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Into Africa

Por: Latin LawyerImprimirVisualizar em PDF

Brazil's close connection with Africa is deeply rooted in a shared colonial history. Latin America's largest country and the five nations that make up lusophone Africa were all former Portuguese colonies and bound together for hundreds of years by a rigid, imperial trading network overseen from Europe. To monitor trade, commerce and taxation in its far-flung colonies, the Portuguese Crown put in place many of the administrative and legislative structures that continue to bind Brazil to Portuguese-speaking Africa today.

Central among these are the countries' legal systems. Brazil's legal framework, like that of Angola, Cape Verde, Guinea-Bissau, Mozambique, and São Tomé and Príncipe, is based on Portuguese law and continues to share many core legal principles. However, this similarity is not just an inheritance from a shared colonial past, but the continued outcome of a process of cross-pollination between Portugal, Brazil and Portuguese-speaking Africa. Brazil's Civil Code is illustrative of this. Enacted in 2002, the law contains several tenets lifted from Portugal's own Civil Code of 1966, which is still used by several West African countries. Similarly, Guinea-Bissau's 2000 Arbitration Law, Angola's 2004 Commercial Companies Law and Mozambique's 2005 Commercial Code also bear the strong imprint of Portuguese law and would be recognisable to Brazilian lawyers.

And nor does legislative influence only flow north to south. Portugal's consumer protection laws, for example, include provisions that feature in Brazilian law, while numerous governments in lusophone Africa have also drawn directly on Brazilian law when drafting their own domestic legislation. Among these is the tiny island of São Tomé and Príncipe, which separately hired Siqueira Castro Advogados to help draft its new telecoms and antitrust bills, and Pinheiro Neto Advogados to assist on redrafting its oil and gas legislation to encourage pre-salt exploration. In a separate mandate, Guinea-Bissau's government also retained Pinheiro Neto to review its mining regulations, while Thompson & Knight LLP's former Rio de Janeiro team advised the Angolan government on a new biofuels law back in 2008. "Within Africa, Brazil is viewed as a country that is far enough away to be viewed as a model, but still close enough to be something that can be achieved," explains Pinheiro Neto partner José Carlos Meirelles. "Governments in Africa are interested in Brazil's experience, both as something to replicate and something to avoid."

 

To imitate or mitigate?

 

The prevailing view among lusophone Africa's governments of Brazil as a country that is culturally similar enough to share the same challenges, yet advanced enough to have the specialised expertise and financing lacking in the domestic economy, has long provided Brazil's leading companies with a clear comparative advantage. Beginning in the late 1970s, most of this investment has been channelled through state-owned oil company Petrobras, mining company Vale and a clutch of construction companies, such as Odebrecht, Andrade Gutierrez and Camargo Corrêa. Over the intervening decades, many have grown significantly and are now among the biggest operators in the region. "Over the past 10 years and before, we have seen Brazil's heavy construction companies investing in the lusophone countries of West Africa and they have all been significantly busy," says Allen & Overy partner Bruno Soares. "Then we saw others follow, many of them with support from Brazil's development bank, BNDES, and from there, we saw these Brazilian companies also invest in other jurisdictions in Africa."

Among the biggest investors then and now is Petrobras, which at its peak owned assets in more than 25 countries across the region and is continuing to seeing growing demand for its expertise; particularly from countries looking to develop or expand offshore drilling. Elsewhere, Brazilian infrastructure company Odebrecht has also grown to become the biggest private-sector employer in Angola and investing in projects including luxury apartment blocks, shopping centres and the hydroelectric projects, since putting down roots over three decades ago. Another success story is Vale, which first arrived on the continent in 2004 and expanded to become the biggest Brazilian investor in Africa; a major ongoing project is the multibillion-dollar construction of the so-called Nacala Corridor connecting the Moatize coal mine it operates in Mozambique to a new deep-sea port on the coast, and to Malawi by rail. "Brazilian companies have advantages because they have the same language, culture and legal system, understand bureaucracy, local content restrictions and financing challenges," says Tauil & Chequer Advogados in association with Mayer Brown partner Paulo Rage. "Sometimes, it is even easier for them to work in countries like Angola and Mozambique, for example, because the tax and labour laws are not as complex when compared to Brazil."

Political and economic considerations have also played a crucial role in expanding the influence of Brazilian companies. Following his election victory in 2003, former president Luiz Inácio Lula da Silva aggressively sought to boost south-south cooperation in a bid to forge stronger diplomatic and commercial ties between Brazil and Africa and raise the Latin American country's international profile. The policy saw Brazil double its number of embassies on the continent and promote its expertise in areas, such as agriculture and bioethanol. Such measures were also backed by generous financing by BNDES – Brazilian Development Bank, which underwrote projects worth billions of dollars across the region and even opened a local office in South Africa in 2013. Trade between Brazil and Africa soared, rising from US$4.3 billion in 2000 to US$28.5 billion by 2013. "For many years, the previous government created a lot of incentives to encourage Brazilian companies to invest in Africa, particularly in the infrastructure and natural resources areas," says Meirelles. "There was an understanding by the previous government that exploring the African markets would be more favourable to Brazil than competing in developed countries."

However, this boom proved to be short-lived as a combination of a deepening recession in Brazil, persistently low global commodity prices and a historic corruption investigation led many of these national champions to slash investment in the region and divest millions of dollars of assets. "During the commodities boom we did a lot of work related to investment, mostly in lusophone countries, but I would say that that type off work has reduced a lot," says Pinheiro Neto partner Carlos Vilhena. "Many investors are now reviewing what they are doing in Portuguese-speaking countries, so projects have been sold, divested or put on hold."

Perhaps the greatest impact was felt by Petrobras, which is at the epicentre of the country's historic Operation Car Wash corruption investigation, and has substantially scaled back its operations to meet the rising cost of the probe. In 2013, this saw the state-owned oil company sell its 50% stake in its Africa division to to Brazilian bank BTG Pactual. However, in a reflection of the scope and scale of the investigation, the financial institution has since spent the last year trying to sell on the stake after the arrest of the company's CEO sent the its share price plummeting. "Petrobras are selling assets and many investors are concerned about liabilities related to previous corrupt practices," explains Meirelles. "Legally speaking, there is a difficulty isolating assets to be sold to third parties without the assets carrying potential liabilities relating to the former companies, so there has been a discussion how to isolate or minimise liabilities."

Similarly, Odebrecht is also struggling to meet spiralling costs associated with the investigation after signing a leniency deal worth US$2 billion with US and Swiss authorities following the conviction of its former CEO Marcelo Odebrecht for corruption. Angola and Mozambique are the only countries outside of Latin America where the company has admitted paying bribes to secure contracts. In October, federal prosecutors charged former president Lula, the main architect behind the surge in Brazilian investment into Africa, with using his influence to secure funding from BNDES for Odebrecht's projects in Angola. BNDES responded by suspending all financing for foreign nations; Angola, the largest recipient of the development bank's funds, was particularly hard hit. "Petrobras and large Brazilian construction companies were involved in some very large infrastructure projects in Africa – not only in developing such projects, but also in operating them," says Siqueira Castro Advogados partner Maucir Fregonesi. "Odebrecht, Petrobras and even BNDES, has been on the radar of [Operation Car Wash] and, together with the collapse of the market price of the oil, this has caused the slowdown of some investments."

Domestic factors in several African countries have also deterred Brazilian investment. In Angola, stubbornly low global oil prices have pushed the local currency to record lows against the dollar and severely reduced the availability of foreign currency. With the financing for many projects denominated in dollars, many Brazilian investors and suppliers are finding their local partners unable to pay their bills. "Some large Brazilian companies that were present in Africa have suffered because of the downturn of economic conditions in Brazil, but there are also several other Brazilian companies that were very active in Angola that have reduced their activities for local [economic] reasons," explains Cuatrecasas partner Rui Mayer. "The problem in Angola is that the country is suffering from a shortage of foreign currency, which renders it unable to ensure that foreign suppliers of goods and services that are not prioritised are paid in due time. So, a lot of companies that were selling their goods there have accumulated a lot of credit over their Angolan counterparties, and are looking for a way to collect."

 

A close fit

 

These economic shifts also fed through to Brazil's legal market. As recently as the early 2000s, Brazilian firms still had low visibility on African deals; the market instead being dominated instead by Portuguese, UK and US firms. However, increasing demand from Brazilian companies for assistance on investments in region led several local firms to start expanding and tailoring their legal offering.

Tauil & Chequer Advogados was one of the earliest movers. Leveraging its access to a global network of offices provided through its association with Mayer Brown LLP, the Brazilian firm launched its Africa practice 16 years ago and for several years was the most visible local firm with a dedicated offering. Besides its roster of Brazilian companies, foreign companies numbered among its clients. Angola's state-backed oil company Sonangol, for example, hired the firm for its entry into Brazil in 2008 (a rare outbound deal from an African company) and later for the acquisition of a controlling stake in a Brazilian oil group two years later. Closer to home, Colombia's Ecopetrol also drew on Tauil & Chequer for its entry into Angola in 2014. "Whenever big projects happen, especially in the extractive industries, companies usually hire a big law firm, so you always see them involved in those projects and the big American firms rule this market," says Tauil & Chequer partner Paulo Rage. "We handle and coordinate several projects, specifically in Angola and Mozambique through the Rio office, but also in francophone Africa through [Mayer Brown's] Paris office."

Shortly afterwards, Siqueira Castro took steps to develop its Africa practice. In 2007, the firm entered the region and gained a presence in Angola by signing a strategic alliance with a Portuguese firm; later strengthening its offering and adding new representative offices in Cape Verde and Mozambique through a new partnership with another Portuguese firm, Abreu Advogados, in 2012. "Brazil is the second largest investor in Angola and that motivated us to invest jointly with Abreu," says partner Carlos Fernando Siqueira Castro, adding that other alliances with a French firm and a Chinese firm (Africa's biggest investor) also expanded its footprint in the region. "We are now in a very good position because we have a representative office in Angola, and are one of the only Brazilian law firms to have this. We also have a close relationship with major Portuguese, French and Chinese firms, so we speak the languages that are necessary."

However, with Brazilian investment into Africa now shifting into reverse, perhaps more surprising is the handful of firms that are currently taking steps to develop their offering to companies in the region despite the difficult business climate. Among these is Rio de Janeiro-based SVMFA, which recently exited a long-running merger with its São Paulo-based partner and joined Portuguese firm MC&A under a Swiss Verein. Besides providing a foothold for MC&A within Brazil's legal market, a main motivation for the tie-up was the access it provided the Brazilian firm to a network of offices in Angola, Mozambique, Cape Verde, São Tomé and Príncipe and Guinea-Bissau. "Certainly, it was one of the reasons that we decided to combine," says SVMFA managing partner Paulo Valois. "We do have some African clients, but this was not a market that we ventured into before. Africa is a market that was dormant [for Brazilian companies], but is now is starting to develop once again following the improvement of the Brazilian macroeconomics. We also realised we have several clients that operate offshore both in Brazil and on the African coast, which creates opportunity for legal work in more than one jurisdiction."

While Brazil's national champions may be reining in their investments in the region, several within the legal community argue that it may be precisely due to the economic crisis at home that is leading some Brazilian companies to hire local counsel to help them investigate opportunities in lusophone Africa. "What the crisis will probably bring is that Brazilian companies will be more aware of the importance to internationalise their investments, so we have started to see more interest in Europe and Africa," notes Cuatrecasas partner Maria da Paz Tierno Lopes.

Besides the entry of SVMFA, several other players have also taken steps to adapt their practice to the requirements of new types of players seeking to gain a foothold in Africa. Pinheiro Neto, for example, has shifted its focus towards assisting mid-market Brazilian companies interested in capturing a share of these markets. Similarly, Siquiera Castro says the large deficit of infrastructure and specialist services in several African countries is leading a number of its clients to invest in sectors they would not consider back in Brazil; among these is a client specialised in constructing supermarkets that has begun to start operating and supplying them too. Indeed, it is precisely the scope for generating such high returns on their investment that leaves many law firms optimistic that lusophone Africa will remain a profitable niche for both them and their clients. "Brazil has already shown a big commitment to the continent, which has been very underdeveloped until now, but it is a land of opportunity," says Fregonesi. "If you have the right partners, firms can advise on both inbound and outbound work, so there is a lot of potential for growth."

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