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OHADA - a boost to business in Africa
14/06/2017

Ohada - Rosemont looks here at the implication of this exceptional legal framework for business in Africa

The harmonisation of business law across a swathe of West African nations has proved to be the catalyst that has boosted economic growth and trade activity so improving living standards across the region.

In 1993 fourteen African states signed the Treaty to establish the Organisation for the Harmonisation of Business Law in Africa (‘OHADA’). The success of the Treaty as brought new members and since then the number of signatory States have increased to seventeen* and seen a revised Treaty executed in 2008.

The signatory States recognised that legal uncertainty was a significant obstacle to developing trade links between neighbouring African states and discouraged investors, whether local or international and both public and private from investing in the region.

The overriding objective of OHADA is to provide legal certainty and offers a common legal framework that facilitates investment and protects investors. With uniform and modern business laws in place, the economic integration between signatory States has become possible.

Under OHADA, the signatory States have introduced nine major pieces of uniform legislation covering commercial law, security of assets, enforcement and recovery of debts and dispute resolution, all designed to provide clarity and certyainty. Under the terms of OHADA uniform legislation is “…directly applicable and binding in the signatory States, notwithstanding any contrary provision of internal law, prior or subsequent.”

The uniform legislation has been refined to ensure the States remain competitive in globalised world. Recent reforms include creation of a conciliation procedure, simplified bankruptcy proceedings, strict deadlines for corporate rescue and improved procedures to secure debt payment.

The key points can be summarised in this table:
 

Legislative Improvements Examples of innovative tools and future facilitated practices
Creation of a new form of company, developed on the model of a French limited liability company, (the SAS), offering greater flexibility. Other possible contractual structures, eg: corporate governance, transfer of shares, etc.
Establishing a new plan for  preference shares. Ability to create different classes of shares with different categories of preferential rights.
Creating new categories of securities: Convertible bonds and other hybrid securities. New financing opportunities, similar to those already existing in other markets.
Allocation of bonus shares to officers and employees. Ability to grant free shares according to the performance of executives and employees. This is similar to exists practice in other markets and may attract employees and expat officers.
Modernization of certain rules of corporate governance  including attendance by  videoconference. Improved decision-making, especially for foreign investors on boards of directors and at general meetings.


As part of the process to ensure uniformity signatory States have accepted a transfer of powers to five new institutions, including the Conference of Heads of State and Government, which is the supreme administrative body to OHADA, a Council of Ministers, a  Joint Court of Justice and Arbitration which applies and interprets the legislation, and a Permanent Secretariat.

The positive effect on the region has been dramatic with the World Bank estimating that the GDP of OHADA states has increased to USD275 billion and enabling a marked surge in economic and social development by creating jobs and new businesses.

A survey conducted in 2016 by the African Private Equity and Venture Capital Association, found that 65% of private equity investors consider that in the next ten years Africa will continue to remain a more attractive investment than developed markets.

 

*The current signatories are Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Côte d'Ivoire, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Democratic Republic of the Congo, Senegal, Chad and Togo.

 

Rosemont International companies provide assistance to businesses undertaking international trade. For further information on this subject please contact Patricia Cressot at p.cressot@monoeci.com