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Key considerations for a JV in Africa


When boards consider JVs they tend to think of a mutually benefi cial and legally binding (and enforceable!) contract between their company, a government, national oil company or fi nancial institution, bringing them much needed access to or licences within a host country. They foresee a straightforward arrangement with both sides keeping each other’s interests fi rmly in mind. A well-developed and legally sound Joint Venture Agreement (JVA) underpins this confi dence.


All too often however, JVs are forced marriages between two or more parties who misunderstand each other and have widely differing aims. Western companies often lack the expertise needed to make joint ventures work in practice; they over-rely on the JVA and legally binding agreements, and inadvertently under-resource the venture itself, or pay scant attention to any warning signs that trouble lies ahead. Cost overruns, schedule delays, compliance issues, negotiations and value-erosion are common challenges faced by these types of arrangements. The signs are, though, that JVs are here to stay, driven by a clear rationale of gaining access to new markets, natural resources, labour and fi nance. Particularly when venturing in such politically and culturally different, and rapidly evolving, regions as Africa, prospective joint venturers would be wise to consider some fundamental lessons which can provide smoother venture performance and lead to signifi cantly greater investor returns while limiting risk:


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LEGAL / POLITICAL: In Africa legal contracts and JV agreements do not hold the same legal sanctity as in some Western countries and are therefore frequently adjusted, renegotiated or – in extreme cases – ignored or overridden.


Western companies tend to believe that a contract (once set up and signed) will be adhered to. However, that’s an assumption that doesn’t always hold up when it comes to working in some developing and rapidly changing African economies. Before going ahead, running challenging ‘what if’ scenarios as to how the local joint venture partner(s) may seek to renegotiate


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and erode value can be helpful. Playing ‘war games’ and ‘what-ifs’, using neutral third-party joint venture experts, and then putting practical, real-world defences in place help to make the joint venture a hard target and managing these defences continuously as the venture matures is key to success.


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