas such as M&A, competition and employment. Chambers Global 2015
32 LegalNotes
rights. This is a development from the repealed
Mining Act, under which the Mining Advisory
Committee was only performing an advisory
role to the Director of Mines, who had the
ultimate powers for granting or renewing old
mining and non-mining rights.
The new Act also contains indigenisation
provisions. It mandates holders of a mining
right or mineral processing licence to give
preference during operations to materials made
in Zambia as well as contractors, suppliers and
service agencies located and owned by
Zambians. It further provides that there shall be
attached to a mining licence as part of the
conditions of the licence, the applicant’s
undertaking for the employment and training
of citizens.
The Gold Trade (Repeal) Act No.12 of 2015This Act repeals the Gold Trade Act Chapter
396 of the Laws of Zambia. Going forward,
gold panning certificates will now be
administered under the new Mines and Minerals
Act and not under a separate legal regime as
was the case before. The new Mines and
Minerals Act also governs the application and
granting of a gold panning certificate and
outlines obligations of a holder of a gold
panning certificate.
ConclusionThe changes to the mining laws are expected to
foster greater development in the mining sector.
Zambia is and will continue to be a country to
watch in mining and natural resource
investment.
IntroductionZambia is well known for its copper, and is
commonly referred to as Africa’s copper belt.
Ahead of South Africa and DRC, it is Africa’s
top copper producer and is projected to be the
world’s second largest copper producer, behind
Peru, by 2018. However, aside from copper,
Zambia is rich in other mineral resources
waiting to be exploited such as gold, iron ore,
gemstones, nickel and platinum.
In 2015, the mining sector in Zambia saw major
changes, with the enactment of 2 key laws:
(a) the Mines and Minerals Development Act
No.11 of 2015, which came into force on 1
July, 2015 and repeals and replaces the
Mines and Minerals Development Act No.7
of 2008; and
(b) the Gold Trade (Repeal) Act No. 12 of 2015,
which repealed the Gold Trade Act Chapter
396 of the Laws of Zambia.
We have discussed the salient changes below.
The New Mines and Minerals Development Act There has been a change in the way mining
disputes will be handled, following the
establishment of the Mining Appeals Tribunal,
an independent quasi-judicial body that will be
hearing appeals from decisions of the Director
of Mines. Previously, the Minister was
designated as the appellate body, thereby
placing a lot of power on an individual.
The Mines and Minerals Development Act
establishes the Mining Licensing Committee,
which will consider applications for mining and
non-mining rights, as well as renewals of such
Developments in Zambia’s mining lawsTIGHTENING THE COPPER BELT
Emmanuel MumbaAssociateMusa Dudhia & [email protected]
LegalNotes 33
Introduction
Increasingly, one of the top priorities for
investors when deciding which Foreign Direct
Investment (FDI) destinations to invest in, is the
nature of the tax exemptions available there.
Tax exemptions, together with infrastructure
needs, relevant skills pool, labour relations and
government and local authority investor
policies, are often the main parameters queried
by foreign investors.
Proposed new special economic zones law
The Kenyan Government has introduced the
Special Economic Zones Act, 2015 (the “Act”).
When passed into law, the Act will create
Special Economic Zones (SEZ) which will provide
for complete tax exemption, in the form of
income tax, value added tax, customs and
excise duty. The Act also exempts SEZ
companies from suffering any future taxes. In
effect, these areas would operate as if they
were outside the jurisdiction of Kenyan taxes.
This tax exemption would make SEZ goods
destined for non-EAC countries competitive on
account of the tax exemptions.
Currently, the Export Processing Zones (EPZ)
regime, which came into effect in 1990, offers
a 10 year tax holiday, 25% corporate tax rate
for the next 10 years, no withholding taxes for
10 years, in addition to VAT exemptions.
Further, EPZ entities enjoy import duty
exemptions.
The Act does not provide for transition between
the current EPZ regime and the SEZ regime and
[Anjarwalla & Khanna] is one of the top two in Kenya and for Kenya projects.IFLR1000 2015
the intention seems to be that the two will
complement each other as opposed to there
being a transition into the SEZ regime only. The
SEZ regime also provides for a broader array of
incentives (tax and non-tax) as compared to
EPZ, particularly, the recognition of service
industries as having the same status as mainstay
manufacturing and processing concerns.
Indeed, the definition of “services” is as broad
as that in the General Agreement for Trade and
Services of the World Trade Organization which
covers everything under the sun save for
“government services” within the meaning of
“services”. Indeed, The SEZ Act also creates
an SEZ Authority to act as the regulator.
However, many observers reckon that the
failure to disband or transition EPZs into the SEZ
regime is bound to yield regulatory inefficiencies
for two bodies which have similar policy
intentions. Indeed, the SEZ and EPZ license
categories are broadly similar. It is curious as
to why a separate SEZ would then be required,
while in essence offering the two regimes offer
the same commercial advantages under both
regimes.
SEZs are considered to be outside the customs
territory of Kenya, and therefore operate in
a jurisdictional bubble that shields them
from taxes and other regulatory bureaucracy.
These shields mean that from a tax perspective,
SEZs in Kenya and globally are tax neutral
and therefore compete on other efficiencies
such as affordable labour with sophisticated
skill sets, physical infrastructure, host nation
government bureaucracy, access to land and
sea ports.
Lessons from abroad
In other more developed nations, and even in
developing nations such as India and China,
SEZs have been found to have their biggest
impact in promoting new knowledge-intensive
industries, – by leveraging science and
technology, augmenting existing industrial
clusters/industrial states to increase the value-
add, and diversifying the local industrial base
and localising global value chains.
Therefore, SEZs need not be viewed merely as
an avenue through which global players can
invest into Kenya, but needs to be viewed as an
avenue through which local manufacturing and
processing concerns can look outward into the
global market, by utilizing the SEZ incentives as
an incubator. This is more to the case with the
diversification into services, which provides an
opportunity for a broader class of local and
foreign investors to participate in the incentive
system of SEZ.
Conclusion
The new SEZ regime is a welcome improvement
to the current EPZ regime and it is hoped that
with the coming into force of the Act, it will
help to cement Kenya’s place as an economic
powerhouse in East Africa.
Daniel NgumyPartnerAnjarwalla & [email protected]
ROLLING OUT THE RED CARPETProposed Changes to Special Economic Zones in Kenya
Paul MutegiAssociate Anjarwalla & [email protected]
34 LegalNotes
Introduction
Africa has in the recent past attracted a huge
amount of foreign direct investment and partly
due to availability of vast amounts of bare land.
Much of this investment is in real estate,
particularly business premises.
Zambia has been no exception. For instance,
her capital city, Lusaka, has seen an increase in
the construction of shopping malls. This growth
in the development of business premises in
Zambia necessitates a healthy legal framework
which spells out the legal relationship between
landlords and tenants. This is currently governed
by the Landlord and Tenant (Business Premises)
Act, Chapter 193 of the Laws of Zambia (the
Landlord and Tenant Act).
TENANCY LAWS IN ZAMBIAA Landlord Nightmare, a Tenant’s Prerogative
Emmanuel MumbaAssociateMusa Dudhia & [email protected]
Historical Zambian court decisions confirm a
long standing cry, that the Landlord and Tenant
Act is predominantly pro-tenant and offers
very little protection and no prerogative to the
landlord of business premises.
However, the recent decision by the High
Court for Zambia in the case of Value Auto
Spares vs Shyamal Patel 2014/HP/1531
presents a glimmer of hope to a landlord of
business premises. We would point out that
the Ruling is a High Court decision and can be
a subject of appeal to the Supreme Court of
Zambia. However, it remains law until varied or
overturned by the Supreme Court and
therefore, a step in the right direction.
This article examines the above case, and its
effect on business tenancies in Zambia.
Creation of a Tenancy
Under section 3, the Landlord and Tenant Act
applies to business premises, as opposed to
residential or dwelling houses. The business
premises tenancy must be longer than 3
months, and should not exceed 21 years.
Protection of the Tenant
Under the Landlord and Tenant Act, there are
restrictions on how a landlord can terminate a
lease. The landlord can terminate a tenancy by
notice to the tenant in the prescribed form. This
notwithstanding, a tenant can apply to Court
for a new tenancy provided that a tenant
notifies the landlord within 3 months of the
notice of termination, stating that the tenant is
not prepared to give up possession on the date
of termination. If a tenant applies to court for a
new tenancy, the Court does not only have the
power to grant a new tenancy but can also
determine the rent payable and also impose
terms of the new tenancy on the parties,
commonly in favour of the tenant who would
have applied for a new tenancy in the first
place.
The Landlord and Tenant Act provides 7 grounds
upon which a landlord can terminate a lease
which include: breach of obligations under a
lease; and landlord’s intention to demolish or
reconstruct the leased premises. The landlord’s
right to terminate a lease under any of the 7
grounds, is however made redundant by the
fact that the Court can turn a blind eye to the
landlord’s reason(s) for terminating a lease and
grant a tenant a new lease.
LegalNotes 35
[Musa Dudhia & Co.] The lawyers are extremely knowledgeable, understand the Zambian business environment, give sage advice, and are very thorough.”Chambers Global 2015
The above legal position was recognised in the
case of Manda Hill Centre Power Company
vs Manda Hill Centre Limited 2014/
HPC/0360, in which Musa Dudhia & Co. were
involved in the litigation. In this case, the
landlord of the leased premises issued a notice
terminating the lease, citing two statutory
grounds: (a) persistent breach of the tenant’s
obligations under the lease; and (b) that the
landlord intended to substantially develop the
premises. The High Court affirmed the superior
protection accorded to a tenant by the Act
when it stated that “even where a ground is
made out, the Court can still grant a new
tenancy where a tenant has shown that a new
lease should be granted.”
There was however a departure from the
established pro-tenant position in the recent
decision of the High Court in Value Auto
Spares vs Shyamal Patel In this case, a tenant
took advantage of the pro-tenant provisions in
the Landlord and Tenant Act and attempted to
use them to veto a notice terminating the
tenancy. Fortunately for the landlord, the tenant
omitted to notify the landlord that it will not be
willing to give up possession at the date of
termination as required by the Landlord and
Tenant Act. The Act provides that under such
circumstances, the tenant cannot apply to
Court for a new tenancy. However, the tenant
still rendered this application and resisted to
vacate the premises, on the basis that the
landlord accepted rent after issuing a notice to
quit which allegedly created a new tenancy. The
High Court held that:
(a) receipt of rent by the landlord after issuance
of a notice to quit, does not create a new
tenancy, unless there are fresh negotiations
to create one;
(b) upon expiration of a notice to quit, a
landlord can enforce his right to possession
whenever he wishes and any delay in
claiming possession should not be taken to
imply a grant of a new tenancy, unless the
landlord expresses a contrary intention; and
(c) the landlord could issue a writ (notice) of
possession to the tenant, without necessarily
commencing fresh actions for recovery of
land, since the Court had already made an
order for possession, when it ordered the
tenant to vacate.
Conclusion
The Value Auto Spares case has no doubt
resulted in a rare decision. The High Court’s
ruling took the position that a tenant’s
prerogatives under the Landlord and Tenant Act
are not cast in stone. However, a look at the
salient provisions of the Act still demonstrates
that it offers very little protection to the
landlord. A landlord has to depend largely on
the tenant’s failure to enforce his rights
enumerated in the Act and the notice to quit
and within the time frames stipulated in order
to benefit from the Act. Otherwise, a diligent
tenant can prove to be a landlord’s nightmare.
In this modern day business environment, the
Government must revisit the Landlord and
Tenant Act and balance parties’ rights in order
to encourage investment.
36 LegalNotes
property at the time comprised of a hotel
together with a debenture over the assets of
Belex. Belex defaulted on its loan repayments
and Crane Bank sold the property and the
moveable assets of Belex to Ms. Fang Min for
USD 745,000. This purchase was financed by
Crane Bank and the property was taken as
security created by Fang Min.
Belex sued Crane Bank to recover the balance
arising out of the debt owed to Crane Bank and
the purchase price being USD 5,800 and to
recover its moveable assets for a value of
approximately Ug. Shs. 194,313,000/= that it
claimed had not been paid for by Fang Min at
the point when the property was purchased.
The High Court found that:
(a) the moveable assets had in fact been paid
for under the sale agreement of land and
hotel business, which mentioned both the
moveable assets and the property, even if
no breakdown was provided for in the cost
of each of these items. The transfer deed
for the property captured the full purchase
price; and
(b) the USD 5,800 was not payable by Crane
Bank since it had a counterclaim against
Belex for about the same sum.
Belex appealed to the Court of Appeal.
Court of Appeal
Belex succeeded in its appeal to the Court of
Appeal, which held that:
(a) Procedure for sale of moveable assets: The
power to sell the Property and the moveable
Introduction
Access to finance is one of the biggest
challenges for entrepreneurs and businesses in
Africa.
According to the African Development Bank
(AfDB), as at 2012, only 20 percent of African
small and medium sized enterprises (SMEs) had
a line of credit from a financial institution. The
gap is steadily narrowing. Even as growing
business seek more financing, a major concern
for banks is credit worthiness, and the
effectiveness of any security they may have over
assets pledged by borrowers in exchange for
financing.
The most commonly used form of security in
the finance sector in Uganda is land. Land is
considered a secure form of security since it is
identifiable and increases in value over time
(according to current market dynamics).
Rachel MusokePartnerMMAKS [email protected]
Maliza KweraSenior AssociateMMAKS [email protected]
Tests to Mortgagee Rights in UgandaSECURITY UNDER THREAT
Uganda has an effective land law regime which
provides for the taking and enforcing of
securities over land and assets in the financial
sector. The law provides for financiers’ statutory
power of sale of secured assets if loans are
defaulted. The formality requirements ensure
that such powers are properly exercised and the
borrower is protected in the process. It is a
delicate balance.
This balance was tested recently in the Ugandan
Supreme Court case of Crane Bank v Belex
Tours and Travel Limited (S.C.C.A No. 6 of
2013). MMAKS Advocates acted for Crane
Bank in the case.
Background
Crane Bank lent money to Belex against a
mortgage over Plot 9 Ssezibwa Road, which
LegalNotes 37
assets could only be exercised separately
under the Mortgage Act and the Companies
Act respectively. As such, there had been no
sale of the moveable assets.
(b) Sale by mortgagee: In order for a sale by a
mortgagee to validly take place, the
mortgage deed must still be registered on
the title of the property at the time that the
transfer is registered. The Court of Appeal
was of the opinion that the Crane Bank
mortgage had been released at the time of
the transfer to Fang Min.
(c) Financing of purchase of property under
sale by mortgagee: The sale of the property
by Crane Bank to Fang Min was tainted
with fraud since Fang Min did not have the
money to pay for the property but was
going to obtain a loan from Crane Bank,
using the same property as security.
(d) Consideration for sale: It was fraudulent on
the part of Fang Min to state on the transfer
deed that consideration had been paid
when she did not have the money to pay for
the property and was obtaining/had
obtained a loan for that purpose.
(e) Execution of a mortgage deed: The
mortgage and the transfer deeds were not
executed by the parties in Latin character, in
contravention of section 148 of the
Registration of Titles Act, and were
therefore invalid.
(f) Stamping of documents: The sale agreement
had not been stamped and was therefore
inadmissible as evidence in Court.
The findings of the Court of Appeal caused
worry in the industry, especially the finding on
financing of purchase of property under a sale
by mortgagee
Supreme Court
The Court of Appeal findings were set aside by
the Supreme Court on the basis of having been
raised and decided without evidence and or
without giving Crane Bank and Fang Min a
hearing. The Justices of the Supreme Court held
that:
(a) the Court of Appeal erred in basing its
judgment on a cause of action, which was
neither pleaded nor argued before the
Court of Appeal or the High Court;
(b) The Court of Appeal erred when it held
that the mortgage and transfer executed by
the Crane Bank in favour of Ms. Fang Min
were invalid and that the certificate of title
in favour of Fang Min should be cancelled
without giving Crane Bank and Fang Min
an opportunity to be heard on these
matters;
(c) Crane Bank in the course of its legitimate
business advanced a loan to Belex which
defaulted on its payment and Crane Bank
sold the suit property to Fang Min in
satisfaction of the debt of Belex due to
Crane Bank and therefore the transaction
was valid;
(d) The Court of Appeal erred in rejecting the
explanation of the Advocate who prepared
the documents that he made a mistake by
including the purchase price for the chattels
on the transfer of land deed, without giving
any sound reasons; and
(e) The findings of the Court of Appeal that
the mortgage deed was not properly
executed and that the sale agreement was
not admissible in evidence as no stamp duty
had not been paid on it were rejected by
the Supreme Court on the basis that these
issues were never raised by the parties and
there was no evidence to support the
findings as the parties were not given
opportunity to address them.
The Court of Appeal decision and orders were
therefore set aside and substituted with the
decisions and orders made by the High Court,
that is that the moveable assets has in fact been
paid for under the sale agreement, and the USD
5,800 was not payable by Crane Bank.
Conclusion
The case confirmed that a bank can still finance
a purchaser in the exercise of its statutory
power of sale. The case also highlighted the
need to adhere to the procedural requirements
of taking securities, including proper drafting
and signing (execution) of security documents
and adhering to the registration requirements
for securities under the law.
[Masembe, Makubuya, Adriko, Kabugaba & Ssekatawa Advocates] This ALN member firm has an enviable reputation in both transactional and contentious work, and is praised by sources for its quick turnaround time and high technical ability.” Chambers Global 2015
38 LegalNotes
Murky M&A Regulation in TanzaniaNAVIGATING THE SHIFTING GOAL POSTS
IntroductionTanzania enjoys a good and steady flow of Foreign Direct Investment (FDI) which was estimated at USD 1.7 billion in 2012 and USD 1.8 billion in 2013 and 2014. According to the United Nations Conference on Trade and Development (UNCTAD), Tanzania is now the top destination for FDI in the East Africa region.
This large amount of FDI, coupled with an average GDP growth of 7% annually from 2002 to 2014, has made merger and acquisition transactions a common phenomenon in Tanzania. There has been recent change in tack by Tanzania’s
Fair Competition Commission (FCC) as to how it treats mergers and
acquisitions, and we discuss these below.
.
Merger notifications under the Fair
Competition Act Under the Fair Competition Act 2003 (the FCA) a merger is defined as an acquisition of shares, a business or other assets, whether inside or outside Tanzania, resulting in the change of
control of a business, part of a business or an asset of a
business in Tanzania.
The FCA and the Fair Competition (Threshold
for the Notification of a Merger) Order, 2006 provide
that a merger has to be notified to the FCC if the combined assets of
the two entities involved in the transaction is above the prescribed threshold amount of approximately USD 400,000.
As such, for a merger to be notified, it has to meet the prescribed thresholds and also result in a change of control.
A new look at “change of control”The FCA has not defined what amounts to change of control, and as such the FCC has the discretion to decide what amounts to the same. The FCC may import a definition it deems to fit to a certain transaction and conclude that a
merger ought to be notified. For example, the FCC has in some instances referred to definitions used in other jurisdictions such as the European Union, the United Kingdom and South Africa.
The FCC has recently adopted a broad definition of what amounts to a change of control. It has been stressing that a change of control can be:
(a) a ‘de facto’ change of control (through the acquisition of a majority of the voting shares or through acquiring the right to a majority of the votes on the board of directors); or
(b) a ‘de jure’ control where, as a result of the merger: it can still exercise decisive influence (which is the standard in the European Union); or where it can exercise material influence (which is the standard in the United Kingdom).
The new view is perhaps not in line with international best practices and has the likelihood of discouraging investment.
The fact that Tanzania does not have a clear definition of what amounts to a change of control and the freedom of the FCC to define change of control depending on the circumstances, results in lack of clarity as to what standard the FCC might use.
The cost of uncertaintyWith such lack of clarity on what is and what is not, a notifiable merger, investors as well as financial and legal advisors are left in a dilemma
Shamiza RatansiManaging PartnerATZ Law [email protected]
Aggrey ErnestAssociateATZ Law [email protected]
LegalNotes 39
annual turnover. There is also a danger of the FCC issuing an order, at any time within 3 years after the transaction has been consummated, declaring the transaction void and requiring total or partial restoration of the status quo ante.
In another move, the FCC has recently taken the position that an acquisition of less than 5% of the voting shares and the right to appoint 1 director in a public listed company is a notifiable transaction. This move makes investors question whether the acquisition of a certain amount of shares through the stock exchange will require the FCC’s approval. If yes, how will the FCC monitor this and what impact will this have on the developing stock exchange? Furthermore, how will a single director in a large board of over 10 directors be able to exercise either decisive or material influence for there to be a change of control?
when trying to establish if they should notify or not, at the outset of the transaction. The uncertainty coupled with the low notification thresholds, high penalties and the high notification fees, makes one wonder how long investors will tolerate such an environment.
The shift in the approach of the FCC has led to it going back and investigating previous mergers that took place and were not notified. As a result, the country has witnessed a number of proceedings brought against several entities that have been deemed to have infringed the provisions of the FCA, for failure to notify the FCC.
The FCC has been issuing penalties once it finds a party guilty of failing to notify. Penalties can be high and there is always reputational risk at stake. Pursuant to the FCA, at any time within 6 years of the offence, the FCC may impose a penalty of between 5-10% of the acquirer’s
All these questions portray the dilemma facing investors and legal advisers when trying to establish if the FCC’s approval is required in transactions.
ConclusionThere is definitely need for clarity in the law regarding transactions that require merger notifications and approvals. However, business must continue, and before legislative amendments are made, it is in the meantime advisable to look into transactions more clearly and to consult the FCC, if there is doubt as to whether merger notification and approval is required.
ABOUT ALNALN’s firms are in Africa. Our lawyers are African. We understand the issues from start to finish because we have been doing African deals from our inception. With ALN you get the benefit of internationally-trained lawyers who live and work where the deals are happening. We offer seamless legal advisory and transactional services on complex and multi-jurisdictional matters due to our thorough understanding of the local and regional landscape, cultural and business practice. Each ALN member firm is a recognized leader on the continent with a strong track record in advising domestic, regional and international clients on commercial and legal issues. Our member firms are recognized as leading law firms by international directories including Chambers Global. Legal 500, and IFLR 1000.
ALN also works closely with its regional office in the UAE, affiliates in Kenya and Mauritius and its associate firm in South Africa.
36 | LEGAL NOTES | APRIL 2013
G. ELIAS & COK-SOLUTIONS & PARTNERS
JMILES & CO
ATZ LAW CHAMBERS
NIGERIAK-SOLUTIONS & PARTNERS
MABUSHI CHAMBERSMESFIN TAFESSE & ASSOCIATES
MEMBER FIRMS
AFFILIATES
ASSOCIATE FIRM
ABOUT ALNALN’s fi rms are in Africa. Our lawyers are African. We understand the issues from start to fi nish because we have been doing African deals from our inception. With ALN you get the benefi t of internationally-trained lawyers who live and work where the deals are happening. We offer seamless legal advisory and transactional services on complex and multi-jurisdictional matters due to our thorough understanding of the local and regional landscape, cultural and business practice. Each ALN member fi rm is a recognized leader on the continent with a strong track record in advising domestic, regional and international clients on commercial and legal issues. Our member fi rms are recognized as leading law fi rms by international directories including Chambers Global. Legal 500, and IFLR 1000.
ALN also works closely with its regional offi ce in the UAE, affi liates in Kenya and Mauritius and its associate fi rm in South Africa.
40 LegalNotes
Developments at ALN
ATZ LAW CHAMBERS OFFICIAL LAUNCHATZ Law Chambers, the ALN member firm in Tanzania, was officially launched on 15 May 2015, in Dar es Salaam Tanzania.
ATZ Law Chambers is a leading full-service corporate and commercial law firm with substantial experience and knowledge
of the Tanzanian market . The firm was formed in March 2014 and the team includes the Managing Partner ; Shamiza Ratansi
and two Directors; Amish Shah and Sonal Sejpal.
As a member of ALN, ATZ Law Chambers has the support of other ALN top-tier member firms with expertise from other
jurisdictions, and experience working on various innovative and sophisticated transactions on the continent. The firm also
has a strategic relationship with Anjarwalla & Khanna, the ALN member firm in Kenya, due to a large number of Tanzania-
Kenya cross border deals.
ATZ Law Chambers continues to strive to be the most successful corporate legal practice in Tanzania.The firm was ranked as
Band 3 by Chambers Global 2015 and was recognised for its regulatory work in the telecoms and energy sectors.
INTRODUCING OUR NEW MEMBER IN ETHIOPIAWe are pleased to introduce MESFIN TAFESSE & ASSOCIATES LAW OFFICE (MTA), ALN’s newest member in Ethiopia. MTA brings
to ALN reputable expertise, with a track record of advising clients on a wide range of investments especially in mining, industrial
and manufacturing companies. This expertise has been instrumental in earning the firm a Chambers Global ‘Band 1’ ranking
in General Business Law.
MTA was established in 2007 by Mr. Mesfin Tafesse, who has 25 years of experience in public and private law. Over the years,
the firm has expanded its client base and number of attorneys, to become the reputable firm it is today. MTA’s areas of practice
have also grown over the years to include: general corporate law, mergers and acquisitions, banking, finance, mining, tax and
telecommunications. Its capabilities also extend to handling tax, labour and employment, and environmental matters for clients
in the banking, energy, construction and insurance sectors.
With a mission to provide institutionalized and team based legal services to help clients make sound and legally informed
decisions, MTA is well placed to support ALN’s clients in Ethiopia’s exciting market.
The ALN Management Team’s new office 5th floor, The Oval, Corner of Ring Road,Parklands and Jalaram Roads, Westlands
Postal Address:P. O. Box 200 – 00600, Sarit Centre, Nairobi, Kenya Phone Numbers:+254 (0) 774 040 000+254 (0) 706 040 000 Email: [email protected]
ALN is an alliance of independent top-tier African law firms.
ALN Member Firms
BOTSWANACollins Newman & Co.Tel: +267 395 2702Email: [email protected]
BURUNDIMabushi ChambersTel: +257 22 217 475Email: [email protected]
ETHIOPIAMesfin Tafesse & AssociatesTel: +251 114 66 32 50Email: [email protected]
KENYAAnjarwalla & Khanna
NairobiTel: +254 20 364 0000/+254 703 032 000Email: [email protected]
MombasaTel: +254 41 231 2848/9Email: [email protected]
MALAWISavjani & Co.Tel: +265 182 4555Email: [email protected]
MAURITIUSBLC ChambersTel: +230 403 2400Email: [email protected]
NIGERIAG. Elias & Co.Tel: +234 14 607 890Email: [email protected]
RWANDAK-SolutionsTel: +250 788 300 926 Email: [email protected]
SUDANOmer Ali Law FirmTel: +249 15 515 5554Email: [email protected]
TANZANIAATZ Law ChambersTel: +255 22 2601151/2/+255 75 499 9667Email: [email protected]
UGANDAMMAKS AdvocatesTel: +256 393 260 016/330/ 393 262 297Email: [email protected]
ZAMBIAMusa Dudhia & Co.Tel: +260 21 125 3822/62/66Email: [email protected]
Associate Firm
SOUTH AFRICAWebber WentzelTel: +27 11 530 5000Email: [email protected]
Regional Office
DUBAIAC&H Legal ConsultantsTel: +971 4 4529091Email: [email protected]
Affiliates
JMiles & Co.Tel: +254 20 434 3159Email: [email protected]
AXIS Fiduciary LtdTel: +230 403 2500Email: [email protected]
ALN Headquarters
ALN Headquarters2nd Floor, The Axis, MauritiusTel: +230 403 2500Email: [email protected]
ALN Management Team
ALN Management Team5th floor, The Oval, Westlands, NairobiTel: +254 706 040 000Email: [email protected]
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