Mahmoud Mohieldin
Strength in numbers
By Peter Guest | Published: 31 May, 2010
Comesa’s proposal for a common investment area could act as a spur to cross-border investment
The Common Market for Eastern and Southern Africa is a 19-country grouping that spans most of the eastern coast of Africa. Buttressed by Egypt and Libya in the north and Zimbabwe in the south, the association has a total population of more than 400m and a combined GDP of $735bn. However, these figures mask the fragmentation and heterogeneity of the region.
Comesa launched a free trade zone in 2000. This autumn, the grouping will table a proposal for a common investment area, which will give Comesa investors equal treatment throughout the region. Six of the 19 countries must ratify it before it comes into force, but Sindiso Ngwenya, Comesa’s loquacious secretary general, believes that this should be a formality.
The law creating the common investment area was based on the “best practices” set down by the Association of South East Asian Nations, Mr Ngwenya says, which should simplify the implementation.
“The origin of the common investment area was as a result of us being aware that if you are going to create one single economic space through a free trade area, then you also need to harmonise the investment regulations. You cannot harmonise the incentives, but obviously regulations, procedures, including issues relating to security, you can harmonise at a regional level,” Mr Ngwenya says. “And taking into account that we have liberalised the capital and current accounts, it becomes very easy to implement.”
The rationale for the initiative is straightforward and often applied to regional integration projects. Alone, many African economies are too small to come onto the radar screens of international investors. Combined, they make a bloc of significant size and a far more compelling opportunity for an investor. Furthermore, the amount of cross-border investment within the region is small, and mainly confined to a few large regional conglomerates. While regulation is far from the only barrier to their expansion, the Comesa secretariat believes that the law could act as a spur.
For a start, the CIA will allow for freer movement of businesspeople across borders, according to Mahmoud Mohieldin, Egypt’s minister of investment. “If you are going to explore opportunities in two or three neighbouring countries, that’s a very big thing,” he says. “The other thing is basically relating to the quality of information, and building up a reliable database of the investment opportunities and the kind of investments that are there today already. It’s very hard now to find any kind of decent data, who is investing where and in what kind of business.”
Perhaps more important than these, Mr Mohieldin says, is the effect that the CIA law will have on dispute procedures. “This is not just about facilitation of entry,” he explains. “It’s about safe and adequate exit rules, dealing with the areas relating to settlement of disputes, settlement procedures which are currently very cumbersome and costly and could be subject to problems in the future. This is going to be good not just for the external investors coming from outside of Comesa, but also for the businesspeople of Comesa themselves.”
The fact that the vast majority of companies in the region are small- and medium-sized means that any additional costs for business relating to the facilitation of entry and exit are significant, he says. “If you minimise that, it’s going to be for the benefit of those small and medium-sized enterprises.”
Mr Mohieldin suggests that the arbitration procedure in case of disputes will allow the escalation of cases from commercial courts – in those countries that have them – to regional arbitration mechanisms. This may provide some comfort to investors looking to move into Comesa’s less developed economies, which may have less capacity in their commercial settlement systems.
Some delegates at the Comesa Investment Summit in Sharm El Sheikh in April expressed concern that the benefits of the CIA initiative could be heavily skewed towards those countries, such as Egypt, that already have developed businesses and investment companies, and could even be detrimental to the development of enterprise in smaller economies. These worries often drift towards larger questions over the relative influence of the larger players, and the effects they have on the sovereignty and development of their fellow members.
