Africa’s construction markets are increasingly lucrative for UK firms, so Tamsin Travers and Joseph Otoo point out some key details to bear in mind.
Africa’s growing economies need infrastructure to support them. Which means there are opportunities for UK construction companies, particularly in West and East Africa where the English language dominates.
The growth in ambitions and investment are reflected in projects such as the Lagos-Calabar railway, Tanzania’s Bagamoyo Port and Morocco’s Bank of Africa – an 250 m-high tower that will be the second tallest on the continent behind The Pinnacle currently under construction in Nairobi.
Opportunities, however, can bring different or more diverse risks. Here are 10 things to consider.
And the project risks are…?
What risks does a particular project bring? Some projects in rural Africa may be located in geographically remote locations, which may be difficult to access. The scope needs to be well defined, and contractors should ask whether the timescale is realistic. All the project risks will need to be identified, priced and reflected in the contract documents.
Each project will naturally have its own special challenges. Africa is a diverse continent and what, for example, might work in the oil and gas sector in Nigeria may not work for energy infrastructure projects in Kenya. What logistical issues are there? What hurdles, such as port paperwork and customs clearance, will the supply of materials need to clear to arrive on time, and who are the trusted suppliers? Careful research and planning will be crucial.
Does the contract cover everything?
All the agreed terms and risk allocation will need to be very carefully and accurately set out in the contract, which will govern the parties’ legal relationships and should provide mechanisms for dealing with time, money and quality issues. And don’t forget to check the applicable law – appropriate local advice will be required.
Who are the key stakeholders?
Infrastructure projects are likely to be procured directly or indirectly by host governments, often with international development banks or other institutions providing finance. What are their requirements and what are the applicable procurement rules? Attention to detail is vital.
What are the local ways of doing business? Governments may require firms to use goods or services sourced within a certain area. Local incorporation requirements may require a foreign company to set up a local company within the jurisdiction. Both of these requirements are increasingly common in Africa and understandably aim to generate further benefits for the regional economy beyond the direct value of the project itself. How will a local content requirement fit into the supply chain and, if a locally incorporated entity is required, what type of incorporation is necessary?
Tax and associated issues
Many African countries have complex fiscal and tax regimes. Local advice will, therefore, be essential to understand the tax position and how, for instance, royalty payments are treated and the extent to which profits can be repatriated.
And if it all goes wrong…
If there are disputes, what are the contract dispute resolution arrangements? A tiered dispute resolution procedure, which includes meetings of senior representatives of the parties and mediation, culminating in arbitration if matters go that far, gives the parties opportunities to resolve their differences. Arbitration is the obvious choice for an international dispute and likely to be a better bet than local courts, which may not have the necessary resources and/or expertise required.
Investment encouragement and protection
The local investment law may provide incentives and protections for foreign firms doing business in the country. And there may be investor protection if the host nation is party to a bilateral investment treaty; this provides an alternative route to arbitration where the host nation is in breach of its treaty obligations.
Post contract changes of law
Where a contract is direct with a host government, stabilisation clauses are frequently included in the contract to protect against government changes of law that affect the economic balance of the contract. These clauses seek to ‘freeze’ the law applicable to the contract as that in force when the contract was made.
Increased environmental regulation, climate change-related risks and the demand from institutional investors, governments and wider society for evidence of sustainable practice are now a significant factor in large-scale infrastructure projects – another important item to be managed and added to the checklist.
Tamsin Travers is counsel and Joseph Otoo is a senior associate in the construction and engineering group of Mayer Brown International