Arbitration: a crucial factor in ease of doing business and investment growth in Africa

arbitrationGrowth in major African economies over the last two decades has been attributed to the increase in foreign investment and business opportunities. With the increase in foreign investment has come the increase in international disputes and the reluctance of foreign investors to settle these disputes in local courts in African jurisdictions.

Arbitration has evolved on the African continent as a veritable tool in international dispute resolution, although the rules differ from country to country; with the Francophone countries adopting French arbitral laws and English speaking countries following English arbitral laws, there has been significant advancement in the use of arbitration on the African continent. In recent years, the UN has influenced arbitral laws in an effort to achieve a common standard. For example, the UNCITRALModel Law (Model Law) has been adopted by 10 African countries, and the Uniform Act on Arbitration (UAA) of the Organisation for the Harmonisation of Business Law in Africa (OHADA) has been signed by 17 African countries.

The fact that African countries are signatories to internationally accepted arbitral laws has given foreign investors some comfort that international disputes can be settled in Africa. Though quite a few countries in Africa have been affected by the global recession, which has had an impact on the level of foreign investment, it is certain that arbitration practice will improve as African economies improve. Crucial policy and legislative steps are now required to attract investments in both the oil and non-oil sectors of the economy. This is especially true of Nigeria. However, the need for a fast dispute resolution mechanism in commercial transactions remains a key concern for foreign investors.

Nigeria generates a significant volume of domestic and international commercial transactions. Unfortunately however, disputes arising from international transactions domiciled in Nigeria are ultimately arbitrated in foreign countries. Often, the reasons that foreign parties insist that arbitration be conducted in Western jurisdictions is a perceived lack of any legal and institutional framework to support a robust arbitral system. This is premised on a prevalence of ad hoc institutions and the absence of up-to-date laws and regulations. Attitudinal issues also contribute to the erosion of a vote of confidence in favour of arbitration in African countries. Often, despite the arbitration potential and revolutionary decisions in arbitration, lawyers in African jurisdictions still indulge in frivolous applications to courts in order to stop arbitration proceedings. There is also a lack of specialised personnel to support arbitration work as it is still viewed as the lawyers’ turf.

Making Africa a key arbitration destination of choice is crucial, and improving the local arbitration environment is key to providing the enabling framework for international dispute resolution in Africa. Fundamental steps are required to raise the bar in dispute resolution and promote the ease of doing business on the African continent. There is a need to establish more institutions, such as the London Court of International Arbitration-MIAC in Mauritius (in southern Africa), the Kigali International Arbitration Centre (in east Africa) and the Lagos Court of Arbitration (LCA) (in west Africa). All of these institutions are world-class. Major advocacy is required to change the attitude of lawyers, and other practitioners and users, to the application and use of alternative dispute resolution(ADR).

Legal and judicial reforms are urgently required. Some jurisdictions are faster in implementing reform. Uganda, for instance, has carried out two amendments to its arbitration laws since 1999, a commendable drive for investment in the struggling east Africa country. Given the state of African economies, a “state policy” approach may be the required tool for speedy domestication of arbitration policy and work.

Nigeria currently has a draft Federal Arbitration and Conciliation Bill, which would repeal the outdated Arbitration and Conciliation Act 1990. Lagos State adopted the legislative principles in the Bill by passing the Lagos Arbitration Law 2009, which set up the Lagos Court of Arbitration, now a burgeoning centre in West Africa. Another bill is being considered in Nigeria to set up a Dubai-styled, International Financial Centre (DIFC); the Nigerian International Financial Centre (NIFC) would be an exclusive investment centre with internationally accepted judicial and ADR institutions. With the establishment of the Lekki Free Trade Zone (LFTZ) in Lagos, it would be expedient to locate the proposed NIFC in close proximity, so as to enable it to handle trade and investment disputes arising from the LFTZ. The bills (when passed) will improve Nigeria’s legal and procedural environment for arbitration and investment dispute resolution.

It is hoped that the effort to retool the institutional, legal and judicial environment for arbitration work and practice will create appeal for foreign investors, something that Africa needs desperately.

Written by: Victor Akazue Nwakasi and Derin Fagbure

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