Markets & Finance

Dealmakers fault regulatory delays

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AccessKenya directors ring the bell to start trading of the stock at the NSE. A UK firm is proposing a buyout. FILE

Dealmakers in East Africa are being slowed by increased regulatory layers, which could make the region un-attractive to international investors.

Research firm Africa Assets says companies seeking cross-border mergers are being forced to apply for regulatory approval from both their national regulators and the regional Comesa trade bloc.

The anticipated East Africa Community (EAC) Competition Authority is also expected to have power to scrutinise all regional deals, adding up to three the number of regulators vetting transactions.

“Some firms in Kenya have begun submitting applications to Comesa. As the Comesa order is relatively new, it is not yet clear how long it will take to process submissions,” says Africa Assets’ Alternative Intelligence report covering January-April 2013.

Corporate lawyers say having to take approvals for mergers and acquisitions through three regulators will slow down transactions and add costs.

Kenyan cross-border mergers and acquisitions previously needed approvals only from the Competition Authority of Kenya (CAK), before the Comesa Competition Commission issued a notice early this year requiring all cross-border deals to be passed through its office.

(Read: Conflict of local and Comesa laws holds up firms’ mergers)

The EAC Competition Authority is expected to start work once the law creating it (the EAC Competition Act) becomes operational. It is feared that tripling of bureaucracy will slow transactions and make them more expensive.

The notice by Comesa’s Competition Commission generated confusion on whether Kenyan firms must seek double approval where cross-border deals are involved.

Even though Attorney General Githu Muigai said CAK has the final and only say on approval of mergers and deals within Kenya, corporate lawyers afraid of running afoul of Comesa’s authority have been seeking approval from the two bodies.

“The AG’s directive or opinion must be seen within its short-term context, noting also its political angle in questioning Comesa for not consulting before publishing its requirements,” said Mugambi Nandi, a partner at law firm KN Associates LLP.

Mr Nandi said the bigger picture is the pending complexity of having three regulators scrutinising deals. The Comesa Competition Commission charges $500,000 (Sh42 million) to approve a deal and parties can wait up to 120 days to get approval.

CAK does not charge a fee but has a waiting period of up to 60 days. With the EAC Competition Authority, it will take 45 days to get approval. This bureaucracy could make reduce the attractiveness of East Africa as an investment destination.

A recent report by consultancy Deloitte and Africa Assets found that 74 per cent of 34 private equity funds surveyed found that Kenya was their preferred destination for investment.

East Africa neighbours Uganda and Tanzania closely followed with a 70 per cent and 67 per cent preference respectively. In a separate survey Ernst & Young ranked Kenya as the fifth biggest foreign direct investor in other African countries over the past five years based on the number of new projects initiated.

India took the lead position with 237 projects, South Africa was second with 235, UAE third with 201, China fourth with 152 while Kenya initiated 113 investments.

Kenya also ranked high in the Ernst & Young survey in terms of attracting FDI, with a compounded annual growth rate (CAGR) of 43.1 per cent in the period 2007 to 2012, after Ghana and the Republic of Congo.

Recent cross border deals include the proposed buyout of listed firm AccessKenya by UK-based Dimension Data Plc.

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