Jurisdiction - Japan
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Japan – “Together With Africa, Japan Will Prosper, Together With Japan, Africa Will Thrive”.

27 June, 2013


Legal News & Analysis – Asia Pacific – Japan – Corporate/M&A


An overview of M&A issues for Japanese TMT companies looking to invest in Africa


We have recently witnessed a marked sea change in terms of inbound investment into Africa and investment in the traditional extraction industries is now booming across large areas of the continent in tandem with huge growth in other sectors; notably telecoms, technology, infrastructure, construction, and consumer goods. Many Japanese companies are coming to realise the potential of investing in this market.


Recent Japanese TMT investment in Africa


"Together with Africa, Japan will Prosper, Together with Japan, Africa will Thrive." These were the recent words of Prime Minister Shinzo Abe on 1 June 2013 at the opening of the fifth Tokyo International Conference on African Development ("TICAD"). At the conference, $32 billion of investment over the next five years to Africa was also announced.


Real steps are also being taken to facilitate this investment. For example, earlier this month Mozambique and Japan signed a bilateral agreement, the first investment agreement of its kind that Japan has signed with a sub-Saharan African country in order to liberalise, promote and protect Japanese investments into Mozambique. The announcement also coincides with 2013 marking the 50th anniversary of the African Union.


It is worth noting that Japan's level of investment into Africa is still low compared to China, and put into context is around 10% of that of China in recent years. However there are still some clear examples of large-scale investments by Japanese TMT companies in Africa. For example, in July 2010, NTT bought the South African IT firm Dimension Data in a $3 billion deal, which remains the largest investment by a Japanese TMT company in sub-Saharan Africa. In the technology space, it also appears that big names such as Hitachi, Panasonic and Sony are all looking to expand their presence across Africa.


One of the key issues for Japanese companies is the ability to integrate an African business into their organization. As part of this process, Japanese companies are tailoring their suite of services to ensure they are well-integrated and equipped to do business in Africa’s predominant languages including French, Portuguese, English and Arabic.


Africa: A legal and cultural overview


In terms of a brief overview of the continent, Africa comprises 54 countries and is predicted to have over 1.5 billion inhabitants by 2035 (comprising 20% of the world population). In recent years, sub-Saharan Africa has also been experiencing steady economic growth of around 5-6% in GDP, which has led to a growing middle class and increasing urbanisation.


In relation to long-term profitable projects in Africa, Japanese companies should always consider the following:


  • to exploit Africa's huge potential, businesses must deploy perseverance, perfectionism, partnership and pragmatism; and
  • to drive projects forward, companies must note the common themes of corporate social responsibility – integrating people and environmental concerns with profit-making objectives, including in interactions with stakeholders and partners.


General M&A issues for Japanese TMT companies looking to invest 


Local law and regulatory considerations


There are various issues that Japanese IT and telecoms companies will need to address in relation to M&A transactions in Africa. There is a need to pay close attention to local laws, particularly in the realm of tax, employment, land and security, as local law may apply in these spheres notwithstanding the choice of law elected in the contract.


Critically, local law will apply to any local company which is incorporated or acquired by a foreign investor. Ultimately, this is important when setting up local companies, conducting local due diligence, drafting local transfer documentation and local legal opinions. State entities and government organs are also likely to play a significant part in any deal and this will require careful attention and understanding of these bodies, in particular identifying the underlying motivations of individual ministries/regulatory bodies.


In terms of local regulatory issues, there will be a wider range of factors to consider, at an early stage, including merger control regimes, foreign direct investment regimes, foreign exchange control, and local licence requirements. Having contacts on the ground with government and regulators are particularly important. Caution should however always be exercised when dealing with local authorities, including information flows and anti-corruption considerations.


Since the deal is less likely to be an outright acquisition (due usually to the requirement for a local (State) partner), and/or the structuring may be complex, this means that the use of simple documentation is key.


Other key considerations on any M&A deal


With the state often taking a close interest in the deal, there are also a range of political risks which should be considered when drafting M&A documentation, including:


  • change of law or arbitrary application of the law;
  • direct or indirect expropriation;
  • renegotiation risk;
  • force majeure events such as natural disasters or war/civil unrest/terrorism; and
  • ensuring bilateral investment treaty protection


In terms of financing, it is often legally impossible in Africa to take a comprehensive security package and so it is necessary to assess what is possible by reference to market practice for international financings in the relevant country. It will often be necessary to think creatively, for example, giving consideration to whether equivalent forms of security are available, and/or what the true implications are of not obtaining necessary consents.


Finally the possibility of disputes and mitigation of that risk needs to be contemplated from the outset, with considerations on choice of arbitration forum and ability to enforce any decisions (such as under the New York convention) paramount.



For further information, please contact:

Graeme Preston, Partner, Herbert Smith Freehills

Herbert Smith Freehills Corporate/M&A Practice Profile in Japan



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