OHADA reforms will serve as impetus for local legal changes, say Stephane Brabant and Salimatou Diallo

In recent years, the pan-African economic and political landscape has shifted dramatically: the focus of foreign direct investment has moved to a much greater extent to sub-Saharan Africa, particularly the west-to-east 'investment corridor' in Francophone and Anglophone sub-Saharan Africa, which is predicted to become the fastest-growing region on the continent.

The Organisation for the Harmonisation of Business Law in Africa (OHADA), a pan-African treaty-based organisation comprised of 17 member states, has facilitated substantial market entries and the influx of capital, largely due to harmonised and modernised business laws and stronger security interest arrangements.

The World Bank has recently reported that in the past six years, the average cost of starting a business in the region decreased by 67% per capita and the cost of registering a property title likewise decreased by 28%. 

Along the same lines, several trends are to be noted when light is shed on the economic impacts of recent legal reforms in the OHADA region: 

1. Financing and lending opportunities are more accessible and affordable due to simplification and heightened flexibility of security interests; 

2. Corporate structures have become increasingly flexible and better-suited to international requirements; and 

3. The enforcement of contracts is more widespread and efficient owing to the modernisation of various dispute resolution channels. 

Access to financing

Although the lack of financing opportunities has long been seen as a major obstacle to the sub-region's economic growth, OHADA's legal reforms have noticeably sought to reverse the trend.  

The Uniform Act relating to Security Interests, as revisited in 2010, enables the constitution, perfection and enforcement of all types of security interests in satisfaction of a debt (including share pledges, assignments of claims for security purposes and fiduciary transfers of monetary claims). 

OHADA's trade registry (Registre du Commerce et du Credit Mobilier) now contains information on attached security interests as perfected or filed in each member state. This provides for a centralised and more transparent database to obtain information in a timely fashion and sets new standards for creditors to collect in the event of defaults.

Another important dimension is the ability to assign a security interest to a third party without having to transfer corresponding property interests. In other words, the collaterals may be entrusted in the hands of a security 'agent' who will manage the assets to the benefit of all secured parties collectively and in accordance with priority rankings.

This arrangement, which in some ways operates like an English law 'trust', will likely facilitate multi-lenders and syndicated financings, a financing technique often used in large-scale development projects. 

Flexibility of corporate structures

OHADA has provided for more appropriate corporate structures (eg sole shareholder entities) along with a sophisticated set of corporate governance rules laying grounds for an environment more adapted to modern business trends (eg share transfer mechanisms). 

This framework has become more flexible and prone to the use of joint venture structures, which are particularly well-suited in the extractive industry. West African natural resource-driven economies should benefit from the joint forces and synergy of investors and lenders' liquidity, operators' technical know-how and governmental entities' need to promote the overall public interest (such as cultural awareness, sustainability, and local content requirements). 

Enforcing contracts 

Investors' perception that some African countries were not offering sufficient legal certainty and predictability has pushed OHADA drafters to revamp alternative dispute resolution mechanisms.

Indeed, the Uniform Act on Arbitration aims at increasing the organisation's ability to rule on legal issues in a fair and impartial manner thereby complying with international standards for arbitration.

It provides for the possibility to submit a contractual dispute to the OHADA arbitration sitting at the Common Court of Justice (CCJA), whose awards are final and have binding effect in all member states.

A party seeking to arbitrate a commercial claim before the CCJA tribunal does not need to be registered in an OHADA member state so long as the subject matter bears sufficient connection to an OHADA member state, paving the way for the use of offshore investment vehicles. 

Importantly, it is further to be noted that the CCJA also acts as the supreme court for all OHADA member states, thus ensuring uniformity of interpretation of OHADA regulations.

Several OHADA member states have also initiated significant reforms of their own judicial systems through the modernisation of civil and commercial procedures, so as to reflect OHADA dispute resolution changes.

It is still too early to assess whether these reforms will bear fruit in the long run, but they will undoubtedly contribute to enhancing efficiency and equity in the judicial process which is key to gaining foreign investors' trust and attracting new capital to emerging economies.   

The OHADA gives a competitive advantage to investors establishing their business in a member state as a common set of rules would apply to their investment vehicles throughout the region, regardless of their country of registration. 

OHADA's regional integration is an invaluable tool to enhance sustainable economic development in the region. In practice, however, the free alienability of property rights, the access to financing and the mechanisms for contractual enforcement vary greatly from one country to the other. 

Some member states have created one-stop shops to satisfy formal requirements while others may need to work on the transparency and efficiency of their judicial system. 

Stephane Brabant is head of the infrastructure and energy practice in Herbert Smith Freehills' Paris office, and Salimatou Diallo is a solicitor in that office.