It’s been called the largest whistle-blower data leak in history.

Known as the Panama Papers, 11.5 million documents leaked from the database of the world’s fourth largest offshore law firm, Panama-based Mossack Fonseca, reveal the various ways wealthy individuals, celebrities, high profile politicians (including twelve national leaders) and international criminals exploited secretive offshore tax regimes.

It is important to note that using offshore structures is entirely legal, and disclosure laws vary around the world. In the U.S., for example, citizens are allowed to move money offshore, but they must report the account information to the Internal Revenue Service.

There are also many legitimate reasons for doing so.  People who conduct business in countries with high levels of political or currency risk may move their assets offshore to defend them from “raids” by criminal syndicates and to get around hard currency restrictions. Other individuals may use offshore accounts for estate planning, inheritance and property purchases.

Nevertheless, the Panama Papers raise fundamental questions about the ethics of such tax havens, especially for elected officials. The revelations have led to calls for the reform of a system that is opaque and subject to abuse.

In fact, Iceland’s Prime Minister, Sigmundur Davíð Gunnlaugsson, became the first major casualty, stepping down from office amid mounting public outrage that his family had sheltered money offshore.

What does free trade have to do with offshore accounts?

In the United States, the release of the documents has reignited harsh criticism of its free trade agreement (FTA) with Panama, which went into effect four years ago.  Soon after taking office in 2009, President Obama began pushing for passage of the U.S.-Panama FTA, as well as trade pacts with Colombia and South Korea, which were also stalled.

At the time, opponents claimed the FTA with Panama would make it easier for rich American citizens and companies to set up offshore corporations and bank accounts to avoid paying taxes altogether.

In 2011, Rebecca Wilkins, a senior counsel with Citizens for Tax Justice, a nonpartisan nonprofit that advocates changes in U.S. tax policy, told the Huffington Post that:

A tax haven…has one of three characteristics:  It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of noncooperation with other countries on exchanging information about tax matters.  Panama has all three of those…  They’re probably the worst.

Despite warnings from watchdog groups and objections from members of the Democratic Party, President Obama signed the trade pact in 2011, which entered into force the following year.

Since then, the United States has had a multibillion dollar trade surplus with Panama, as it did before the trade deal. Nevertheless, the release of the Panama Papers has caused outrage among opponents of the FTA, who claim that they were correct to oppose the “disastrous” deal.

The anti-trade rhetoric, which has heightened during an increasingly contentious Presidential campaign, essentially posits that passage of the FTA has made it easier, not harder, for the wealthy and large corporations to evade taxes by sheltering billions of dollars off-shore.

However, the reality is not what detractors of free trade claim.  And surprisingly, the evidence is from the Panama Papers themselves.

Did the U.S.-Panama FTA lead to more offshore accounts?

Data collected from the International Consortium of Investigative Journalists (ICIJ) reveals that the number of off-shore incorporations in Panama actually fell from 4,741 in 2005 to 835 in 2015, an 82% decrease over ten years.

Stunningly, as of 2015, Mossack Fonseca appears to have almost completely ceased incorporating the least transparent form of company – called “bearer shares” – which often don’t even register an owner’s name.

Both the United States and the European Union pressed Panama to curtail its tax haven refuge prior to the FTA.  The calls to clean up corrupt practices became even louder after the financial crisis of 2008, which highlighted the catastrophic and widespread impacts of ambiguous financial activities.

President Obama and Congress made it crystal clear that the free trade deal was contingent on a separate agreement granting U.S. tax authorities increased access to Panama’s financial system.

The United States was especially focused on limiting bearer shares.  And Panama, eager to secure a trade pact to match the agreement between the United States and its Central American neighbors (CAFTA), was willing to oblige and changed its laws accordingly.

Based on ICIJ’s analysis of the Panama Papers, there appears to be a correlation between the commencement of discussions regarding the FTA and the dramatic decrease in the amount of secretive offshore accounts for Americans.

By exposing the secret world of offshore tax havens, the Panama Papers also shine a light on the role trade pacts can play in encouraging increased transparency and cooperation between partners.

It’s true, Africa is ripe with opportunities, but they go largely untapped by North American firms, which have been hesitant to enter markets where their European and Asian competitors are already doing business – and profiting from it.

The World Bank estimates that real GDP in Sub-Saharan Africa (SSA) will grow by 4.5%, whereas the U.S. economy is forecast to grow 2.7% this year, and the Euro area is expected to expand at around 1.5%.

Granted, it is easier for developing countries to deliver larger growth rates, since they’re starting from a lower economic base, but SSA is simultaneously experiencing:

• rapid economic growth,
• unprecedented political stability,
• regulatory and legal reforms; and
• a rising middle-class population.

All of these factors are leading to greater levels of transparency and accountability. And investors are taking notice.

In 2013, the OECD reported that foreign direct investment (FDI) into SSA increased by 4.7%. Private equity firms are scanning the continent for opportunities. In fact, Helios Investment Partners, a London-based firm, boasts the first ever billion dollar fund for Africa.

Yet only 1% of global private equity goes to SSA and .3% of the average investment portfolio in the United States – that’s just $3 out of every $1,000 – is invested in Africa.

In terms of trade, the potential for growth is enormous. In particular, Africa offers tremendous opportunities for companies that provide goods or services related to consumer products, infrastructure development and public services.

Meet the growing demand for consumer products

Historically, investors have focused on the extraction industries in Africa, so economies rich in natural resources (Angola, Nigeria and Mozambique) received the bulk of FDI.

However, there has been a shift away from extractive industries towards consumer-related sectors as demand and purchasing power increase alongside a growing middle-class.

As a matter of fact, in 2014, mining and minerals exited the top 10 sectors for investment in SSA.

The top three – technology, retail and financial services – demonstrate the changing nature of investment in Africa.

Consumer demand for new products and services across a wide range of sectors is the leading cause of economic diversification. Rising demand for products – from laundry detergent to champagne to mobile phones – presents significant opportunities for manufacturers of consumer goods.

Look at Kenya, where nearly three quarters of the population own cell phones, and almost 60% of Kenyans use cell phones for mobile payment and banking, making it the mobile-payment capital of the world.

Look to partners for the best opportunities in infrastructure development

The World Bank estimates that SSA needs $90 billion in infrastructure investment alone. That’s not $90 billion to add or repair things either; it’s the amount needed to build greenfield projects each year.

Infrastructure is critical to the effective functioning of an economy, from ports that bring cargo in and out to electricity grids that power manufacturing, and financial markets that keep the entire system moving.

African markets are investing heavily in capital improvement projects to meet the forecasted growth in electricity demand, water supply, transportation networks, and telecommunications services.

Many of these projects are funded by multilateral development institutions such as the World Bank, United Nations, and African Development Bank, as well as the U.S. Agency for International Development, U.S. Trade and Development Agency and the Canadian Department of Foreign Affairs, Trade and Development.

Tenders are posted on their websites, so firms can directly respond to opportunities to support the development of infrastructure projects throughout Africa.

International trade can involve public services too

There is also a huge need for public services, particularly healthcare and education, throughout Africa.

With its high population growth, SSA is much more open to private investment in these areas, whereas most industrialized economies consider them to be public goods that should be provided by the state, and tend to be suspicious of private sector involvement in them.

According to a recent report by the International Finance Corporation (the private sector arm of the World Bank Group), spending on health in SSA is expected to double over the next 10 years.

Investments of $25-30 billion will be needed to meet the demand, with the private sector playing a key role.

Interestingly, companies and investors that are already in Africa have a much more favorable view of the opportunities there and the ease of doing business, while firms that aren’t there are far more skeptical.

To build your business in Africa, there are three things to consider.

1. Think global, act local

Africa is big. However, Africa is not a single, monolithic place. It’s composed of 54 different countries (48 below the Sahara) that have their own unique economies, governments, cultures and every other independent system you would expect a sovereign nation to have.

They are also distinct from a geographic and economic perspective, so each county requires an independent approach.

To be successful in SSA, you have to know your Mali from Malawi and Mauritania from Mauritius.

You need to explore each individual market and develop an appropriate strategy. That requires a local presence.

Although distributors and agents can help you enter a market, developing a sustainable strategy requires feet on the ground in your priority countries.

Companies with representatives in country can gather local market intelligence, cultivate and maintain key relationships with government officials, oversee distributors and agents and quickly respond to changing market dynamics.

2. Play the long game

Building business in Africa is not a short-term proposition. It is a long-term strategy based on relationship building, technology transfer, skills training and a demonstrated dedication to the markets where you want to work.

Having a local representative will help position you for success, but patience is key.

Despite the high-growth rates in the region, African economies are still small, so big returns and volumes are often not feasible at the beginning.  Firms that are hoping to weather the slowdown in the EU and China by making quick returns in Africa will need to revise their expectations.

Additionally, navigating the complex regulatory and legal environments will take time and access to trusted advisors who can shepherd you through the process.

3. Manage risks

Like most emerging markets, SSA presents a complex operating environment that is prone to risks.  Companies need to navigate volatility and develop appropriate mitigation strategies, but oftentimes, firms overprice the risk exposure in SSA and abandon operations altogether.

Companies need to thoughtfully evaluate situations to determine if a change in strategy is required, or if a short-term contingency plan will suffice, such as selling products on-line rather than in-store during security threats so customers can avoid public places.

Doing business in Africa isn’t going to be easy, but it will be rewarding if you dedicate the time and resources necessary to develop and implement a thoughtful approach.

But act fast! European and Asian firms are actively engaged in Africa – and thriving- so don’t be the last one to arrive at the party.

As they say, if you’re not at the table, you’re on the menu.

What steps does your business take to identify and take advantage of business opportunities in Africa?