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While private equity firms have raised over $25-billion in investment into Africa, only half of this amount has actually been committed, demonstrating reticent investor confidence in African firms and a need for improved clarity around legislation supporting business rescue proceedings on the continent, professional services firm EY Africa tax leader Jim Deiotte has argued.
“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.
“South Africa’s business rescue legislation, for example, is very similar to that of the US and other developed nations,” he noted during a plenary session of the yearly EY Africa Tax Conference, in Sandton, this week.
Similarly, the francophone Africa region also benefited from an improved, clear and consistent legislative framework, with business rescue proceedings increasing in frequency as a result, EY Côte d’Ivoire tax director Eric Nguessan added.
The conference also heard that using business rescue to save companies largely depended on the maturity of the business environment.
EY US restructuring specialist Juan Santambrogio noted that, in the US, for example, it was “well understood” that companies had distinct life cycles and that restructuring was necessary to help them reset their strategies and operations to embark on a new growth curve.
In contrast, the South African business was less mature and restructuring was still perceived as a mark of failure.
“Companies tend to wait too long to act, lessening their ability to remain in control of the process,” commented global restructuring specialist AlixPartners MD Michael Dorn.