Reforming the legal environment of business in Sub‐Saharan Africa: Moderating effects on foreign direct investment

Abstract

Purpose: This paper discusses some of the contending issues in the legal environment of business in Sub‐Saharan Africa (SSA) as they relate to Foreign Direct Investment (FDI). Given that ‘fear of national laws’ has been consistently cited as a major factor inhibiting foreign investments in the region, this paper argues that ‘arbitration/alternative dispute resolution’ (A/ADR) offers a strategically complementary adjudicative system to mitigate this adverse perception. Design/methodology/approach: Based on a synthesis of the literature, the paper, first, outlines the emerging A/ADR‐driven trends in global business. From this premise, it focuses the market transition challenges facing SSA and identifies the disparate regional legal systems, with their backgrounds and origins in common, civil and Islamic laws, as primary issues of concern. Findings: Apart from lacking uniformity in application, the legal strictures have made the resolution of legal and contractual obligations much more cumbersome and expensive, thereby discouraging significant FDI flow to SSA. Research limitations/implications: The need to secure the confidence of investors by reforming the law and the adjudication process appears compelling. However, the socio‐cultural considerations that should naturally embed effective arbitral protocols are not addressed in this paper. Originality/value: A/ADR mechanism is not presently a key feature in the legal environment of business in SSA. However, it is likely to prove a more functional adjudication process than the procedural formalities of litigation. By its characterization, this approach promotes the creative implementation of a “home‐grown” frame work for commercial dispute resolution, thus avoiding the drudgeries of litigation but at the same time providing the needed catalysts for enabling FDI.