(Helene Tapadar)
For the international hotel, it needs to establish the types of land ownership under local
law.
For example, in Nigeria and Ethiopia all land is state-owned and foreign ownership is restricted to 99-year leases. In Angola, only Angola's citizens may hold freehold title, however foreigners are permitted to hold long-term leases of up to 60 years in designated areas, subject to the proviso that they must then hold the interest for at least five years before disposal.
Due diligence challenges, including lack of property registration, remain a barrier to investment. However, there are examples of steps being taken in some countries to address this. For instance, in Kenya land rights were enshrined in the 2010 Constitution and the Unified Land Acts of 2012 while Botswana, Zambia and Ethiopia recently featured in Jones Lang LaSalle's "global top 10 improvers' list" for real estate transparency. As land due diligence is essential to any real estate investment, potential investors should be aware of any constraints on this. Although markets and land registration systems continue to mature, accessibility of title information and an absence of state guarantees may delay or frustrate title investigations, particularly in the less developed African jurisdictions.
A degree of tax certainty may be gained by investing from a location which has a Double Tax Agreement (DTA) with the hotel jurisdiction. Mauritius and South Africa have attractive DTA networks and have historically been popular holding countries for investment into Sub-Saharan Africa. For example, both nations have concluded DTAs with numerous states including Rwanda and Uganda. In addition, Mauritius has concluded DTAs with Namibia and Senegal, and South Africa has DTAs with Ethiopia and Nigeria. However, in a bid to attract more capital from investors, a coordinated approach to taxation has also been on the agenda for the East African Community (EAC) following the introduction of the EA Common Markets in July 2010. Once ratified, the EAC's DTA is intended to lower corporate taxes and increase crossborder investments between the member states.
International operators often denominate management fees in US dollars. This may cause complications for owners where, as often happens in volatile commodity exporting economies, the state wishes to reinforce the primacy of its domestic currency. Risks associated with foreign exchange restrictions therefore require careful consideration. For example, earlier this year the Tanzanian Government declared it unlawful to price goods and services for Tanzanians in US dollars. There is also a history of nations taking measures to prohibit all transactions in US dollars; with recent examples including Zambia and Ghana (though both prohibitions have since been lifted).
Devaluation of local currency is a primary concern for owners required to make US dollar-denominated payments to operators. Where hotels generate earnings in local currency, owners will be exposed to exchange rate gap risk where the local currency depreciates against the US dollar. Contractually, it is important that a particular exchange rate is specified and provisions are included for the use of an alternative exchange rate if the selected one ceases to exist. Commercially, financial institutions are becoming more skilled in providing hedging solutions; which, when coupled with a longer term view in assessing the impact of foreign exchange rates, can reduce, but not eliminate, the perceived currency risks. Furthermore, hotels can provide a natural hedge against currency fluctuation where revenues are in US dollars but operational costs are in the local currency.
As a vast continent with 54 countrys, for the potential investors into the African hotel setor, it's necessary to be acquinted with the local law advice.
