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Prof William Kosar Lawyers Guns & Money Africa 2012
This document discusses doing business in post-conflict nations. It notes that while the legal and institutional environment is often lacking, that is not always a fatal flaw for foreign investment. Investors look for protection of investments, repatriation of profits, stable currency and a stable country. Starting a business in post-conflict nations may involve a lack of bureaucracy but also lack of protections. Enforcing contracts is possible through the legal system and courts. However, closing a business is difficult due to an absence of bankruptcy laws. Other challenges include an economically destructive tax system, a broken legislative process, and a shortage of skilled local labor.
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- 1. Prof. William E.Kosar Senior Legal Advisor UNDP Rwanda Legal Week Corporate Counsel Forum Africa 2012
- 2. Today we willdiscuss What do investors look for Do & Taboos War Stories 2
- 3. What do investorslook for? Protection of their investment Repatriation of profits Stable currency Stable country
- 4. Which Foreign Markets? Politicallyunstable developing nations. Speculative financial bubbles have led to excess borrowing. Favorable benefit-cost-risk trade-off Politically stable nations. Free market systems No dramatic upsurge in inflation or private sector debt. Mixed or command economies.
- 5. Doing Business inPost-Conflict Nations • The legal & institutional environment supporting private sector development often does not often exist, but that isn’t always a fatal flaw • Uncertainty about the future prevents a lot of potential foreign investment, but not all 5
- 6. Doing Business Apost-conflict nation is primarily focused on establishing itself & stabilizing the security situation Many just starting to pay attention on developing & promoting private sector activity Business enabling environment, in the sense that transparent laws, processes & institutions that facilitate Private Sector, is for all intents & purposes non-existent in many places
- 7. Cuts bothways-- lack of institutional framework means lack of protections & certainty for investors Also means no stifling bureaucracy attempting to enforce a confusing set of rules & laws that could neutralize the positive effect of any such institutional framework. Entrepreneurs who have come to these areas have done so primarily because of this latter reason “Wild West” Doing Business
- 8. Doing Business • Entrepreneurcan do what he wants, when he wants, how he wants. • Dangers of unregulated environment are manifold – exploitation of workers, safety & health issues, shareholder protections, property rights unprotected, relationships reigning over contracts & the rule of law • Situation is often an open book • No deep history or regime that must be unwound • Business activity often non-existent in what in many places is still a pre-industrial society
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- 10. Starting a Business •Fundamental pieces of legislation supporting company start up & basic corporate governance are in place. • Registration process is relatively straight- forward • No explicit requirement in laws or regulations that there be local ownership in any company owned by foreigners, yet this requirement does often informally exist 10
- 11. Starting a Business(cont’d) • No paid-up capital requirement in Companies Act, 2003, but most foreign companies have issued capital of $500,000, while domestic ownership must be $100,000 • Foreign company registering as a branch in South Sudan doesn't face many hurdles • Unwritten rule: foreign company must get letter from Embassy in South Sudan to the Ministry of Foreign Affairs, which then sends letter to MoJ confirming that registration may proceed 11
- 12. Closing a Business •No separate bankruptcy law, although provisions covering voluntary liquidation in Companies Act 2003. • Bankruptcy provisions in that law are far less than adequate and don’t protect creditors • Very few provisions about creditor-initiated bankruptcies • No differentiation between secured & unsecured creditors • All creditors’ claims rank behind arrears to the State, the labor force , etc • No real practice of closing down businesses, either through voluntary or involuntary liquidation. • Courts have NO experience hearing any kind of bankruptcy cases 12
- 13. Enforcing Contracts • Legalsystem provides for the basic rights & protections for freedom of contract and the enforcement of judgments. • Judges rely on Court Police (branch of SSPS) to enforce claims • Public auctions of seized goods held monthly • Judicial system is functioning & able to hear and decide on civil & commercial claims, including disputes over real property contract disputes, labour disputes, etc. 13
- 14. Enforcing Contracts (cont’d) •More advanced forms of contracts, such as leasing or franchising, have not yet been adopted, nor are they needed at this stage. • No specific law regarding ADR (although one is in the queue), nor the administrative bodies that would handle ADR 14
- 15. Economically Destructive TaxSystem Wartime “tax” system, composed primarily of roadblocks at county, state & national borders, has a very negative effect on prices and decisions by entrepreneurs to operate outside single areas Prices of goods, including inputs into domestically produced goods, are extremely high and can render these goods uncompetitive with imported finished goods
- 16. Economically Destructive TaxSystem Multiple taxation as a product moves to market throughout South Sudan increases its price and prevents some enterprises from even trying to expand operations beyond Juba
- 17. Legislative Process Broken RoSS has demonstrated no discipline in prioritizing & adopting legislation, resulting in very few laws being promulgated since 2005 Laws that have been adopted not gazetted or distributed widely No implementing regulations for the few laws that have been passed
- 18. Legislative Process Broken No published or transparent mechanism for setting and publishing fees for licenses, processes and other procedures carried out by RoSS or lower levels of government Private sector not organized sufficiently to become an effective partner to RoSS in establishing policy or providing input and recommendations on legislation Chamber of Commerce weak
- 19. Unskilled Labour Force Both the public & private sectors face a serious shortage of skilled South Sudanese labour Many Kenyan, Uganda, Ethiopian and Eritrean workers Will be problem for many years to come & will require a serious and sustained effort both to create a basic educational system as well as vocational training and institutes of higher learning
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- 48. Dos & Taboos Learnto drink lots of tea Have a strong stomach Hand washing Learn to live with Malaria First sight of Juba Airport 48
- 49. Remember… The only differencebetween Terror and Adventure is Attitude! 49
- 50. Prof. William E.Kosar +254 715 457 412 +250 784 529 057 william.kosar@gmail.com