This year arguably marked an unprecedented forward-thinking step towards economic integration in Africa. Africa accounts for three percent of world trade but this is likely to change soon. Leaders of forty-four independent African nations adopted the African Continental Free Trade Agreement (AfCFTA) in a landmark event held in Kigali, Rwanda from 17 – 21 March 2018. The overarching objectives of this monumental event is manifold. In general, the goals are to create a single market in Africa, while facilitating the free movement of goods and persons, and of course a single currency which has been mooted for quite some time now. The signing of this agreement is a critical step towards the creation of an African continental free trade area with the potential of becoming the largest free-trade area in the world in the context of participating countries since the creation of the World Trade Organisation.
The development of this latest highlight resonates with Africa’s recent economic activities following the economic fortunes of Nigeria and South Africa – Africa’s two largest economies. To limit global economic effects, such as adverse terms of trade and commodity price shocks on the continent, the signing of the agreement could not have come soon enough. This could pave way strategically towards promoting an integrated intra-African trade strategy not only for businesses but for smallholders. This will no doubt drive structural transformations of African economies which remains a top priority for the African Union under its Agenda 2063, having gained inspiration from other initiatives e.g. Boosting Intra-African Trade (BAIT) action plan.
Several Africa countries are landlocked. This can pave way for an enhanced intra-African trade regime for nations to access the neighbouring African markets which can significantly improve the flow of trade activities. The spill-over effect is capable of spurring domestic production of commodities and private sector investment into different sectors of the economy such as transportation, space, agriculture and manufacturing. To stimulate private sector investment in Africa, an enabling business legal environment is necessary. This could range from the ease of registering businesses in African countries, recognition of legal business structures across African jurisdictions, a cross-border insolvency standard for the recognition of judgements, or an international secured transactions regime with a potential for unlocking capital towards the facilitation of financing and acquisition of movable property for businesses.
The United Nations Commission on International Trade Law (UNCITRAL) under its Working Group I on Micro, Small and Medium Enterprises (MSMEs), provides guidelines on the reduction of legal barriers faced by MSMEs at the beginning of their life cycle.
The importance of a fair, stable and predictable legal business framework in developing countries has the potential to generate inclusive, sustainable and equitable development, economic growth and employment, investment and entrepreneurship.
In this regard, Africa needs to strengthen, and most importantly, provide an economic governance platform to permit entrepreneurs to conveniently and affordably establish and operate a business in multiple jurisdictions in Africa. The African Union can set up an institutional framework in the form of a business modernisation programme which will address the participation of the informal sector in the formal economy, and at the same time adopt best practices to optimise the operation of an efficient business registration system for African countries who have not yet reformed their business registration and formalisation methods. Also, the African Union can encourage businesses to take up other simplified business forms other than corporations.
In this light, it will be pertinent for African nations to create an appropriate legislative framework which will cater for MSMEs who may have a single member to a more complex structure with multiple members. Such stakeholders could smallholders, street vendors or family enterprises wishing to expand and formalise their business. UNCITRAL Working Group I have provided a Draft Legislative Guide for the creation of a Limited Liability Organisation (UNLLO) for developing countries who need to reform their business sector. The African Union can assist its countries by developing a “continental framework” around the recommendations of the UNLLO which will create a flexible business form that can be tailored to meet commercial practices in Africa whether family business, joint ventures or consultancy services. The African Union may wish to exclude certain regulated industries from the scope of the continental framework such as banking, microcredit or insurance industry. These businesses under the continental framework will have legal personality and their members will have limited liability. In addition, these businesses could operate in more than one African jurisdiction and enforcement of their rights will not be curtailed by not being registered in that country.
In addition to the recognition and modernisation of a flexible African business structure which will no doubt encourage private sector investment in these businesses, access to finance for these businesses remains a stumbling block. This is particularly the case with businesses involved in high value equipment transactions. To date, not many African countries have ratified the Cape Town Convention on International Interests in Mobile Equipment. This Convention is a creation of the International Institute for the Unification of Private Law (UNIDROIT). This Convention was signed in November 2001 which created a new concept “international interest” for creditors to speedily enforce their legal rights in equipment that they may have leased or taken as security upon default by a debtor. Generally, the Convention seeks to reduce the risks associated with lending towards the financing of mobile equipment that usually move across national borders, with the international interest capable of being enforced in another jurisdiction outside the jurisdiction of the creditor. These equipment’s could range from aircraft (including helicopter) parts, rolling stock, space objects, agricultural equipment, mining and manufacturing equipment. This Convention creates separate protocols for these equipment’s. This is a truly unique international treaty on secured transactions which will significantly reduce financial risks for the private sector who wish to invest in African infrastructure.
The African Union should seriously consider the adoption of this treaty which has the capacity to unlock private sector investment in Africa, including regional projects. Also, an African legal framework built on this Convention, either through the assistance of the regional economic communities or by an African Charter or Protocol, will significantly reduce the cost of private sector financing for mobile equipment which will lead to a more competitive and dynamic infrastructural industry in Africa. There are no downsides to implementing this law in Africa. National governments will be relieved from financial burdens. It will create fresh source of investment to different sectors (such as transportation, agriculture and space), attract international and regional investors, as well as underwrite Africa’s economic development many years to come. Indeed, the signing of the AfCFTA could not have come at a better time to take advantage of these opportunities to integrate and harmonise trade in Africa.