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Wednesday, 14 September 2011

Justice and Investment

A useful piece on the role that judicial reform plays in boosting investment and growth. Particularly useful in highlighting some of the developments taking place across the continent. We have previously touched on this important in our monthly essay - A Poverty of Zambian Justice

Confidence in the justice system has a real and direct impact on the investment climate of any country. Assurance on contract enforcement builds on investors' confidence and without it, investors will go elsewhere.

When cumbersome and lengthy judicial procedures exist, Small and Medium Enterprises (SMEs) struggle to remain afloat because resources are diverted from running day to day operations. Some of the things that companies want are protection for their property, access to justice and for their staff to be protected. They want assurance on contract enforcement and if any dispute arises, they want a judicial system that will bring rapid and efficient dispute solutions.

Civil society and the private sector are growing and applying pressure for better performance of the judiciary system and in the last two years, several countries have taken action to reform and modernise their judicial system. With the OHADA harmonising commercial law and more ongoing reforms in Burundi, Kenya, Malawi and Uganda, almost half of the region's economies will have adopted a new commercial law since 2005, according to the World Bank 2011 report on ease of doing business.

Organisations like the Investment Climate Facility for Africa (ICF) have been raising awareness on the importance of the judicial system in various international events and publications, and calling for more action from governments and the private sector to tackle the fundamental barriers to real economic progress.

On a regional front, ICF has supported the reform of eight uniform acts on commercial law and security interest and mortgages through OHADA (Organisation for the Harmonisation of Business Law in Africa). This reform is a breakthrough in 16 west African countries (Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comores, the Republic of Congo, Côte d'Ivoire, Gabon, Guinea-Bissau, Equatorial Guinea, the Republic of Guinea, Mali, Niger, Senegal and Togo) and it will help improve service to credit.

When collaterals can be registered and used as assets security, banks will be willing to lend more. These new acts govern commercial and corporate law, debt recovery, bankruptcy and arbitration laws. This change will improve the legal credibility of the OHADA members and make them attractive to investors. Africa's economy largely depends on the growth of SMEs and these in turn need access to credit. The experiences of several economies shows how increased protections are benefiting greater numbers of investors, thanks to the growth in numbers of formalised companies and the number of enforcement cases uncovering prejudicial transactions.

Automation of court proceedings has been quite successful and continues to generate interest from other governments. Automating court proceedings helps to reduce the time spent recording, increases the number of cases completed and removes the likelihood of tampering with testimony. Implementing a case management system also enhances the security and integrity of documents and thus removes the potential threat of corruption. Recording sessions and proceedings can be available on CD within a day whereas in many countries it still takes over six months for proceedings to be typed up. Great emphasis is also put on training of judges, court reporters and supporting staff. This action has now been implemented not only in Rwanda but also in Tanzania and Zambia. The bankers association of Tanzania has seen the impact of court modernisation on the reduction of claim cases they had filled with the courts and with these assurances of judicial solutions as part of their risk management, they are certainly going to increase their loans to SMEs.

Another action is the setting of Alternative Dispute Resolution (ADR) centers. The concept of ADR, whereby parties in dispute agree to settle their conflict through mediation - or at least give it a try before bringing civil suits to a courtroom, has also helped reduce the time it takes to settle disputes in land ownership and debt cases. In Mali and Mauritius, ICF supported the implementation of mediation centers and it immediately brought benefits to the local businesses. Within five months of the project completed in Mauritius, a total of 243 cases had been registered, 136 cases had gone through the mediation process. Similar actions are being undertaken in Togo, Mali and Sierra Leone.

Emilienne Macauley is the Communications Director of ICF. She was Managing Director of Celtel Madagascar and before that of Celtel Burkina Faso. The Investment Climate Facility for Africa (ICF) works with governments and the private sector to remove the barriers that exist to doing business in Africa, recognising that a healthy investment climate is crucial for the continent's economic growth.

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