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Why there’s underinvestment in Africa
1. Why there’s underinvestment in Africa
BUSINESS/NEWS (/BUSINESS/NEWS) / ꇭ᠖텮 October ᠖텮ꇭ턿坮껱帼 at 턿坮觅䚅:᠖텮껱帼pm
By: Nicola Mawson, IOL Business Editor
Johannesburg Business rescue has a big role to play in encouraging new investment into Africa, says EY.
This is because, although private equity firms have raised over $᠖텮껱帼 billion for investment into Africa, only half of this amount
has actually been committed.
Jim Deiotte, EY Africa tax leader, says this gap of $턿坮᠖텮.껱帼 million is because investors are scared of the downside of
investing in the continent.
Although they can see the upside potential in Africa, they cannot quantify the downside, says Deiotte. He asked a panel of
restructuring specialists, at a plenary session of the annual EY Africa Tax Conference in Sandton, how this way of thinking
can be changed to unlock the investment that Africa needs to unlock its potential.
“The unexpressed fear of the downside risk in Africa could, I believe, be allayed if it was better understood that many
African jurisdictions have the regulatory framework to enable companies to be saved rather than just liquidated,” says
Deiotte.
In South Africa, companies now thanks to the amendment Companies Act have the option of entering business rescue
instead of being liquidated. The process allows them to reorganise and restructure under a business rescue practitioner.
Deiotte points out SA’s business rescue legislation is like that of the United States and other developed nations.
General Motors and Chrysler both recently restructured and avoided liquidation and have emerged stronger and more
competitive. In the same way, the oncebankrupt City of Detroit was able to recapitalise. Today Detroit is attracting new
investors and talented people, and is thus undergoing something of a renaissance.
In a similar way, the Francophone Africa region benefits from improved and a more clear and consistent framework across
턿坮❬ countries, says EY.
This has led to business rescue being used increasingly, notes Eric Nguessan, EY tax director in Côte d’Ivoire.
At the company’s tax convention, panelists made it clear that a critical element in using business rescue to save companies
largely depends on the maturity of the business environment, says EY.
Juan Santambrogio, a restructuring specialist at EY USA, who has been involved with the restructuring of the City of Detroit
for the past four years, said it was well understood in the United States that companies had distinct life cycles, and
restructuring was necessary to help them reset their strategies and operations to embark on a new growth curve.
By contrast, South African business is less mature, seeing the need for restructuring as a mark of failure. Being involved in
business rescue would be seen as unacceptable, possibly the end of one’s career, observed the panel.
However, bankruptcies are decreasing in SA. According to Trading Economics, bankruptcies in South Africa dropped from
턿坮았䛴ꇭ companies in July ᠖텮ꇭ턿坮껱帼 to 턿坮❬❬ in August.