Challenges and strategic management of cross-border transactions in Africa

Managing cross-border transactions (mergers and acquisitions “M&A”, divestitures, etc.) involving entities located in one or many African countries requires a holistic approach that integrates legal planning, tax structuring, and management of regulatory and foreign exchange aspects. By mastering these different dimensions, companies can transform the complexities of the transactions they engage in or are subject to, into opportunities for growth and the creation of sustainable value.

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1. Legal Planning: Choosing the Best Structure and Ensuring Legal Compliance

As part of their expansion projects or restructuring operations, companies and groups of companies identify their target structures. This is where our legal engineering as Counsel comes into play. This involves:

• Identifying, based on the initial structures, the different legal schemes that would allow reaching the target structure defined by the client;

• Recommending the most optimal legal scheme in light of the client's objectives and the challenges they are facing.

Developing a legal planning of cross-border transactions allows for the selection of the best implementation scheme for the operation, anticipates legal risks, better manages resources (time, budget, etc.), increases the chances of success of the transaction, and thereby enhances the reputation of the company or companies involved.

2. Tax structuring: Optimize overall tax cost and avoid double taxation

Cross-border transactions involve significant flows between the jurisdictions where the entities involved in the transactions are located. These flows have tax implications in each of the said jurisdictions, particularly in terms of withholding taxes, registration fees, value-added tax, and corporate tax.

These tax implications can be very burdensome.

Implementing a tax structuring policy for cross-border transactions can help reduce tax friction while minimizing exposure risks for stakeholders.

3. Regulatory Management: Compliance with existing regulations and adherence to foreign exchange requirements

Each African economic area (CEMAC, UEMOA, COMESA, SADC) has its own framework for control of regulatory compliance of cross-border operations and for foreign exchange controls (prior declaration obligations, prior approval requirements, reporting obligations, etc.). It is essential to be aware of such requirements, to keep them in mind, and to comply with them, in order to avoid delays in closing transactions or risks of deal failure due to regulatory non-compliance.

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Conclusion‍

Cross-border transactions (mergers and acquisitions “M&A”, divestitures, etc.) involving African countries involve numerous legal, tax, and regulatory challenges. In the absence of methodical management of these challenges, transactions can quickly become financial black holes for stakeholders or end in failure.

Relying on the experts at ECA Conseils, with advanced skills and extensive experience in transactions including at the international level, allows for securing each stage of the process, from the decision to proceed with the transaction to its closing, including the various structuring and execution phases.