Private companies will accept commercial risk, but not political risk – Hogan Lovells
International law firm, Hogan Lovells has said that Africa will need to de-risk its projects, if it wants private funding and sustainable partnerships with the private sector.
Speaking after their return from AFC Live in Abuja, Andrew Skipper, head of Hogan Lovells’ Africa practice, Nathan Searle of the firm’s International arbitration group, and Abena Poku made this disclosure in Lagos.
Andrew stated that there were very critical factors hindering the development of infrastructure not just in Nigeria but in Africa as a whole. Some of these he said are internal, while others are external; leading to uncertainty.
Identifying the most critical of these, he called them the three (3) Cs: “Currency, Corruption and Certainty.”
“Some of the projects we refer to go on for 10-20 years and if you don’t have certainty and bankable projects, in other words, if you do not ‘de-risk’ them, it will be difficult to get private funding.
“While private companies may accept commercial risk, it would be almost impossible for them to accept political risk or currency risk because it is outside their control. However where there political certainty, the right guarantees and insurance, as well as a favourable money policy regime, to de-risk it, I the private sector will be only too happy to put in layers of cash on top of these for support.
According to Andrew, in other get certainty, the government must demonstrate capacity from within.
He urged government to put in place a capable well-structured base, stating, “There has to a structure within government “Which works”, he said, “And there would have to be regulations which would facilitate the structuring of projects.
“Thankfully, listening to the submissions of the Nigerian government at the AFC Live conference, we hear good about all of these. The AFC is also speaking positively and we are hopeful of positive outcomes in no time, as the AFC is a layer that can support risk in other to attract private enterprise. Private investors will take up some risks, but it cant’ all be theirs for the taking.
On a positive note, Andrew stated that a lot of funds, including pension funds, will soon see opportunities in emerging markets and Africa is one of the biggest of these markets, noting however, that in order for that to happen, the government must be willing to give something – primarily, a political will for sustainable development.
The firm noted that role of government in creating confidence – by building the right framework and providing support to attract investments into country. They agreed that for development to take place, there has to a mutual partnership between the public and the private sector.
Hogan Lovells currently offer legal services in Africa and regularly advise on large infrastructure and energy projects, multi-party PPP and project financing, FINTEC, and private equity transactions specifically for African investors.