Investment in Africa: Changing landscape, new hurdles

Questioning African antitrust growth prospects: Slowdown in economic investment (both organic and outside investment) may affect functioning of competition law on the continent

Recent developments in Africa have many scratching their heads and wondering whether the formerly wondrous economic-growth engine of the vastly resource-rich and otherwise economically still undervalued continent will soon experience a slowdown, if not come to a halt altogether.

For one, in April 2014, Nigeria surpassed South Africa as the continent’s largest economy (see Economist Apr. 12, 2014: “Africa’s New Number One“).  This is a significant milestone for the former, and a setback for the latter — an economy that was 8 times the size of the Nigerian economy only 20 years ago, yet is now suffering from stagnating GDP, reeling from corruption allegations amongst its current leadership, undergoing a closely-watched presidential election process, and whose ruling ANC party is facing a heretofore unprecedented backlash and torrent of criticism.

Source: The Economist

Not only South Africa has weakened, politically and economically, however.  Events such as the Northern Nigerian wave of violence – with sectarian Boko Haram forcefully displaying the impotence of the central Nigerian government of a weakened president Goodluck Jonathan – fuel the fire of outside investors’ mistrust of African stability and their concomitant reluctance to make good on prior investment promises.  As The Economist notes in the article quoted above: “it is not a place for the faint-hearted” to invest, even though it highlights the successful Nigerian business ventures of outsiders such as Shoprite, SABMiller, and Nestlé.  Bloomberg BusinessWeek quotes Thabo Dloti, chief executive officer of South Africa’s fourth-largest insurer Liberty Holdings Ltd. (LBH), as saying: “It does slow down the plans that we have, it does put out the projections that we have by a year or two.”

http://www.stanlib.com/EconomicFocus/Pages/InterestingChart112SouthAfricaneconomyvsNigerianeconomy.aspx

Nigerian vs. RSA GDP
Source: http://www.stanlib.com

Likewise, multi-national organisations such as COMESA and its competition enforcement body, are undergoing significant changes (such as, currently, an opaque process of raising the heretofore insufficient merger-filing thresholds), shockingly successful web attacks on their data, and a resulting dearth of transactions being notified.  Elsewhere in developing economies, recent political turmoil has likewise led observes to comment on the negative spillover effect from political & social spheres into the economy (e.g., Financial Times, May 8, 2014: “Political crisis further dents prospects for Thai economy“).

Impact on antitrust practice

The upshot for competition-law practitioners and enforcers alike is rather straightforward, AAT predicts: more hesitation around African deals being done means fewer notifications, less enforcement, and overall lower billings for firms.

The flip side of the coin – as is usually the case in the economic sine curve of growth and slowdowns – is the commonly-observed inverse relationship of M&A and criminal antitrust: while we may see fewer transactions in the short term, the incidence of cartel behaviour and commercial bribery & government-contract fraud cases will likely increase.

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