According to media reports South Africa's short- and long-term insurers are looking at entering the sub-Saharan African market as it presents a strategic opportunity for growth. Of course insurers have been investing in sub-Saharan Africa, but there is an intensified interest in the market.

The question now becomes ?How does one invest in sub-Saharan Africa??

Some time ago we looked at the same question in respect of the banking sector. We highlighted considerations of the World Trade Organization's (?WTO?) General Agreement on Trade in Services (?GATS?) and its application in the financial services sector. More specifically we looked at the possibility for a foreign bank to rely on the provisions of GATS when opening a branch in Zambia in order to enter the credit market. The principles behind those considerations are the same for the insurance sector and hence we restate those considerations to highlight some of the trade and investment considerations South African insurers will have to consider when deciding to expand into Africa.

Firstly a couple of introductory remarks need to be made about GATS. This will be followed by a discussion of the application of the GATS principles to the Zambian laws when a foreign bank wishes to open up a branch in Zambia

• GATS is an agreement of the WTO which covers the international trade in services and which acts as an instrument to promote growth and development of trade in services. All Member countries of the WTO (of which there now are 156) are signatories to this agreement and are therefore bound to GATS. Essentially GATS aims to ensure the predictability and transparency of Member countries' rules and regulations relating to trade in services and promoting liberalisation of the services sectors through ongoing negotiations (such as the recently ?paused' Doha Round).

Trade in services is defined in GATS in terms of four methods of supply. They are:

• Cross border trade ? where services are rendered from the territory of one Member country to the territory of another Member country. For instance an example would be where a South African attorney delivers a legal opinion to a Chinese client (through use of e-mail, post, telephone etc ? thus physical presence of the service provider is absent),
• Consumption abroad ? where a national of a Member country moves into the territory of another Member country, for example EU tourists coming to South Africa to undergo cosmetic surgery,
• Commercial presence ? where services are rendered abroad by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and ? controlled company, for example where a South African bank opens a bank branch in Zambia,
• Movement of natural persons ? where a national of a Member country provides a service within another Member country as an independent supplier or employee of a service supplier, for instance where one of our lawyers travels to China to advise a client there.

The services sectors are classified into 12 core service sectors namely:

• Business services (including professional services and computer services)
• Communication services
• Construction and related engineering services
• Distribution services
• Educational services
• Environmental services
• Financial services (including insurance and banking)
• Health-related and social services
• Tourism and travel-related services
• Recreational, cultural and sporting services
• Transport services
• Other services not included elsewhere

Eventually these core service sectors are sub-classified into 160 sub-sectors.
In terms of GATS the principle of most-favoured-nation (MFN) applies which means that if a Member country extends favourable access conditions to its market to one Member, this favourable access is automatically extended to all other Members. These Members do not have to provide something in return. This principle, along with some others such as transparency and the availability of legal remedies are what is known as unconditional general commitments in terms of GATS. They are thus unconditional general commitments which all WTO Member countries have to adhere to. Specific commitments relate to the specific commitments each Member country has to make relating to market access (what foreigners have to do in order to trade in services) and national treatment (that the conditions for foreigners may not be less favourable than for the domestic service providers) for the 12 core service sectors. As a foreign service provider you will therefore first look at the country's specific commitments to see what the rules and regulations are like. Specific commitments can also be horizontal or vertical. Horizontal commitments effect all the specific commitments made in each of the 12 core service sectors. For instance, a horizontal commitment could be that all foreign nationals will only be allowed temporary residence for a maximum time of 3 years. This commitment would then be applicable across the broad range of commitments made in each of the 12 core service sectors. A vertical commitment in turn is specific to one of the 160 sub-sectors. An example hereof would be that a mechanical engineer must have a bachelor's degree in engineering which conforms to the National Engineering Council's requirements for admitting an engineer to practice in Zambia. Conditional general commitments apply only to the schedule of commitments made by a Member country, thus those commitments that a Member made for any of the 12 core service sectors. They relate to matters such as the fair and impartial administration of domestic regulation, monopolies and payments and transfers.

In order to determine whether the requirements in terms of which a foreigner may open a bank branch in Zambia are fair, the point of departure would be to determine whether Zambia has made any specific commitments in the banking sector to ensure market access for WTO Members. Zambia's most recent schedule of commitments shows no specific commitments in the banking sector and therefore only the principles of Most Favoured Nation (?MFN?) and transparency apply. The MFN principle implies that if Zambia affords one Member better market access, it has to afford this treatment unconditionally to all other Members. The principle of transparency in turn refers to the publication of rules and regulations by a Member which may affect the operation of the GATS. It therefore seems as if Zambia has not given other WTO Members access to its market by making any specific commitments. Zambia did however make a horizontal commitment which applies to all services sectors. In terms of this commitment, Zambia makes no commitments (save where specifically provided for) except for the entry and temporary stay of natural persons employed in management and expert jobs for the implementation of foreign investment. The employment of such persons shall be agreed upon by the contracting parties and approved by the Minister of Home Affairs. Enterprises must also provide training in higher skills for Zambians to enable them to assume specialised roles. Therefore if a foreign bank wants to open a branch in Zambia they will have to comply with this general application commitment.

Zambia's domestic legislation should contain the regulations which will regulate access by foreign banks of Zambia's domestic banking market. Zambia's Banking and Financial Services Act (Chapter 387 of the Laws of Zambia) (?the Banks Act?) regulates the banking industry and entry of foreign banks into the Zambian market. In terms of section 4(8) of the Banks Act it would seem as if a foreign bank cannot merely open a branch in Zambia, but instead will have to establish a subsidiary in Zambia. The foreign bank will therefore have to register a company in Zambia as a subsidiary in order to gain access to the Zambian market. The only alternative would be to start a fully fledged Zambian bank and comply with the onerous provisions associated therewith, unless a representative office is established which will only be allowed to promote the activities of the foreign bank in its domestic jurisdiction. A representative office will therefore not be able to grant loans within Zambia. Alternatively if the aim is only to provide credit and no other banking services, a business would have to comply with the Money Lenders Act (Chapter 398 of the Laws of Zambia).
In addition a bank licence will only be given to a subsidiary if the foreign company is indeed a bank and is authorised to engage in the business of banking in the country where its head office is located. Furthermore the Bank of Zambia must be satisfied that the foreign bank is adequately supervised by the competent authorities in the country where its head office is located. This last requirement leaves a lot of discretion to the Bank of Zambia and could easily be used to prevent foreign banks from entering the Zambian market. The Registrar shall also have regard to the following in deciding whether to grant a licence (although these considerations do not discriminate against foreign banks):

• the capital adequacy of the applicant (approximately R3,5 million or K2billion),
• the financial condition, resources and history of the applicant and the applicant's associates and affiliates,
• the character and experience of the directors and major shareholders and of persons proposing to be concerned in the management of the business to be undertaken under the authority of the licence,
• the convenience and needs of the community intended to be served by that business, and
• the prospects for profitable operation of that business.

The Registrar may impose any conditions which it may deem appropriate and specifically a foreign bank must allow access by the Bank of Zambia to the offices and records of the foreign bank outside Zambia for the purpose of enabling the Bank of Zambia to assess compliance with the Banks Act by the subsidiary. Once the licence is granted the foreign bank will be entitled to provide all services which Zambian banks are allowed to render, such as the making of loans, provide money transfer services, etc, save, of course, where the licence provides otherwise. In terms of the Banks Act there therefore does not seem to be any outright restrictions on entering the Zambian market, although the Registrar and the Bank of Zambia does have a lot of discretion in deciding upon the conditions of the licence and the suitability of the foreign bank's domestic supervision.
The Banks Act does provide for the possibility of making additional regulations, and Zambia did promulgate such regulations on 31 January 2006 which are now known as the Banking and Financial Services Regulations 2006 (?the Microfinance Regulations?). Essentially the Microfinance Regulations provide for the licensing of businesses which, as part of their business, advance micro credit facilities as well as the regulation of the micro finance sector. Accordingly the Microfinance Regulations need to be considered to see if there are any restrictions placed on foreign banks in operating in this sphere. Although the Microfinance Regulations regulate a number of issues ranging from the governance of microfinance institutions to the operation of microfinance institutions, it does not discriminate in any way against foreigners wanting to enter the Zambian market. The Microfinance Regulations also provide that a foreigner does not have to be registered or licensed as a bank in order to provide micro finance, provided of course that it complies with the Regulations. In addition money lending is regulated by the Money-Lending Act (Chapter 398 of the Laws of Zambia), but no restrictions on foreigners could be found.

Zambia therefore did not make any specific commitments in the banking sector as part of their GATS package as their current legislation is not a real barrier to entry for foreign banks. Foreigners wanting to enter the Zambian market are therefore, on the face of it, not unfairly discriminated against and for the most of it are subject to the same treatment as Zambians. There is of course quite a lot of leeway left to the Registrar and the Bank of Zambia in deciding whether to grant a license to a foreign bank and this may indeed prove to be a barrier to entry. Furthermore there may be other legislation, such as the Companies Act which may place other restrictions on foreigners which in turn might affect the viability of entering the Zambian market. It may also be that the regulation of the Zambian banking market is so onerous that no foreigner (or local) would like to enter it, but this would of course not be barrier to entry in terms of GATS.

From the Zambian government's perspective the existing legislation may in fact provide an opportunity to indeed schedule some services liberalization without giving away more than it already has via its present legislation. This could be seen as a costless concession, but one that could be used to induce other concessions of value to Zambia. In addition, as a least developed country this proactive stance is likely to be seen as highly progressive as the GATS itself recognizes the ?serious difficulty' that LDC's experience in undertaking GATS commitments.

Our example initially seems simple enough, but even our cursory examination firmly indicates that there are many aspects which businesses supplying financial services will have to consider before deciding to enter a foreign market, but more importantly that a lack of WTO services scheduling is not necessarily going to prevent such entry. However without a firm WTO commitment on services, the government may unilaterally amend the legislation which could result in expropriation.

Rian Geldenhuys
© Trade Law Chambers 2012