The Harmonisation of business law in Africa & its impact on investors

Published: 26/06/09


One of the greatest challenges for investors wishing to do business in Africa is the lack of legal certainty and rule of law which exists in many countries. Trinity has extensive experience in advising international investors on a range of issues across Africa and is thus familiar with the obstacles that arise in many of these transactions.

One of the most challenging African countries is the Democratic Republic of Congo (“DRC”), which was recently rated in Doing Business 2009 as the most difficult country in which to do business out of the 181 countries analysed. The lack of infrastructure, legal and regulatory frameworks as well as various political and economic crises have deterred many potential investors in the past.

DRC is, however, currently in the process of becoming a member of OHADA in an attempt to harmonize its business laws and make it more attractive to foreign investment. This is a positive step for companies already operating in the DRC as well as potential investors, who will undoubtedly find it easier to negotiate their way around doing business in the DRC with a clear and simplified legal framework in place.

DRC is the second largest country in Sub-Saharan Africa with a population of approximately 66 million people. It has the potential to be one of the richest countries in Africa by its mineral wealth, hydro-electric capacity, extensive navigable rivers, geography, population size and the fact that it shares borders with 9 other African countries. The expansion of the Inga hydro-electric facility on the Congo River has been one of the most debated projects in Africa, which may finally become a reality.

What is OHADA?

The Treaty on the Organisation of Business Law in Africa (Organisation pour l&#39Harmonisation du Droit des Affaires en Afrique) was signed on 17 October 1993 by 14 African States (“OHADA”). The idea behind the creation of OHADA sprang from a political will to strengthen the African legal system by enacting a secure legal framework for the conduct of business in Africa, through the harmonisation of its business laws.

The OHADA framework currently regulates eight areas of business law – commercial law, corporate law, security, debt recovery and enforcement, bankruptcy, arbitration, accounting and the law regulating contracts for the carriage of goods by road. There are plans underway to harmonise other areas including competition law, intellectual property law, banking law, labour law, evidence and contract law.

OHADA establishes the supremacy and direct effect of OHADA uniform laws, however still provides member states with a flexible and modern approach which can be adapted to each country. Furthermore, the arbitration mechanism provides an established and trustworthy way to settle disputes. Ultimately, the objective of OHADA is to promote African economic integration and attract investment to the region.

Who are the member states

OHADA currently has 16 member states – Benin, Burkino Faso, Cameroon, Central African Republic, Comoros, Congo, Ivory Coast, Gabon, Guinea, Equatorial Guinea, Guinea Bissau, Mali, Niger, Senegal, Chad and Togo.

Article 53 of the OHADA Treaty provides that any Member State of the African Union may become a member. It is hoped that the adhesion of the DRC to OHADA will encourage other African countries to consider membership.

How does ohada law impact on investors ?

Many international investors consider that Africa is too risky given the legal and judicial uncertainties that prevail in many countries. OHADA is an attempt to cure this perception by providing a framework which replaces national law with a regulated communal legal system.

There are a number of advantages for investors relying on OHADA law. In many African countries, the national laws are out of date, uncertain and in some cases, unpublished. This provides a major obstacle for investors wishing to do business in these countries. OHADA has remedied this situation in 3 main areas:

Harmonisation of legal rules

The harmonisation of the laws relating to commercial contracts provides a clear and certain framework for investors. Secondly, the debt recovery and enforcement law sets out procedures in the event that an investor needs to force a debtor to meet its commitments, including quick, inexpensive and efficient methods of debt collection.

Although OHADA, does not as yet, regulate specific industries, it is useful in the context of the commercial contracts which underlie the development of a project operating in one of the member states. For example, international investors can now rely on consistent interpretation of contractual or security documentation between member states relevant to the financing or development of a project, which was previously elusive.

Recourse to Arbitration

Historically, arbitration culture has been poor in Africa and recourse to arbitration has not always been sufficient to protect the interests of international investors. This is exacerbated by the fact that certain OHADA member states have not signed up to the New York Convention 1958.

OHADA has sought to address investor confidence by introducing a uniform Arbitration law, which sets out the principles and stages of arbitration, including methods of recourse.

For example, where a member state has not signed the New York Convention, investors can use the OHADA arbitration procedure as a method of resolving disputes.

Supreme Court

Thirdly, given that investors are often wary with regard to national judicial systems, OHADA has created a Common Court of Justice and Arbitration (“CCJA”), which has exclusive jurisdiction to rule upon disputes relating to the application and interpretation of the uniform acts providing certain stability to the national judicial systems.

The CCJA also operates as a supreme court for all decisions handed down by the National Courts of Appeal relating to OHADA texts, which has effectively placed the national courts under the direct control of the CCJA as well as reducing the backlogs of national courts.

The legal context beyond OHADA

It is important to understand the regional economic and legal context beyond OHADA, which both complements and conflicts with the aims of OHADA. There are three main regional economic organisations which operate in the OHADA zone, namely, UEMOA, CEMAC and ECOWAS.

The West African Economic and Monetary Union (“UEMOA”) has 8 members (Benin, Burkino Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo) and was created to promote economic integration among countries that share a common currency, the CFA Franc. UEMOA is effectively a customs and monetary union between the member states. The underlying structure of UEMOA consists of various governing and regulatory bodies. UEMOA&#39s main objective is the creation of a common market based on the free circulation of goods, services and capital. It also co-ordinates national policies in certain sectors and harmonises its member States legislation.

Similarly, the Economic and Monetary Community of Central Africa (“CEMAC”) is an organisation of states in Central Africa established by Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea and Chad to promote economic integration among these countries. CEMAC&#39s objectives are the promotion of trade, the institution of a common market and greater solidarity among the populations. Currently, CEMAC countries share a common financial, regulatory and legal structure and maintain a common external tariff on imports from non-CEMAC countries. The CFA Franc currency is also shared by the CEMAC countries.

The Economic Community of West African States (“ECOWAS”) is a regional group of 15 countries (Benin, Burkino Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierre Leone and Togo), established to promote the co-operation and economic integration in all fields of economic activity of all ECOWAS states. The overall aim is to establish an Economic Union in West Africa. The ECOWAS institutions comprise the Commission, the Community Parliament, the Community Court of Justice and the ECOWAS Bank for Investment and Development.

While these three organisations certainly aid the process regional economic integration and legal reform, there is also a certain amount of conflict with OHADA given that similar institutions exist under all four structures, each with different member states. However, it may be that ECOWAS might be the forum in which to expand the process of harmonizing business laws in Africa.

The future of OHADA

The future of OHADA lies in the continued process of reforming and harmonising business law as well as its expansion into other African countries, in particular non-French speaking countries. Cameroon and Chad are currently the only English speaking members of OHADA, however there are good arguments for countries such as Ghana and Nigeria (both commonlaw-based systems) to join OHADA. Both countries are surrounded by Francophone countries which are also members of OHADA so this would facilitate cross-border investments.

Furthermore, the geographical conglomeration of the Francophone and Anglophone ECOWAS members creates a natural avenue for the introduction of the OHADA Treaty in those common law countries. The effect would be to facilitate both foreign and regional investment, which would ultimately aid the objectives of ECOWAS, UEMOA and CEMAC.

There are, however, numerous obstacles to this process, such as the linguistic and cultural barriers as well as finding a balance between the flexibility of the common law approach and the civil system, which favours a structured approach of rules and regulations. The OHADA codes have been inspired by the French civil law system and thus the main challenge will be to find a way to create a common system that integrates civil and common law principles in both the legal texts and the various institutions.

In conclusion, OHADA has paved the way for legal and judicial certainty in its member States, however there is still room for improvement, particularly with regards to the CCJA. It is often difficult to determine which court is competent in disputes involving OHADA rules and domestic laws and judges often favour national over OHADA laws in their interpretation, which diminishes the supposed supremacy of the CCJA. Furthermore, there also needs to be further clarity on how the OHADA institutions interact with the similar structures in the CEMAC, UEMOA and ECOWAS.

Ultimately, harmonisation of additional areas of law and the expansion of OHADA membership will encourage free flow of investments, cross-border trade, legal certainty, political stability, economic growth and regional economic integration, which will be of benefit to both international investors and OHADA nationals.

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