Rule of law, Lawlessness and growth, A functioning state, and the constitutional environment in Africa:

Africa is a continent of infinite variety with vast opportunities for successful investment. Any specific decision to invest in Africa has to be made in the light of information about local condition in the place where the prospective firms is going to operate.

Some countries in Africa are well governed and respectful of the rule of law. I emphasize this point because when one focuses on the entire continent through a wide-angled lens, it is easy to be misleadingly pessimistic about the legal environment for doing business in Africa.

Any exploration of local condition prior to investment is likely to be more complex than it appears to be on the surface. Local knowledge is particularly important. For example, in South Africa high levels of crime may not necessarily affect the risk to a particular business.

The entire southern African region is riven with criminal gangs that are engaged in robbery and theft of motor vehicles and trade in drugs. These true images of Southern Africa legal order may obscure the fact that it is fair to say that the corporate sector of the South African economy is effectively managed within the framework of a modern South African legal system that would be comfortably familiar to anyone coming from Anglo-American or European legal tradition.

Let's explore how widespread failure of the legal system in many African countries conduces to a climate of distrust that inhibits growth. The rule of law is often comprised by authoritarian governments that do not respect the independence of the judiciary.

Lawlessness is ubiquitous in many African countries which has the effect of systematically bringing the law into disrepute. Not all threats to the legal order are based on sinister motives. In some countries a matter as basic as publication of laws presents problems.

Let's discuss issues of state sovereignty and conditionality. Finaly will explain the typical structure of African legal system.

The rule of law:

Lawlessness and growth

There is a powerful body of evidence that justifies Africa's characterization as a lawless continent. One needs to acknowledge that lawlessness is not always bad for business. Over time many companies have been able to benefit from the regulatory weaknesses of African states and have succeeded in extracting large profits.

They have also taken advantage of gaps, for example, with exception of British Petroleum, multinational oil companies are untransparent about what they give to governments in oil revenues.

Oil companies have also been criticized for doing environmental harm and Nigerian courts have become increasingly likely to compensate litigants whose property has been damaged. It is also important to keep in mind that corruption and crime yield financial opportunities that are exploited by locals and foreigners alike.

For example, in South Africa companies like Bidvest, Bidvest electrical or Voltex and Aurecon captured Eskom by violating Eskom's Procurement and Supply Chain Management Procedures and by not being in line with the provision of section 217 (1) of the constitution of South Africa, requiring contracting to be for services to be done in accordance with a system which is equitable, fair and competitive. while they succeeded in extracting large profits.

Chapter 1, Section 1(c) of the Constitution says that the Republic of South Africa is founded on the “supremacy of the Constitution and the rule of law”. This means, that the Constitution is the highest law of the land, and no other law may conflict with it; nor may the government do anything that violates it

But lawlessness erodes the fabric of a society and inhibits growth. Plateau convincingly argues that in African countries with weak legal systems there is a climate of distrust which conduces to a:

1. marked reluctance to establish capital-pooling arrangements or business partnerships among non-kinsmen. This reluctance is to be mainly ascribed to the widespread fear that partners will cheat in some way or fail to pull their weight, which contributes to create an atmosphere of suspicion and pessimism concerning the motivations of others .... Such a climate of distrust is highly detrimental to African capitalism in so far as, by preventing the establishment of genuinely corporate forms of business associations, it closes one of the most important potential avenues to form expansion and reduces the likelihood that indigenous companies can become sufficiently competitive to mount an effective challenge to foreign companies.

Plateau draws the interesting link between a climate of distrust and the way that business is typically conducted in Ghana where there is a lack of 'contractual discipline' that leads to 'numerous deliveries, and payments delays'. Consequently, firms rely on 'unwieldy manners of doing business because they do not want to take the chance of a problem happening.

Typically, they fall back on a flea market mode of transacting: inspect the goods on the spot, pay cash and walk away with it. In other words, avoid all transactions that involve delayed obligations that make breach of contract possible'.

The problem with the legal system described above is not simply that coercive organs of state fail to enforce contracts. A successful legal system cannot simply depend on coercion. It can only work effectively when subjects internalize the desire to be obedient.

There are deep failures when legal norms are insufficiently internalized:

1. No market order can function satisfactorily that is, at reasonably low transaction costs if there is not a right combination of rule of law and norms of generalized morality. The former requirement implies that viable state structure is established that is able to enforce in an impartial manner rules and laws regarding respect of property, contract fulfilment, bank regulation, bankruptcies, control of abusive exercise of market power, etc.
2. This presupposes that the ruling elite, whether it has been democratically elected or not, has come to understand that its long-term interest depends on its being able to enlist the cooperation of dominated groups or classes on terms acceptable to them.
3. If that objective is missed, the whole socio-political fabric will be threatened with the risk of political turmoil and popular uprisings, which is liable to lead to continuous changes of regime ... or worse, to civil war situations ending in chaos, or in takeovers by extremist groupings acting in the name of the exploited masses.

A functioning state:

An effective legal system requires a functioning state. Some states are too ineffective to provide any semblance of legal order. Gerard Kreijen describes Somalia, Sierra Leone, Liberia and the Democratic Republic of Congo as failed states.

In Chad and the Central African Republic, the only' effective law is frequently that of the various armed bands. The rule of law is inevitably trashed in states torn apart by war. Many countries in Africa are experiencing civil wars which tend to have an 'increasingly prominent regional dimension': Surrounding countries are always affected and peaceful countries like Tanzania tend to have large influxes of refugees.

Some regions are relatively peaceful. Many conflicts in southern Africa have been resolved over the course of the past 15 years. Orderly transition occurred in Namibia, South Africa, Mozambique and even Angola.

This characterization is unfortunately marred by internal conflict in Zimbabwe which has caused that economy to spiral out of control. (In 2005 the Zimbabwe economy shrunk by 3,5% according to government figures although IMF figures indicate a negative growth rate of 4,6% (Muleya, 2005).

The World Bank map that follows gives an indication of the comparative state of governance in Africa and elsewhere:

Map legend: The above map depicts the percentile rank on the governance index, subject to a margin of error. Governance indicators rank the countries worldwide that rate below the selected country.

Note: The governance indicators presented here reflect the statistical compilation of response on the quality of governance given by a large number of enterprises, citizen and expert survey respondents in the industrial and developing countries, as reported by a number of survey institutes, think tanks, non-governmental organizations, and international organizations.

The constitutional environment

It is necessary to assess the political environment in which law operates in order to understand the legal conditions prevailing in a country. National constitution that formally regulate the distribution of state power need to be studied in their social context.

The enterprise of drafting national constitution has entertained and employed many African lawyers over the last twenty years. Paul Nugent writes cynically about the 'laborious' process of constitution-making that took place in Nigeria in the late 1980s where ... (the cream of the Nigerian intellectual establishment was involved in an ambitious and arguably wrongheaded attempt to fabricate the perfect constitutional document' (Nugent, 2004:421).

Their efforts were unsuccessful and political conditions worsened in Nigeria in the 1990s (Nugent, 2004). On the other hand, one cannot be too cynical about constitutional documents. In South Africa the process of constitution-making was inspiring and necessary to the successful transition of the state.

The 1990s was being a period of heady optimism about African governance and democracy. Powerful pro-democracy movements emerged in many countries and there were substantial advances in press freedom and freedom of association on the continent. In 1991 Fillip Reyntjens captured the mood when he described 'spectacular evolution' in Francophone Africa as an 'international achievement':

• Unfortunately, these democratic hopes remain unfulfilled: With South Africa providing the only really important exception, the process of democratization has been captured, under the guise of competitive elections, by the authoritarian groups already in control of state power (notably in Cote d'Ivoire, Togo, Cameroon, Gabon and Kenya), or it has given rise to new regime whose weakness offers little promise of future stability (Mali and Benin) or produced others which cannot easily be considered genuinely democratic (Central African Republic, Congo until 1997, Equatorial Guinea, Zambia, Chad) or else democracy has been snuffed out by the intervention of the armed forces (Nigeria, Niger, Burundi) ... After the tide of the reform movements had ebbed, the element of continuity between old and new regimes in both their social and political complexions became generally plain, even in cases where there had been a change in government, as in Mali, or more particularly, in Benin, Congo and Zambia.