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African business leaders are poised for an era of profound growth but this will come with the challenges inherent in operating across vastly different legal and cultural frameworks, the writer says. Picture: 123RF
African business leaders are poised for an era of profound growth but this will come with the challenges inherent in operating across vastly different legal and cultural frameworks, the writer says. Picture: 123RF

Business is booming as we head into another exciting year, with notable increases in investments in the energy, natural resources and infrastructure sectors in Africa. These investments have been boosted by rapidly developing opportunities in the energy transition, including the global demand for Africa’s critical minerals, essential for powering the transition and advancing modern technology.

Significant projects are also under way in transport, logistics, manufacturing and utilities infrastructure, which are needed to address current gaps, link regions in Africa and open up the continent to the world. According to KPMG’s “Investing in Sub-Saharan Africa 2024” report, there was a significant increase in foreign direct investment (FDI) in Africa in 2024, with FDI projects rising by 10% from the previous year.

The continent’s vast natural resources, growing middle class and burgeoning technology sector were cited as reasons for this growth.

According to DealMakers Africa, private equity (PE) transactions accounted for more than half of the mergers and acquisitions (M&A) recorded in the first half of 2024, highlighting the role of alternative investment classes, particularly private capital, in driving Africa’s growth.

Opportunities for private capital are also emerging in infrastructure and energy, which is expected to play a major role in the continued M&A rebound in 2025. This is driven mostly by a significant amount of dry powder available to private capital as it pursues these new investment opportunities.

In SA M&A activity was relatively flat in the first half of 2024, but there was a significant uptick after the May 2024 elections and the formation of a government of national unity, which led to a wave of market optimism coinciding with receding inflation and interest rates combined with an improved, reliable energy supply.

Development finance institutions

Development finance institutions (DFIs) have proven to be pivotal to facilitating sustainable investment in Africa’s infrastructure landscape due to their ability to manage political risks and penetrate challenging markets. They are also able to support long-term lending and facilitate access to debt finance for large infrastructure projects that must be implemented across the continent.

DFIs are also stepping up to assist with climate financing for lower- and middle-income countries. In November, a landmark climate financing deal, the Baku Climate Unity Pact, was announced at the end of the UN climate change conference (COP29).

As part of this deal, wealthier nations committed to assist in financing sustainable development in developing countries with $300bn annually by 2035. Some have welcomed the agreement, including the SA government, while others have noted it is not enough.

DFIs and the private sector are expected to assist in scaling up climate financing for developing countries, with a target of $1.3-trillion annually by 2035.

According to a report by the Africa Resilience Investment Accelerator, “DFI investments in frontier markets: Activities, lessons learned and approaches to fostering investment”, total DFI investment in Sub-Saharan Africa since 2010 has reached about $71.8bn, driving sustainable developments in the continent’s energy and infrastructure sectors, among other areas.

The African Development Bank previously reported that overall infrastructure financing needed in Africa is estimated to be between $130bn and $170bn annually. The vast amount of capital needed for infrastructure development has seen debt finance, private capital and special infrastructure funds enter the market in recent years, creating an opportunity for blended finance solutions to assist in getting infrastructure projects off the ground.

To support these projects, specialist debt finance lawyers are proving essential for managing complex debt structures, supporting debt restructuring, mitigating risks associated with borrowing, and ensuring compliance with local and international regulations.

Legal experts

Investing in new markets, building businesses and transforming public services and infrastructure in so many diverse and developing markets and often across numerous African borders, involves navigating many political and economic landscapes, mastering various legal systems and understanding the vital nuances of local culture.  

This requires the full spectrum of cross-border legal experts to be available on every deal. It is not enough, for example, to have the best M&A lawyer advising on a deal but no legal specialists to oversee the finance or tax elements of the transaction. Even when all the transactional specialists are present, if there is a dispute the whole transaction can derail unless there are experienced dispute resolution lawyers in the room.

Arbitration lawyers are now key members of transactional teams as the increase in multijurisdictional transactions and the inherent risk of concluding cross-border deals in emerging jurisdictions can lead to disputes. According to the UN Trade & Development’s Investment Policy Hub, there were more than 1,300 investment treaty cases involving African countries in 2024.

Arbitration is proving to be the preferred method for resolving disputes in Africa due to its more flexible approach compared to litigation. Cross-border investors must, therefore, have access to lawyers who are specialists in financial services litigation, international arbitration and general arbitration law to be able to mitigate risks before transactions commence.

As we enter 2025 it is clear that African business leaders are poised for an era of profound growth. While this growth will, of course, come with the challenges inherent in operating across 54 vastly different legal and cultural frameworks, we expect that well-prepared investors in Africa will be able to unlock immense opportunities. 

• Davids is chair and senior partner at Bowmans.

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