Chinese companies doing business in Africa seeks more legal advice

African businessmen attend the China-Africa Investment Forum held in Beijing in July, 2014. Business exchanges between China and Africa are growing more frequent. [Photo provided to China Daily]

Law firms are seeing more business as African contracts become increasingly complex

As Chinese companies become more deeply involved in Africa and hire more local subcontractors and employees, they are starting to seek out legal advice more often on their projects, legal experts say.

"In the last few years we're receiving more and more requests for advice from Chinese companies. And we are seeing other law firms representing more Chinese companies as well," says Pascal Agboyibor, a partner specializing in energy and infrastructure with Orrick, Herrington & Sutcliffe LLP, a global law firm with a focus on the technology, energy and financial sectors.

Orrick opened its first affiliated office in Africa just three months ago in Abidjan, the economic hub of Cote d'Ivoire in west Africa. It has 25 other offices in Asia, Europe and North America.

The firm has had a busy Africa practice for some time, and has lawyers in Paris and London who have been working on cases related to Africa for more than 10 years, says James L. Stengel, a partner specializing in mass torts and product liability with Orrick.

About two years ago, it started to see more Chinese clients in its Africa practice as Chinese investments in the continent grew quickly.

"We decided that probably the size of practice and the sum of money handled by the practice in the African continent suggested that we needed to be physically present in Africa," he says. "In terms of our expectations for growth, the Africa practice involving China is obviously great."

Orrick has primarily served the African Development Bank, other such entities or organizations in Africa, or private companies from Europe or the United States doing business there, Stengel says.

At the beginning, Chinese companies were not part of the company's business, and that clientele has developed only in the past few years.

"I think there's a change in how China is investing or acting in Africa, which means there will be more demand for lawyers like us," he says. "If you go back 10 years, even five years or so, the Chinese model in Africa was sort of unitary."

If an African country wanted a hydroelectric project, they approached China and maybe would get help with financing by China, engineers from China, and the workers would be from China. The Chinese team would fly to the location, build the housing, complete the project and go back to China.

Using that model, African countries would get the exact product they wanted, but it didn't bring with it much development for the local government and the local people, in terms of local contracts, giving workers more skills, or all the other development that flows out of the central project.

"The Chinese model was very efficient in terms of putting infrastructure into place, but didn't have this second-tier development effect the way that now the non-Chinese or European or the US model would," Stengel says.

Now more Chinese companies, especially big companies with a major presence in Africa, are beginning to run development projects in a way that is more consistent. They bring over expertise, manage the project, are involved in financing, and also use local contractors and engineers, so there's much more variety in how the deals are structured, and the deals are becoming more complicated.

Although business from Chinese companies is growing, that doesn't mean they are seeking out legal advice as often as their Western counterparts. Apart from serving big Chinese companies, Orrick's new practice also targets a large number of smaller or less sophisticated Chinese State-owned or private entities.

Because there's a lot of excitement about doing business in Africa, some Chinese companies may ignore or downplay the fact that their legal situation will be quite different in Africa and they need guidance in this different environment.

"Legal risks can be found in any major investment. The project may not work, expenses may be more than they expected, there may be failures in another party's transaction," he says.

There also are political risks. Legal systems in place in African countries aren't necessarily fully developed, and they may not have the tools they need to support these business activities. That will change over time, but there may be huge gaps between the legal system of the host country and the specifics when transactions are being done.

Because Africa includes 56 different countries, and every country has a different legal system, and some speak different languages, one of the things law firms can bring to clients is to pass on details about what is happening in each of those countries.