This article is an excerpt of a larger working paper aimed at policy makers, economists, and investors. This article was aimed to be shorter and less technical than the larger paper.
International commercial arbitration has been touted by many members of the business community and legal profession as a suitable means of settling trade disputes outside of a formal court room. The reasons a person would want to choose to arbitrate a commercial dispute could range from the rapidness of arbitral proceedings in comparison to domestic courts to the ability to keep proceedings confidential. But the benefits of commercial arbitration are not strictly limited to the parties involved in the arbitrational proceedings. There have been numerous studies outlining how commercial arbitration also facilitates economic growth and social well being within nations. The United Nations has acknowledged the many benefits of commercial arbitration fact and has incentivized the use of arbitral institutions. No other continent can benefit more from arbitration than Africa.
The UN has facilitated arbitration by incentivizing a multilateral treaty regime for international commercial transactions. One of the main treaties that attempted to incentivize arbitral proceedings is formally known as United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the ‘New York Convention’). Every signatory to the New York Convention makes two fundamental promises. The first promise is to honor written agreements that call for parties to arbitrate matters that are capable of settlement by the arbitration agreement. And the second fundamental promise is that nations who are signatories to the New York Convention agree that their national domestic courts will recognize and enforce arbitral awards. (New York Convetion). Out of 193 nations, 162 nations are signatories to the New York Convention. The 162 nations include some of the worlds trading powerhouses most notably China and the United States.
Africa is the continent with the least signatories to the New York Convention. Further, in comparison to other continents, Africa is the least economically developed. (per the Global Policy Forum). This is not a correlation that should be overlooked. International commercial arbitration attracts investment and can play a vital role in developing a nation’s overall political economy. At a surface level commercial arbitration facilities trade between nations increasing trade input and output, improving economic activity. However, there is subtle message being sent when a nation has a robust institutional system of commercial arbitration and has domestic courts willing to enforce arbitral awards. That message is simple, “we want to incentivize international trade in a fair and equitable manner”. When a nation does this business are more likely to invest and contract with people/entities within that nation, because they have the confidence that domestic courts will enforce arbitral awards. Continents which are considered to be ‘highly developed’, namely Europe and North America, have robust systems that facilitate international commercial arbitration. (Latham & Watkins).
During the 20th century Africa as a continent relied heavily on aid from other wealthier nations to develop. And foreign aid to this day still plays a major role in Africa, and has it’s benefits. However, research done by Mai Abdulaziz Alghamdi suggests that foreign aid may be doing more harm than good. (Alghamdi). He argues that burdensome amounts of foreign aid can have deleterious effects on aid-recipient countries. (Alghamdi). That is because Africa is the largest recipient of foreign aid. The effect of foreign aid on economic growth is positive however the net benefit of foreign aid is small, suggesting that foreign aid does not result in drastic increases in economic growth.( Alghamdi). Countries need aid to develop but there are negative consequences if a nation heavily relies on aid to fund its government and develop its economy. For example, Bazoumana Ouattara analyzed the effect of aid flow in Senegal. He found that that a large portion of aid flow (around 41%) is used to finance Senegal’s debt and 20% of the government’s resources are devoted to debt servicing. (Ouattara). Secondly, he found that the impact of aid flows on domestic expenditures is statistically insignificant, and that debt servicing has a significant negative effect on domestic expenditure. (Ouattara). In essence, the aid given to Senegal is used to finance the government and not neccesarily used to directly develop the economy as a whole. Several African nations seem to have recognized that in order to sustain meaningful economic development then they must not rely so much on foreign aid. Many nations have attempted to stimulate business activity within their jurisdiction via various economic initiatives. But Africa’s economic powerhouses seem to have one thing in common when it comes to economic/ legal development in the 21st century. They all are utilizing the tools of international commercial arbitration to stimulate economic growth. One significant nation
Four years after Kenyan independence, that Kenya would enact its first sovereign arbitration legislation, The Arbitration Act of 1968. It was largely influenced by the Arbitration Ordinance of 1914 which was legislation used in colonial Kenya. However, for some unexplained reason, the act adopted outdated arbitral protocol when instead they ideally should have used the New York Convention as a model for Kenya’s arbitral legislation. So, in essence what occurred is that Kenya kept Britain’s colonial arbitral law intact. Unfortunately, the act allowed the court to retain their oversight over all arbitral proceedings in Kenya, meaning that parties could manipulate the court system to frustrate and delay the arbitral process. (Mbithi). In contrast to Kenya’s pre-colonial arbitral past. For example, in East African Power & Lightning Co. Ltd v Kilimanjaro Construction ltd, the Court of Appeals, declined to stay proceedings in favor of arbitration in spite of the fact of the existence of an arbitration agreement.
However a comprehensive piece of arbitral legislation would come in to effect in 1995. After Kenya aggressively pursued policies that successfully attracted foreign direct investment, it quickly became apparent that the Arbitration Act of 1968 needed reform in order to keep foreign investment within Kenya high. (Mbithi). Kenya had some of its worst economic performances between the years of 1991-92. Growth stagnated. Inflation reached a historic level. Further the government’s budget deficit was over 10% of GDP. In effect, due to treaty requirements, bilateral and multilateral donors suspended their aid programs in Kenya in 1991, resulting in economic uncertainty. One of the ways Kenyan legislature attempted to remedy the dire economic situation was by repealing the old arbitration act and creating a new framework. (Mbithi). The legislature enacted the Arbitration Act, No. 4 of 1995. The new piece of legislation adopted the UNCITRAL model law, a more modern framework arbitral framework. It also was expanded to include both domestic and international arbitration. (Mbithi). But despite these major improvements, there was a profound change to the new piece legislation. Section X of the Arbitration Act stipulated “except as provided in this Act, no court shall intervene in matters governed by this Act”. This not only had ramifications in international commercial arbitration, but it also was a check on the judiciary by the legislature, prior to this act the courts had absolute oversight over all adjudicative functions in the country.
In 2006, Kenya’s government drafted a new developmental program that would make sure that by 2030 Kenya is “newly industrialized, middle income country that provides a high quality of life to all it’s citizens”. (Vision 2030). The plan is called Kenya Vision 2030. As of 2020, the initiative has proven fruitful. (World Bank). Kenya far at performs its neighbors economically, mainly due to the influx of foreign investment and their well developed social and physical infrastructure. (World Bank). Further, in 2020 Kenya ranked number 56 in the Ease of Doing Business Index. This is a significant jump in rankings when compared to Kenya’s position in 2010 which was 95. This improvement can be partly explained by changes made within Kenya’s Constitution. In order to facilitate the Kenya Vision 2030 plan, the constitution was changed to include this provision: “alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause”. (Muigua). Arbitration was now backed via statute and Kenya’s constitution. This signaled to foreign investors and businesses that commercial arbitration is being incentivized within the nation. After the constitution was changed, Kenya made exponential improvements economically, and their rankings in the Ease of Doing business index would continue to rise. (Muigua) Kenya will likely fulfill the goals set out in the Kenya Vision 2030 plan.
Sermo Civilis 