WB: EAC leads in protections of minority investors

BY FELIX ANDREW


World Bank
The East African Community (EAC) has been more active in strengthening the protection of minority investors since 2005 than any world region save Eastern Europe and Central Asia, the 2013 Doing Business Report for the region has said.

Three EAC economies strengthened minority investor protections: Tanzania in 2006, Rwanda in 2009 and Burundi in 2011.

Rwanda has the strongest minority investor protections in related party transactions in the EAC, for the fifth year in a row, said the report which is published by the World Bank.

Released recently, it says in Sub-Saharan Africa, South Africa continues to have the strongest protections.

Among the 10 economies globally that have advanced the furthest toward the frontier in regulatory practice in protecting investors since 2005, Rwanda is third and Burundi fifth.

In 2011/12 Lesotho was the only economy in SSA that strengthened minority investor protections.

Among African regional blocs, an EAC member tops the ranking on each of the 3 aspects of investor protections measured in firms is less sensitive to financial constraints and leads to greater growth in revenue and profitability.

Within the EAC, Rwanda provides the strongest minority investor protections as measured by Doing Business 2013, ranking highest in this area for the fifth year in a row.
However, Rwanda is not alone in protecting minority investors among EAC economies.
Today Burundi also offers many of the protections first introduced in the EAC in Rwanda while in Kenya and Tanzania minority investors can still count on some of the most balanced civil procedure rules.

The results of such provisions become apparent when measuring the ease of shareholder suits within Africa.

The EAC has been more active than any other regional bloc covered in strengthening legislation to further protect and empower minority shareholders.

Indeed, it is largely responsible for initiating a trend of regulatory reforms in favour of minority shareholders, with the hope of building investor confidence in Burundi.

In 2011 Burundi enacted a new company law (Code des sociétés privées et à participation publique) to strengthen investor protections by regulating the approval of transactions between interested parties, requiring greater corporate disclosure to the board of directors and in the annual report, and making it easier to sue directors in case of prejudicial transactions between interested parties.

In 2009, before Burundi came with legislation, Rwanda adopted a new company law strengthening investor protections by requiring greater corporate disclosure, director liability and shareholder access to information.

The report says prior to Rwanda, in 2006 Tanzania passed a new company Act to strengthen investor protections by codifying directors’ duties and shareholder suit mechanisms and providing greater access to company books.

The emulation effect has rippled beyond the confines of the EAC to Botswana, Mozambique, Swaziland and, most recently, Lesotho. Yet among African regional blocs, an EAC economy still tops the ranking on each of the 3 aspects of investor protections measured by Doing Business.

In the past 8 years 60 percent of economies in the EAC implemented at least 1 reform strengthening investor protections.

This is a larger share than in any world region except Eastern Europe and Central Asia and a far larger one than in Sub-Saharan Africa overall.

The EAC’s 60 percent share also far exceeds in the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of West African States (Ecowas).


While many economies around the world have strengthened investor protections, Rwanda and Burundi have made some of the biggest improvements since 2005— and the biggest in SSA.
Thanks largely to the EAC, Sub-Saharan Africa has had some of the most comprehensive minority investor protection reforms, with updates of firm laws following global good practices.

Economies undertaking a complete overhaul of their corporate, security and civil procedure laws—such as Burundi and Rwanda—have strengthened investor protections the most as measured by Doing Business.

But updating decades-old corporate law principles to address investor protections is not simple. It requires a balancing act—to more effectively protect minority shareholders without creating undue burdens on companies’ day-to-day operations.

Thus far the EAC has been successful in maintaining the balance, hence keeping it in mind will remain essential if Kenya, Tanzania and Uganda pursue the initiatives of Rwanda and Burundi.

According to the report, the EAC is deeply rooted in principles of cooperation, competition and positive emulation.
SOURCE: THE GUARDIAN