In the first article of Centurion’s African Knowledge Series, and in the run-up to the Africa Oil & Gas Legal Summit 2015, we look at how the OHADA laws make doing business in Africa better.
By Leopoldo Jeremias Essesa Mba, Associate Lawyer
Most Sub-Saharan African countries inherited their laws from former colonizers – like France, Portugal, Spain and the UK. This led to a segmented legal system that has curtailed cooperation between African nations. In 1993, 14 African heads of state came together to standardize business activities in their countries and adopted a single legal code under the Organization for the Harmonization of Business Law in Africa (OHADA) treaty. The organization now has 17 members, with the Democratic Republic of Congo the most recent to join.
The first thing that every investor entering a new market wants to know is, “If I invest in this country, are my rights being protected?” Therefore, the first thing an investor must establish is judicial stability. OHADA provides this judicial stability that countries with inherited laws are unable to provide.
Outside of OHADA members, most African countries have business laws that are often complex and out-dated because they have been inherited, for example, Nigeria’s Companies and Allied Matters Act. These systems can create legal barriers to entry for new investors that the government has to intervene to amend. However, an amended law might be a contradiction to another law, and so on. In contrast, OHADA laws, applied through a system of Uniform Acts, respond to the current economic reality of the member countries and make doing business more straightforward. Uniform Acts cover a spectrum of business matters, including Uniform Acts Organizing Securities, Arbitration, Commercial Companies and Groups of Economic Interest, simplified recovery measures of debts, Accounting, Transport and secured transactions, and are applied across all member countries. In 2014, the OHADA Council of Ministers adopted a Revised Uniform Act on Commercial Companies and Economic Interest Groups, and there are proposals to adopt Uniform Acts for labour law and banking.
The OHADA laws have been responsible for a noticeable increase in trade – not solely within the OHADA member area, but also outside. The resulting influx of foreign direct investment into the OHADA region once the treaty was adopted is proof of companies’ increased sense of security. Judicial stability is the most important issue for these investors, especially in the areas of Africa that have traditionally been considered high risk by the World Bank’s Doing Business report. Countries that have signed up to the OHADA treaty have started to see a turnaround in investor sentiment. The Democratic Republic of Congo is in the process of adopting the OHADA treaty, and this has resulted in greater confidence to invest in the country than before. The treaty can be particularly beneficial to countries that have experienced political instability in the past and suffer from a negative public perception.
Companies can arbitrate a dispute through the OHADA Common Court of Justice and Arbitration, headquartered in Abidjan, Côte d’Ivoire, or through national courts. The Uniform Act on Arbitration governs any arbitration proceedings in an OHADA member state, and the arbitration centre in Abidjan takes precedence over member states’ courts. Companies may choose to arbitrate elsewhere, such as the International Chamber of Commerce in France or the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in Washington DC. In most major cases, companies tend to go for arbitration because parties have more control of the dispute and greater discretion.
“The resulting influx of foreign direct investment into the OHADA region once the treaty was adopted is proof of companies’ increased sense of security.”
Most countries may not easily waive their sovereignty in their national or international legalisation system. However, given that OHADA is a treaty, and the treaty supersedes national laws, any judgement that does not comply with OHADA laws will be void and unenforceable. Investors must take OHADA laws into consideration before they consider national laws. This way, companies have a solid understanding of managing and arbitrating a dispute.
Trial and error
In order to test the waters in an OHADA market, it is possible for a company to set up as branch or representative office. A branch office can work in the market for up to two years to see if it is advantageous to continue investing within the region. After this period the company can decide to establish itself in the country or not. The advantage of a branch office is that it does not have the same level of tax and obligations as fully established company. The recently revised OHADA Unified Act on commercial companies has also introduced the possibility of establishing a representative office. This works in much the same way as a branch office, but with even fewer obligations. These unique structures allow investors to mitigate the risk involved with any new investment.
Lost in translation
OHADA regulations make business law very clear because the Uniform Acts are simple and easy to understand. However, problems arise in the fact that the Uniform Acts are in French so they must be translated in some cases. This can be an issue in countries like Equatorial Guinea and Guinea Bissau, where the national languages are Spanish and Portuguese respectively. Legal terms have to be very precise, so translation can be complicated and nuanced. This is why it is important to have law firms with experience in these areas. The OHADA treaty states that in the case of any dispute in interpretation, the French version prevails.