84346 OCTOBER 2013 ABOUT THE AUTHORS MAHESH UTTAMCHANDANI is the Global Product Specialist More than Just Words: for the Debt Resolution and Business Exit program in the How the Africa Round Table (ART) Is joint World Bank/IFC/MIGA Investment Climate Department, where he advises governments Enabling Meaningful Reforms across Africa around the world on the development of insolvency systems and on commercial This SmartLesson showcases the lessons learned from the Africa Round Table, a dispute resolution. collaborative forum that over the past four years has brought together countries ANTONIA MENEZES from East, West, and Southern Africa. The forum has led to more than five distinct is a Private Sector Development Specialist in Debt Resolution and insolvency reforms that have helped strengthen countries’ credit environments. Business Exit program in the joint World Bank/IFC/MIGA Investment Climate Department. By leveraging their joint capacities, IFC and the World Bank have helped Sub- She specializes in debt resolution initiatives, advising governments Saharan African countries address the challenges of the financial crisis, strengthen in the fields of insolvency, restructuring, debt enforcement, ties across professions, and in the process create a guiding example for evoking and Alternative Dispute Resolution reforms, primarily in lasting change in a country. the Sub-Saharan Africa and Middle East and North Africa (MENA) regions. Background The Africa Round Table (ART) is an annual, joint initiative between the International “Nigeria state oil firm NNPC insolvent, says Association of Restructuring, Insolvency APPROVING MANAGER minister” and Bankruptcy Professionals (INSOL) Najy Benhassine, Manager Investment Climate Business --BBC News, July 13, 2010 International and the World Bank Group. Regulation. Established in 2009, the Africa Round Table “In South Africa, a Consumer Debt Bubble brings together policy-makers, judges, Forms” insolvency practitioners, lawyers, and banks --The Wall Street Journal, December 26, 2012 to discuss the importance of insolvency reform and improved access to credit in Africa. “[In Rwanda], the country struggles on Participants share their reform experiences, Insolvency Law” and aim to build capacity across the region. --East African Business Week, March 13, 2012 The event, which is delivered in both French and English, has seen an increasing growth “Huge Debt Pushes Kenya Broadcasting of countries, from six countries in 2010 to Company Closer to Insolvency” 16 in 2013. This demonstrates an increasing --Business Daily, July 19, 2013 awareness and interest in these issues across Africa, as illustrated in Figure 1. Some of the More than half a decade has passed since the lessons learned from this event are set out onset of the global financial crisis; however, below. recent headlines on the state of the economy in Sub-Saharan Africa underscore the Lesson 1: Start the conversation. fact that a global recovery continues to be overshadowed by unsettled creditors, The benefits of an improved insolvency unstable economies, and an evidently endless regime, and how debt recovery can improve stream of debt defaults and restructurings. access to credit, have not always been well On a continent where access to credit for appreciated in Sub-Saharan Africa. In part, small and medium enterprises (SMEs) has for this reason, reforms in this area have long been constrained, the inability to generally been slow. Between 2006 and 2013, manage the risks associated with business for instance, 46 Sub-Saharan African countries downturns can cause lenders to place recorded 15 reforms in the insolvency space, prohibitive risk premiums on lending. compared with 39 in the Eastern Europe and SMARTLESSONS — OCTOBER 2013 1 Figure 1: Country delegations at the Africa Round Table for 2010–2012 Central Asia (ECA) region and 48 in the countries of the Since the first ART in 2010, the number of reforms in the Organization of Economic Cooperation and Development region has steadily increased from 7 to 15. 1 For instance, (OECD). All of this is in a region where domestic credit Uganda passed a new insolvency law in 2012 and Seychelles provided by the banking sector, as a percentage of GDP, in 2013 (with the assistance of the World Bank), and is less than 50 percent, which is significantly less than the delegates from these countries have confirmed that the worldwide percentage, which is over 150 percent. Poorly ART helped articulate best practices that were ultimately performing insolvency regimes such as these make it more enshrined in the law. The Permanent Secretary of the 17 difficult for businesses to restructure and continue as going OHADA countries has been attending the ART since 2010 concerns or exit the market. and provided a strong voice for particular problems in the region, such as access to credit for micro and small In contrast, a strong insolvency regime provides lenders businesses and the difficulties of enforcing debt. In 2012, with the needed certainty and predictability required to the OHADA Uniform Act on Secured Lending was passed accurately price the risk of lending to businesses, particularly (with the support of the IFC), which seeks to reassure SMEs, and helps improves access to credit. creditors that they will be able to enforce their security in the event of debt default on a loan. The ART has helped “start the conversation”, and is an important tool in combating the lack of awareness Access to credit is problematic in Liberia, with only 14 percent surrounding insolvency reform in the region. These events of firms reporting a line of credit or loans from financial have helped elevate insolvency reform on the policy institutions, compared to a regional average of 22.7 percent. agenda by allowing policymakers to hear, first hand, Liberian representatives have been attending the ARTs (with about the importance of saving viable businesses and the support from the IFC), and have proceeded with reforms jobs that can concurrently be saved, and ultimately leads to create a best practice regime for insolvency and debt to concrete reform. Through the Peer Discussion session, recovery, with wide stakeholder consultation. At the recent where delegates share their countries’ developments in ART 2013, it was agreed that a study tour between a Liberian the insolvency space, to the out-of-court simulation, where commercial court judge and the Uganda commercial court delegates run their own restructuring, an understanding of would take place, emphasizing how effective ties and peer- how reforms impact credit is developed across the region. to-peer learning can develop within the right forum. 1 Doing Business database, reforms by region. 2 SMARTLESSONS — OCTOBER 2013 This suggests that engagement, in and of itself, is useful. sector in both the substance and design of these reforms As policymakers begin to have a more focused dialogue on is critical. In most OECD countries, banks, judges and insolvency issues, their ability to raise these issues on the policymakers regularly meet to discuss the efficacy of the policy agendas in their respective countries grows. This, in insolvency framework and to share concerns about how it turn, can lead to concrete reform action. Indeed, the agenda may need to be reformed. In Africa, prior to the ART, these for each successive ART has been shaped more and more by types of public-private meetings rarely happened outside the expressed needs of policymakers in attendance. South Africa. Nevertheless, divergent practices still exist across Sub-Saharan The ART brings together bankers, lawyers, and other private Africa. While the general trend is that countries are tending sector professionals to discuss bottlenecks in the debt to improve their recovery rates for creditors, countries such enforcement and recovery processes with policymakers who as Botswana and Namibia are leading (with 64.8 cents on the set the reform agenda. Just under half of the delegates at dollar and 42.3 cents on the dollar, respectively) compared the ART are from the private sector, as seen in Figure 3, to countries such as Mauritania and Zimbabwe (with 10.3 which shows the percentages for both 2011 and 2012. cents on the dollar and 0.1 cent, respectively). A sample of recovery rates is set out in Figure 2. Figure 3: Breakdown of ART Participation 2011 and 2012 Figure 2: Reported Recovery Rates in a Sample of Sub- Saharan African Countries for 2013 Not only does this mix of delegates give the parties an opportunity to share concerns, but it also allows policymakers to meet the experts in their countries. For instance, the Zambian Government is in the process of reforming its insolvency law, and the ART 2011 gave the Zambian private sector representatives an opportunity to present their opinions on certain elements of the draft bill, with Zambian policymakers then able to respond. Source: Doing Business 2013, Resolving Insolvency Indicator (recovery rates) Part of the reason the ART has been so successful at reflecting private sector views is that it is designed with the largest private-sector representative of insolvency professionals. Lesson 2: Give the private sector a voice. INSOL International represents over 9,000 bankers, judges, lawyers, and accountants in over 43 member associations The ART is helping to overcome the bias of overlooking the in 31 countries, representing the voice of the private sector private sector in planning economy-wide reforms. On the on insolvency matters. In Africa alone, INSOL practitioners surface, engaging in private sector development without in numerous countries have been able to leverage this actually engaging the private sector seems destined for membership to not only ensure private sector funding failure. Yet far too often, this is the approach taken. support for the ART but to also ensure that the true binding Insolvency reform is unlike many reforms to the business constraints in the insolvency system, as articulated by the climate that seek to reduce the “compliance burden” on private sector, are discussed during the ART. private firms. Rather, insolvency reform is about creating a set of tools that the private sector can access and use semi- The World Bank Group is able to complement INSOL’s independently. Therefore the involvement of the private private sector reach with its extensive dialogue with SMARTLESSONS — OCTOBER 2013 3 Box 1: The ART Is Making a Difference on the Ground: The Example of Mauritius Following the enactment of an insolvency law in 2009, the Mauritius Insolvency Services (under the Ministry of Finance and Economic Development) was seeking to strengthen implementation of the law. Following discussions at the ART, the joint Bank/IFC Investment Climate Department, working with the Financial & Private Sector Development (FPD) Africa region of the World Bank, assisted in providing technical assistance under a World Bank Development Policy Loan that targeted the improved regulation of insolvency practitioners and implemented a more flexible out-of-court restructuring regime. Regulations and Rules were published in the Government Gazette in September 2012 relating to insolvency practitioner registration and a code of conduct. Since these reforms, 31 insolvency practitioners have registered and are now subject to this code of conduct. In order to encourage the business rescue of financially distressed but viable businesses, an out-of-court workout framework was developed with the endorsement of the Mauritius Bankers’ Association and the Bank of Mauritius, and was published in January 2013. PwC has reported successful restructurings using this framework. Mauritian representatives are now key players in the organizing committee of ART, and they are using the event as a forum to disseminate their “lessons learned” across the region. policymakers and knowledge of reform expertise. The 2013 ART is scheduled to take initiatives. The partnership has therefore place in Zambia in October, and it proposes worked extraordinarily effectively in to take this collaboration even further by enhancing public-private dialogue and leveraging IFC’s private-sector relationships promoting transparency in these countries, in the banking sector and the World Bank’s with both sides better able to understand the financial sector dialogue with governments processes and considerations at stake. around the region to bring banks, business, and the government together in a rare Lesson 3: The World Bank Group: The fashion. whole is greater than the sum of its parts. Conclusion In addition to leveraging external relationships, including those with INSOL, the Most conferences and workshops have their IMF, UNCITRAL, and the African Development place in building capacity and expertise. Bank, the ART has showcased a truly cross- However, very few events can be shown to institutional approach for the entire World lead to lasting reform and improved dialogue Bank Group. Delegates to the ART include across an entire region. The ART has resulted both IFC and IBRD client counterparts, and in all of these outcomes in Sub-Saharan Africa. the reforms inspired by the ART have been Reforms in Mauritius, the Seychelles, Uganda, facilitated by both IBRD and IFC country- Liberia, and the OHADA group of countries level projects. IBRD and IFC colleagues have illustrate that the ART has been a conduit participated in panel discussions to share that enables discussion and encouragement their experiences, not only at a technical level among stakeholders. Ultimately, the power but with a wider development perspective, of the ART lies in encouraging the translation and this has helped enrich discussions and of best practices into real reforms, and deepened analysis. showcases how the World Bank Group can DISCLAIMER catalyze lasting change. More of these events SmartLessons is an awards This approach has helped strengthen the are needed. As Professor Githu Muigai, program to share lessons learned in development-oriented way the World Bank Group presents itself, Attorney General of Kenya, emphasized in advisory services and investment demonstrating shared objectives and a his keynote address last year, it is essential for operations. The findings, unified approach to addressing problems, African policymakers to “learn from others interpretations, and conclusions albeit with complementary and varied and to reflect that learning in practice.” expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, The Africa Round Table…has evolved over the years into the Executive Directors of The an authoritative continental think tank of best practices World Bank or the governments they represent. IFC does not across the African continent for practitioners and jurists assume any responsibility for the completeness or accuracy of the alike. This is critical when it comes to harmonization of information contained in this insolvency reforms in Africa.” document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the -Justice Geoffrey Kiryabwire, Court of Appeal of Uganda program at smartlessons@ifc.org. 4 SMARTLESSONS — OCTOBER 2013