Integration of Local Content and CSR Standards in M&A Operations in the OHADA Zone: Constraints and Opportunities

In the Organization for the Harmonization of Business Law in Africa (OHADA) area, mergers and acquisitions (M&A) can no longer be considered without taking into account regulatory and contractual requirements regarding local content and Corporate Social Responsibility (CSR). While M&A are primarily driven by economic and strategic considerations, they are now strongly influenced by social, environmental and governance imperatives aimed at ensuring better redistribution of investment profits within local economies.

CSR and local content policies have thus become unavoidable issues, particularly in extractive industries, infrastructure and strategic industries. States are increasingly imposing obligations on investors in the following areas:

• reliance on national labour;
• subcontracting with local companies;
• technology transfer;
• training of national skills; and
• environmental compliance.

Any M&A transaction must now integrate these obligations to ensure compliance with applicable regulations.

These requirements, although driven by the desire to strengthen local economies, complicate the structuring of M&A transactions and necessitate a rigorous approach from the due diligence phase.

Integration of local content standards in M&A operations in the OHADA zone

Unlike the general rules governing M&A, defined by the Uniform Act on Commercial Companies and Economic Interest Groups, local content is not yet governed by unified regulation within the OHADA zone. It primarily relies on national frameworks and regional initiatives, notably:

• the African Mining Vision of the African Union, which encourages the strengthening of local industries;
• the regional mining code of UEMOA, advocating specific local content requirements; and
• the ECOWAS model law on mining, imposing training and integration obligations for national workers.

In the absence of uniform regulation at the OHADA level, several member states have developed their own legal frameworks to regulate local content, particularly in the context of M&A operations. The legislation aims to ensure the integration of local companies, the development of national skills, and the use of local resources in investment projects.

• In the Republic of Guinea, Law of 22 September 2022, applicable to all sectors, requires public and private investment projects to contribute to the development of the national economy and improve the living conditions of local populations. This law aims to establish the legal framework obliging public and private investment projects to better contribute to the national economy’s development and the improvement of the living conditions of Guineans. Operators engaging in activities in the Republic of Guinea are thus required to adopt measures to promote the training of Guinean personnel, technology transfer and local sourcing.

Consequently, as part of their activities in the Republic of Guinea, economic operators must enter into supply contracts for goods or services with Guinean individuals or legal entities in order to source from the local market. Similarly, in contracts relating to public procurement, economic operators must systematically establish co-contracting or subcontracting with local companies. In these co-contracting and subcontracting operations, the local company must be responsible for at least 40% of the volume of services to be performed. Finally, regarding employment, economic operators are required to employ Guinean personnel at a rate of 30% for management positions, 25% for supervisory staff, 50% for skilled workers and 100% for unskilled workers.

• In Senegal, the legislator adopted Law No. 2019-04 on local content in the hydrocarbons sector. Beyond local recruitment, the law aims to maximise local content in training, technology transfer, local sourcing and service provision. The Senegalese law thus obliges foreign companies operating in the hydrocarbons sector to adopt measures enabling Senegalese nationals to acquire the qualifications and expertise necessary to gradually replace non-national employees. Similarly, they must adopt measures to establish partnerships with nationals or facilitate access to patents. Regarding local sourcing, goods and services related to oil activities must be provided by Senegalese companies. Most of the provisions of this law have been incorporated into Law No. 2022-17 of 22 May 2022, regarding local content in the mining sector.
• In Côte d’Ivoire, Law No. 2022-408 of 13 June 2022 aims to facilitate the involvement of local companies and actors in the oil sector. This law requires prior approval for any foreign company wishing to engage in subcontracting, service provision or supply of goods in the oil and gas sectors. Companies are required to award subcontracting, service provision or supply contracts by open tenders for amounts beyond a certain threshold to ensure fair competition. Oil companies and businesses operating in the sector must also define annual quantified objectives in terms of local content. An evolving list of positions exclusively reserved for Ivorian workers has been published to guarantee their priority in employment.
• Recently, Law No. 2023-041 of 29 August 2023 was adopted in Mali to increase the participation of local companies and workers in mining activities. It covers the entire value chain, from exploration to the marketing of mining products, to ensure sustainable economic impact at national level. Regarding the shareholding of operating companies, the State benefits from a 10% free participation. The State also has an optional right to cash participation of 20%. This option can be exercised within 12 months following the issuance date of the operating permit. This participation cannot be barred. Furthermore, operating companies are required to transfer 5% of their shares to national investors. Foreign subcontractors and suppliers are required to transfer at least 35% of participation to Malian partners, who only intervene in cases of national shortcomings.
• In Congo, local content relies on the integration of local skills and industries in strategic sectors such as hydrocarbons, mining, construction and services. However, several obstacles hinder its development, notably:
1. the weakness of the national industrial fabric;
2. lack of training and financing for local companies; and
3. the absence of support measures for existing legal frameworks.

To address these challenges, the Congolese government has implemented measures aimed at promoting the preferential awarding of contracts to local businesses, prioritising national employment and encouraging technology transfer. The National Development Plan (2012–2016) specifically identified strategic sectors requiring capacity-building and specific financing mechanisms. The overall aim is to ensure increased participation of local companies in economic activities while facilitating their capacity-building and integration into international standards.

• In Cameroon, Law No. 2016-17 of 14 December 2016, regarding the Mining Code in Cameroon, guarantees that these communities directly benefit from projects, notably through local employment, infrastructure development and social programmes. This approach contributes to reducing poverty and promoting sustainable and inclusive development. It primarily involves:
1. training and employing local labour to meet the needs of extractive industries and other key sectors;
2. encouraging companies to source goods and services from local suppliers, thus stimulating the national economy; and
3. facilitating the acquisition of new skills and technologies by local actors, increasing their competitiveness.
• In Burkina Faso, Decree No. 2021-1142 establishing the conditions for local supply in the mining sector obliges mining companies and their subcontractors to provide any service contracts they may conclude in the course of their activities in Burkina Faso to individuals or legal entities from Burkina Faso. A scale also specifies the percentage of shareholding to be granted to individuals or legal entities from Burkina Faso within businesses operating in the mining sector as service providers or suppliers.

Sanctions for non-compliance with local content legislation

It should be noted that violations of local content rules are subject to penalties, ranging from fines to the withdrawal of the authorisation permit, as well as the termination of contracts. Specific bodies are responsible for ensuring compliance with local content rules, thereby guaranteeing that economic operators are held accountable to the competent authorities.

In Senegal, the National Committee for Monitoring Local Content ensures compliance with all local content measures in the oil and mining sectors. The Guinean law, for its part, has established the Authority for the Regulation and Control of Local Content, but it is not operational to date. In Côte d’Ivoire, although monitoring mechanisms are provided, consulted sources do not specify the existence of a specific authority dedicated to ensuring compliance with local content rules. Nevertheless, the current regulations provide for penalties in case of non-compliance with local content obligations, which may range from fines to the withdrawal of the authorisation permit, or even the termination of contracts.

Integration of local content clauses in M&A contracts

M&A contracts must therefore include specific clauses regarding local content, defining (among other things) clear commitments regarding:

• minimum percentage of national labour employed;
• prioritisation of local suppliers and subcontractors;
• programmes for the transfer of skills and technologies to national actors; and
• monitoring and control mechanisms to ensure the implementation of commitments.

Prior to any acquisition, specific due diligence regarding local content is essential. It allows for assessment of the following:

• the overall cost of the project including local content constraints;
• the level of integration of local resources by the acquisition target;
• legal risks related to non-compliance with applicable regulations; and
• the existence of local partnerships and their compliance with legal requirements.

This preliminary assessment helps to avoid potential penalties and to structure the future commitments of the acquiring company.

Post-acquisition, it will be essential to ensure rigorous monitoring of compliance with local content obligations by establishing: (i) regular reporting to the competent authorities, and (ii) an internal mechanism for controlling and evaluating the implementation of commitments and penalties in case of non-compliance with contractual obligations.

It is important to find a balance between the attractiveness of investments and local content requirements. Furthermore, it is essential that these obligations do not become a hindrance to M&A operations but rather serve as a catalyst for local economic development and long-term value creation.

Due diligence plays a key role here, as it is essential for evaluating the level of integration of local content and anticipating legal risks.

Influence of CSR principles in M&A operations

Similar to local content regulations, CSR standards have not been unified at the community level. Within the OHADA zone, relevant provisions remain fragmented and vary across jurisdictions.

States with significant mining activities are among the most active in implementing CSR. Hosting numerous multinational companies in the extractive sector, they must reconcile economic growth with the reduction of negative environmental and social impacts. The Republic of Guinea, a major mining country, established a specific CSR policy letter for the mining sector in 2017. Eight strategic axes are considered to promote CSR, focusing on:

• respect for human rights;
• environmental performance;
• local performance;
• active participation of key stakeholders;
• information and communication;
• labour rights, oversight on the value chain, local content, and transparency;
• collaboration in the fight against corruption; and
• CSR reporting.

Through CSR reporting, companies communicate on their performances and impacts regarding various sustainable development themes, covering parameters related to society and governance. Côte d’Ivoire, with its Corporate Charter adopted in 2014, encourages sustainable development, respect for human rights, the fight against corruption, and the promotion of local employment.

Despite the absence of binding normative rules similar to local content provisions, it is crucial to take CSR principles into account in M&A transactions as they have an influence on the reception and support of the State regarding certain projects. Practice has thus appropriated the subject and goes much further than the law currently imposes. Both investors and lenders increasingly demand commitments regarding CSR.

M&A are crucial events in the life of companies, involving complex strategic, financial and regulatory aspects. The consideration of CSR standards in these transactions is becoming increasingly important, influencing not only transactional processes but also post-operation outcomes. Thus, if laws in the OHADA zone do not yet impose significant commitments regarding CSR, it is clear that these issues have become crucial in terms of image, communication and recruitment.

M&A operations in the context of CSR challenges

In the lead-up to M&A operations, CSR issues are playing an increasingly significant role in the Environment, Social, Governance (ESG) criteria examined by investors to decide whether or not to proceed with a transaction in the OHADA zone. While formal CSR audits are not yet standard practice, an increasing number of investors are incorporating CSR questionnaires into the due diligence process, requiring target companies to disclose relevant information. These questionnaires form a key component of the evaluation criteria before any investment is made. CSR indeed serves as a governance control mechanism in M&A operations, influencing stakeholders’ perceptions of the risks associated with the transaction.

Target companies with robust CSR policies are often perceived as less risky, which can enhance investor confidence and facilitate the transaction process. Additionally, compliance with ESG standards assists in better valuation of target companies (a better non-financial rating can enhance the company’s reputation) and mitigates legal and reputational risks, protecting the interests of stakeholders involved in the transaction. By identifying potential ESG risks during due diligence and proposing mitigation measures, stakeholders can maximise post-merger benefits.

Increasingly, financial investors now require as standard the inclusion of a clause in the shareholders’ agreement obliging the target and its management to fulfil commitments regarding CSR. These clauses are often general and do not provide, in most cases, penalties other than the commitment of the contractual liability of the target and its management. These clauses resemble soft law.

The integration of local content and CSR in M&A operations is a central issue in the OHADA zone. In light of legislative developments, investors must anticipate these obligations from the due diligence phase and adapt their acquisition strategies accordingly.

While some legislation strictly governs local content in several African countries, CSR remains weakly regulated. Its adoption often relies on voluntary initiatives, such as charters in Senegal or specific policies in the Republic of Guinea. In Mali, CSR practices remain rudimentary, without a formal audit framework or sustainable development strategy. However, several community and national initiatives strive to fill this legal gap.

The absence of a formal obligation for CSR reporting in Africa limits its entrenchment in the culture of companies operating on the continent. Nonetheless, this situation is evolving with growing initiatives and policies, making the generalisation of CSR reporting conceivable. A revolution is taking place within the 17 member states of OHADA, notably with the revision of the OHADA Accounting System (SYSCOHADA), which now frames the obligation to provide information on CSR along three axes.

• The first axis concerns the nature of the activity: companies carrying out activities that have an environmental impact, such as those in industries and mining, must provide social and environmental information.
• The second axis relates to financial commitments, requiring any company with more than 250 employees to detail the social and environmental impact of its activities, as well as its commitments to sustainable development.
• The last axis concerns accounting obligations, as the Uniform Act on Accounting and Financial Information mandates the declaration of CSR information, listed in Note 35 of OHADA financial statements.

In any case, while differences between national legislations can complicate transactions, regional harmonisation would provide better visibility for market players and foster a balanced approach between investment attractiveness and local economic development.