Financial services and agriculture among areas set to generate legal work, says Norton Rose's Raj Karia

Africa's rise to become one of the world's fastest-growing economic regions has drawn heightened interest from investors globally, as well as from the legal market.

To date, the resources sector has accounted for most of the work undertaken by law firms operating in the region. But while the natural resources industry will likely continue to generate significant legal work, Africa's rapid growth is driving investor interest in new areas.

These range from financial institutions to technology and food security, along with mobile commerce, financial services and retail brands. This interest is driven by appetite for consumer goods and services among the continent's expanding middle class. 

Consequently, clients are increasingly demanding legal expertise across a wider range of sectors as the market for consumer goods grows, with investment protection remaining a major theme.

Looking at macro-economic trends over the past 100-200 years, strong similarities can be seen between the economic developments in Africa now and the economic developments we historically saw and continue to see in India and China. 

Many factors are driving the creation of a more populous and affluent continent. Some studies suggest massive increases in population: the United Nations anticipates Nigeria's population will reach 390 million by 2050. 

At the heart of these positive demographics is the rise of the middle-class consumer. More affluent Africans are demanding more; for example, a better diet with a higher protein content. 

These consumers are beginning to buy more expensive consumer goods and real estate, are investing in financial products, opening bank accounts and purchasing insurance – especially where no national health service exists. These drivers are having a direct effect on the legal work that is coming out of Africa. 

Sectors set to benefit

Demand for protein-rich foods is increasing globally and, as a result, Africa's agribusiness has become a major area of interest for investors. As greater numbers of livestock are bred, huge pressure is put on the food chain upstream. 

Proportionally massive amounts of animal feed are required to support increased animal stock, with around six kilograms of grain needed to produce 500 grams of beef. As Africa has more than a quarter of the world's arable land, it potentially has the capacity to meet this demand. 

Investors already recognise Africa's potential, with a number of investments already made in arable land in Africa, principally by large global traders and private equity houses buying land for production and processing facilities. Increasing productivity and output is key. 

Investors are looking to increase crop yields and require large amounts of fertiliser, phosphate, water and high-quality seeds. Parts of Africa, such as Zambia, are ripe for agrarian development – where large amounts of arable land, plenty of water, good weather and a relatively stable investment environment are available.

While traditionally there has been a great deal of activity in the resources sector and the telecoms sector, the growth of an affluent middle class is now triggering demand for financial services and insurance. 

Out of the three main groups of banks operating in Africa – national banks, large South African banks and international banks – we expect that national banks will be looking to recapitalise over the next few years.

Directly linked to the economic potential of the African consumer, many investors are buying into consumer-led companies and related logistics companies, with several high-profile consumer companies expected to come to auction in the near future, triggering demand for specialist M&A expertise. 

Demand for commodities has remained relatively strong. However, the equity markets are generally slow and debt availability constrained, making it more difficult for junior miners to gain leverage for the essential debt they need to finance project development. 

Banks are still requiring strict debt-to-equity ratios before they will take an interest in increasing their market capitalisation. Equity is also essential for companies to progress projects to a stage that is more attractive to banks; they will not just lend to a man with a mining licence. 

We have seen consistent debt funding provided by the international banks that have a significant focus on Africa. Clearly, the level of lending previously provided by several European banks has fallen. But as the global economy begins to recover, these lenders are likely to start lending to African projects again in the near future. 

The Chinese remain one of the key debt investors in Africa, and have driven a great deal of demand for legal services in both China and Africa. It is likely that equity and debt investment into Africa will remain steady for another year until greater confidence returns to the world economy.

Looking ahead

Looking past the first mover industries of resources, energy and telecoms, we see broad potential for new work in many stable but relatively resource-poor countries such as Kenya, Ethiopia, Tanzania, Zambia and Zimbabwe. 

Further to the traditionally high investment in infrastructure, we are seeing investment in real estate such as tower blocks and shopping centres in response to demand from the middle class. Kenya in particular is seen as a possible platform for multinational companies wanting a base to expand from into East Africa. Much of this investment outside the resources sector is coming from China, Canada, Australia, India and China, and increasingly from transnational corporations.

For now, resources and energy opportunities will continue to provide the bread and butter of legal work in Africa, but other sectors are also becoming increasingly important generators. 

Raj Karia is a partner at Norton Rose.