Introduction

In 2025, $5.1 billion was invested across 530 private capital transactions in Africa,[1] underscoring the growing importance of private capital as a source of financing for African businesses. The development of the African Continental Free Trade Area (AFCFTA) further supports the commercial case for cross-border investment into and across Africa. The AFCFTA and its emerging investment framework are also intended to support greater regional integration and investment facilitation.

The Protocol on Investment to the Agreement establishing the AfCFTA, adopted in 2023, seeks to establish a more predictable framework for investment promotion, facilitation and protection across participating States. It encourages measures such as one-stop investment procedures, digitalised business entry processes, cooperation between national regulators, and improved access to information on domestic investment requirements.

However, the increasing integration of African markets does not eliminate the challenges involved in working through the domestic laws and regulatory requirements of individual host States as Africa remains a multijurisdictional investment landscape. The AFCFTA Protocol itself provides that investments are to be admitted in accordance with the domestic laws and regulations of the host state.[2] As such, licensing rules, tax policies, merger thresholds, foreign ownership restrictions, enforcement procedures, and other legal and regulatory considerations differ across the continent.

For fund managers therefore, the challenge is not simply identifying attractive investments, but determining whether an opportunity can be successfully executed, financed and governed within the legal, regulatory and economic environment of the host jurisdiction.

Practical Cross-Border Investment Challenges and How Fund Managers Can Navigate Them

• Inexperience in new jurisdictions

A fund manager entering an unfamiliar market must contend with unfamiliar legal systems, market conditions, and business practices, which may increase information asymmetries, transaction costs and due diligence burdens. This challenge is not limited to understanding the applicable legal framework. Fund managers may also lack the local relationships, market knowledge and transaction experience necessary to properly assess investment opportunities or execute transactions efficiently within the jurisdiction.

In addition to prioritising investments that provide credible evidence of robust governance, transparent financial reporting, and strong management teams, one practical way of addressing this information and experience gap is to co-invest alongside established private equity funds or other institutional investors with a proven track record in the relevant jurisdiction or sector. The value of such partnerships extends beyond access to local information. The reputation and track record of an established regional fund manager can provide additional comfort to co-investors and other stakeholders who may be less familiar with the market.

Such partnerships can also provide access to local market knowledge, established business relationships and transaction experience; facilitate regulatory engagement and approvals where foreign ownership is restricted, or local participation is commercially important; and improve post-investment execution. This allows the incoming fund manager to leverage local expertise without relinquishing its own investment decision-making authority. Any such partnership should, however, complement rather than replace independent legal, financial and commercial due diligence.

• Regulatory challenges

Regulatory differences are a significant challenge in cross-border investing across Africa. Depending on the country and sector, investors may be subject to different investment regulations, licensing regimes, disclosure obligations, data-protection rules, and sector-specific restrictions on foreign ownership. Additionally, laws continue to evolve across the continent, and requirements can also change during the period of the investment. For a fund manager, regulatory risk may therefore arise both at the point of entry and throughout the investment lifecycle, particularly where changes in legislation or regulatory policy affect licensing, foreign investment restrictions, taxation or the movement of capital arises.

To ensure compliance at every step and across all jurisdictions, fund managers should engage experienced local solicitors and, where an investment spans multiple jurisdictions, may benefit from working with Pan-African legal service providers capable of coordinating local advice across the relevant markets. Such advisers can coordinate local counsel and provide consistent guidance on approvals, notifications and ongoing compliance obligations, and assist in reconciling differences between local regulatory regimes.

• Market and economic challenges

Foreign exchange restrictions, currency depreciation, inflation, fiscal measures and wider economic uncertainty can materially affect a fund’s ability to deliver value to its investors. A company may achieve strong revenue growth in local currency while generating a weak return for investors once conversion costs are taken into account. For fund managers, these risks are particularly important because they can affect not only the value of an investment but also the ability to convert and repatriate dividends, interest and eventual sale proceeds.

Fund managers must therefore assess currency risk as part of the investment case, and consider the direction of economic reform and the risks that remain throughout the investment lifecycle.  Fund managers should remain abreast of macroeconomic trends, foreign exchange policies and fiscal developments in the relevant jurisdiction and obtain local market intelligence before committing capital. Due diligence should also assess the practical ability to introduce and repatriate capital, including any applicable exchange controls, approval requirements and restrictions on the transfer of dividends, interest or sale proceeds. 

Legal Structures for Cross-Border Investments

The legal structure selected for a cross-border investment affects regulatory approvals, taxation, governance, financing, the movement of cash, repatriation of returns and a fund’s ability to exit. Without a carefully structured legal vehicle, investors could be left vulnerable to numerous risks. Thus, finding the appropriate structure must form a part of the fund manager’s risk-allocation and value-realisation strategy.

Fund managers may rely on the following specialised legal vehicles to hold assets and manage capital flow between jurisdictions:  

• Holding companies (HoldCos)

Fund managers may invest through a holding company which acquires ownership interest in companies operating in several countries. This centralises ownership of international assets under a single corporate entity. HoldCos are particularly beneficial for centralising ownership of investments and may facilitate governance, financing, dividend flows and exit planning, while separating investment ownership from the operating activities of portfolio companies.

Depending on the jurisdictions involved, a HoldCo may also provide tax efficiencies through applicable domestic rules and tax treaties. The availability of such benefits will depend on factors including tax residence, treaty eligibility, substance requirements, withholding taxes and applicable anti-avoidance rules. The flexibility allows fund managers and investors to sell parts of the business or invite investors in at a subsidiary level without relinquishing ownership of the group or its core business. Holding companies may, however, attract higher admin costs, are quite complex, and are typically established in jurisdictions with stable corporate laws and predictable regulatory frameworks.

• Special Purpose Vehicles (SPVs)

Fund managers may also create Special Purpose vehicles for particular transactions, assets or jurisdictions to ring-fence certain financial risks and liabilities, hold assets or structure transactions away from the parent company. SPVs may also be used to accommodate different groups of co-investors or to isolate investments with different regulatory, financing or risk profiles.

• Tax-efficient jurisdictions

Many countries across the continent are prioritising fiscal stability and investment attraction. As such, Companies Income Tax rates have largely stabilised, with rates typically ranging from 15%-35% against the continental average of 27%-28%.[3] Thus, Africa remains competitive with global markets. Nevertheless, certain countries within Africa are more tax efficient than others.

Fund managers must prioritise tax efficiency to maximise net returns, attract more institutional capital, and preserve liquidity. Thus, fund managers may consider investing in a tax-efficient jurisdiction in Africa like Mauritius, which leads in tax efficiency by offering a flat 15% corporate tax rate, exemptions on foreign dividend income and capital gains, and an extensive double taxation agreement with over 40 countries. Rwanda also offers zero-rated capital gains for select sectors, and preferential income tax rates as low as 15% for priority investments. Similarly, Botswana offers a competitive 22% corporate tax rate, with no capital gains tax on certain registered collective investment undertakings.

However, jurisdictional selection should not be driven solely by headline tax rates. Fund managers should also consider the commercial substance of the structure, treaty eligibility, withholding taxes, anti-avoidance rules, regulatory requirements and the tax treatment of investors in their home jurisdiction.

• The role of Pan-African legal service providers in providing coordinated multi-jurisdictional legal advice.

Pan-African legal service providers, being either a unified network, alliance or single law firm operating across multiple African countries, are invaluable to fund managers looking to invest across the continent as they combine international corporate standards with deep local regulatory expertise, and streamlined multi-country execution for cross-border investments. The operational efficiency and coordination offered by Pan-African legal services greatly assist fund managers in reducing the administrative burden and coordination costs associated with managing multiple local advisers.

Dispute Resolution

Cross-border investment transactions may give rise to disputes, making it important to establish a clear dispute resolution framework at the structuring stage. Alternative dispute mechanisms, particularly mediation and arbitration, are largely preferred alternatives to litigation. The appropriate mechanism should be considered at the outset of the investment rather than only after a dispute has arisen. Some of these dispute resolution includes:

• Mediation:

Mediation allows a neutral third party to facilitate a negotiated settlement. It provides a confidential and commercially flexible means of resolving disputes while preserving the parties' underlying relationship. It may be particularly useful where the parties have an ongoing commercial relationship or wish to avoid the cost and delay associated with formal proceedings.

• Arbitration:

Arbitration is generally preferred for disputes arising from cross-border investment contracts because it allows the parties to choose the applicable law, language, arbitral seat, procedural rules and arbitrators with relevant commercial or technical expertise. This provides flexibility and reduces concerns about unfamiliar court procedures or perceived domestic bias. A further advantage is enforceability. The 1958 New York Convention allows enforcement of arbitral awards in contracting states, subject to limited grounds for refusal. However, obtaining an arbitral award does not necessarily guarantee recovery. The commercial value of an award ultimately depends on the ability to enforce it against assets in the relevant jurisdiction. Fund managers should therefore consider the enforcement regime of the jurisdictions in which the counterparty or its assets are located when selecting the seat and drafting the dispute resolution clause.

NOTE:

At a minimum, the dispute resolution clause should clearly address the governing law, seat and institution of arbitration, appointment of arbitrators, language, interim relief and any requirement for prior mediation. Careful drafting at the outset reduces uncertainty over jurisdiction, procedure and enforcement if a dispute arises.

Conclusion

Successful cross-border investing in Africa requires more than the identification of attractive assets. For fund managers, the ability to navigate unfamiliar markets is therefore as important as the ability to identify attractive investment opportunities. This requires a combination of credible local partnerships, independent due diligence, continuous monitoring of legal and regulatory developments, appropriate investment structures and careful management of currency, repatriation and dispute resolution risks. The AFCFTA provides an important step towards greater coordination, transparency and investment facilitation, but it does not eliminate the central role of domestic law.

As African markets continue to integrate and evolve, fund managers that combine local market expertise with disciplined legal and commercial risk management will be better positioned to deploy capital confidently and realise value across the continent.