Jersey's role as a conduit for investment in energy and natural resources projects on the African continent
Mauritius and the Seychelles are well renowned hubs for African inward investment and Jersey is taking an increasing role in the region alongside them.
With a look at some transactions on which their firm has advised, Lebogang Maimane, Associate and Mark Brady, Group Partner of international law firm, Appleby (which has offices in all three of Jersey, Mauritius and the Seychelles) discuss the opportunities that Africa presents and Jersey's credentials to serve this rapidly emerging market.
It is no secret that Jersey has been a thriving hub for foreign investment into Africa for a number of years. This trend and the opportunities that lie ahead are well documented in reports published by local champions for Jersey's financial services sector, Jersey Finance and Locate Jersey. Evidently a large number of energy and natural resources businesses are now headquartered in Jersey with operations in Africa and several leading African banks have a presence on the Island.
Jersey's well established and respected legal and regulatory framework underpins its open for business culture and a finance industry with international pedigree. As a transparent and tax neutral jurisdiction with close proximity to London's capital markets, Jersey is attractive to investors in the energy & natural resources sector looking to raise funds for significant capex or exploration programmes. Jersey itself is a centre for listings of debt and securities, on The International Stock Exchange.
Jersey has the infrastructure and the local expertise to take the lead on best practice when it comes to satisfying relatively new economic substance requirements and is doing so.
Appleby recently sent a delegation to the 2020 Mining Indaba in South Africa – the world's largest mining investment conference – and observed that the key theme was environmental, social and governance policy (ESG), and the active and effective implementation of it. Jersey's reputation for instilling best practice in a number of regulatory areas should make it a jurisdiction of choice for those committed to ESG compliance.
Jersey's political and cultural links with Africa are long standing and rooted in cooperation on issues like trade and taxation as well as on charitable and wildlife conservation initiatives, such as the Durrell Wildlife Conservation Trust, which Appleby is proud to support.
Africa is widely seen by economic commentators as presenting a huge opportunity for foreign investment. It is in fact the second fastest-growing global region, projected to grow 3.9% annually for the current five year period ending in 2022. Recent IMF upgrades to 'emerging market' status of a number of countries in the region are testament to the growth of these economies and the inward investment coming into them. As shining example, Rwanda's economic growth averaged at 7.5% over the past decade and is second only to Ethiopia as the fastest growing African economy.
Appleby's corporate team in Jersey are seeing African investment first hand. In the past year Appleby has been instructed by banks, private equity funds and listed companies in relation to a string of projects across Africa in the energy and natural resources sector, involving Jersey financing structures.
Appleby advised an international development bank on the financing of a Jersey-headquartered oil & gas exploration and development company operating in North Africa, for the purposes of developing local infrastructure and production.
In relation to Rwanda, the firm advised on the financing structure for the construction of a power generation plant which will extract methane from the waters of Lake Kivu and use it to generate electricity. A key attraction to the use of a Jersey structure was the double tax agreement established between Jersey and the Republic of Rwanda on 26 June 2015 (the Rwanda Double Tax Treaty).
In neighbouring Uganda, the development of a hydroelectric power station is being supported by Jersey structured financing on which the firm continues to advise.
In South Africa, an iron ore mining group sought advice from Appleby in relation to the Jersey regulatory treatment of certain financial transactions and derivatives.
While at Dish Mountain, in Ethiopia, and at Bonkiro Hiré and Dougbafla, in Ivory Coast, mining projects are being developed by an Australian-based mining company and the financing structure on which Appleby advised was again Jersey-based.
Several of these financing structures saw the complementary use of a Jersey investment entity in turn linked to an African offshore entity in Mauritius or the Seychelles, thereby combining the regional proximity of Mauritius and the Seychelles with the ease of access to European and US capital markets that Jersey provides.
The continued growth of Jersey as a conduit for African investment is likely to be driven by the growing number of memoranda of understanding (MOUs) and double taxation agreements (DTAs) being agreed between the respective governments of Jersey and African countries. Most recently the Government of Jersey signed an MOU with the Government of Kenya on financial cooperation including the development of a DTA, but also involving cooperation on tackling financial crime and increasing cross-border trade and investment.
With a rich seam of opportunities on the African continent and growing relations between Jersey and a number of African countries, including reciprocity around tax, Appleby expects to see continuing volumes of high profile African investment work being handled by the Jersey finance community and its advisors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.