"The rationale for creating the African Legal Support Facility stems from the fact that the AfDB and African Ministers of Finance in various fori wanted to assist Heavily Indebted Poor Countries manage the growing problem of vulture funds"-Kalidou Gadio, Kalidou Gadio, General Counsel, African Development Bank
What was the rationale behind setting up the African Legal Support Facility?
The rationale creating the African Legal Support Facility stems from the fact that the AfDB and African Ministers of Finance in various fori wanted to assist Heavily Indebted Poor Countries (HIPCs) manage the growing problem of vulture funds.
In the 1960s and 1970s, many African countries borrowed money and, business wise, they did not succeed because the money was not properly used. Therefore, the countries went into default. The unscrupulous creditors, vulture funds, did not hesitate to initiate litigation to recover all of the assets from the borrowing country. They are referred to as vultures because they had no heart, no emotion. The vulture funds typically sue without notice, and send notice of depositions, which usually arrive when decisions already have been taken against the borrowing country. As a result, they win about 99% of the time.
So what the AfDB decided to do, at the demand of African countries, was to set up a facility to provide these countries with the kind of protection they need. AfDB felt they need good lawyers and reputable law firms to deal with lawsuits from the creditors.
How is the Facility set up to deal with those conditions?
The AfDB, in setting up the Facility, was faced with a dilemma: Should it establish it on its own or should it be a separate institution? These options were considered. The Board of Directors believed it was inappropriate for the Bank to directly pay the legal fees for law firms to defend African countries.
As you know, we are an institution that is not involved in litigation in general. The Facility provides legal services and protection of countries from vulture creditors. And, the country gets the best law firm at a much lower cost. That's at the management level.
Structurally, the Facility has 5 officers, at the head a Director. As a legal institution, the shareholders are represented by a Governing Council, which has 12 members--5 from Africa; 4 from Europe; 1 AfDB; 1 from OECD countries and an international organization. This Governing Council is representative of all members. The Management Board --board of directors-- is composed of 5 members who will be taking decisions on the provision of funds to countries.
You said the Facility will operate as an autonomous entity. Was this decision taken because of the perception that there might be a conflict of interest if the AfDB was to be the Facility's primary funding source?
For one thing, the AfDB's primary purpose is to provide loans for development. It was considered inappropriate for the Bank itself to provide legal fees to its regional member countries to fight litigation. The Bank, of course, is a major financial contributor having provided USD 15 million to the Facility. Other banks from England, France, Brazil, the Netherlands and international organizations are expected to participate.
The reason for the structure is to separate the Facility from the Bank while also ensuring that the Facility continue to benefit from Bank support. As an autonomous facility, it will be in a position to take decisions that differ from those of the Banks. At times, the Bank could actually be in direct conflict given that the other aspect of the mission of the Facility is to provide legal advice in contract negotiation in some projects, especially those the Bank is financing, So, to avoid conflict -the conflict of being an adviser and a financier as well--the Facility was created to operate as a separate entity.
Press reports show that a summit will be organized in Tunis to launch the ALSF, where legal documents will be approved and the governing organs will be set up. Who is expected to participate and what criteria were used to select participants?
First of all, the Agreement has been signed by 30 African countries, as well as by Brazil. But as you know, signing international treaties is a long process. It involves dealing with the parliaments, with lawyers, different opinions, the presidency, and council of ministers, among others. But I think we have been very successful in obtaining 30 signatures in less than a year.
The members of the Facility are members of the AfDB. And any country can easily become a member. Membership is open to any country in the world. But for the moment, by definition, all the 77 members of the AfDB are members of the Facility.
Why is the AfDB interested in hosting the Facility?
A number of African countries are under debt management programs. There are HIPCs and other forms of international schemes designed to reduce the debt, which African countries have incurred over the past 30-40 years. What the vulture funds are doing is detrimental to the pursuit of that policy because if a country, such as a HIPC is participating in the debt scheme, it has essentially agreed not to borrow a certain type of loan in exchange. The HIPC countries through the fund will pay the debt, but the vulture fund agencies refuse to participate in the negotiation of HIPC countries, so as to directly sue the country and collect their money. A country struggling to get money to participate in the debt management programme finds itself crippled by legal action from those vulture funds. Since this affects the development of those countries, it is a concern to the AfDB whose role is to help Africa use its resources properly to develop its institutions. These are the reasons why the AfDB is hosting the Facility.
How will the Facility help regional member countries?
It is a Facility that will provide legal and technical assistance by way of contract negotiations. As you know Africa is rich in resources--mining and others. It still needs funding for more infrastructure projects, some of which are carried through concessions--long term contracts involving complex documentation. Law firms are often involved in these transactions. Some law firms undergo special training, which provide them the advantage of negotiating major concessions and infrastructure projects. Unfortunately, we do not have that kind of expertise in Africa. There are indeed very few of such firms here. So, the Facility will pay for the services of those law firms to negotiate on behalf of African governments. If a country wants to negotiate a contract to build a port, mining work, bridge, or airport, all of which results in thousands of pages of documentation, that country will be advised properly and the Facility will pay for the service. The advantage here is that the Facility will identify the best law firm in the world and negotiate a discount for the most optimal output. And many law firms have expressed interest in signing up.
Given that the AfDB is a public institution serving regional member countries, to what extent would the private sector be affected through the work of the Facility?
The private sector will be impacted in different ways: some of the projects are carried out through concessions which are hybrid agreements that are both public and private. Generally, they are governed by certain principles under public administrative law. The projects are run by the private sector, as companies in that sector are given concessions. While there are administrative agreements, the functioning of the concession or company is in the private sector where commercial standards are implemented. Under those concessions, the company recruits locally, and uses sub-contractors, which are typically small companies. So, in a way those transactions also help the private sector.
In law, we say that agreements are signed on behalf of the state, so there is the idea of continuity, but governments can change their mind. Whether they're right or wrong, it's a legal debate. You know that when there's a change in government, the new one tends to renege on previous agreements. The Facility will also try to reduce this type of problem by having contracts properly negotiated, which will help restore the rule of law, and the honoring of contracts. African countries will be hence seen as reliable, trust-worthy partners, and international companies will also be held responsible for the obligations they have undertaken.
Are Fragile states and countries emerging from conflict bigger victims of the vulture funds than other countries?
Yes. Countries which have been through war are likely not to have a stable government, well functioning institutions, well structured administrations, or the appropriate apparatus for re-negotiating contracts. Also, the risks of making mistakes in a situation of chaos are much higher. In those instances of bad governance, there are badly negotiated agreements. So, indeed, Fragile states are the most affected by the Facility. But that is taking into consideration the manner in which the Facility provides the funds, because while all African countries are eligible to receive financial assistance, they are not eligible to receive financial assistance on the same terms. Equatorial Guinea, for example, is a wealthy country, but it lacks capacity. So obviously, if that country wants to negotiate new mining exploration and request assistance from the Facility, it will not be eligible on the same terms as another country just emerging from war. Another scenario is, human resource capital countries like Libya need technical assistance but not funding. So the facility will be allocating services accordingly.
Can you provide the names of the countries which are the biggest victims of the Vulture Funds?
Most of the fragile states. Also, all countries that have borrowed a lot of money are potential victims.
What is the amount needed to ensure full operation of the Facility?
The objective of the Facility is to mobilize about $50 million. The Bank has already provided $15 million, as earlier mentioned, to start activities. And, it could provide more funds in case of a need. There are also interested donor countries in the pipeline. There are expectations that England may provide as much as $10 million. The Netherlands have expressed a strong interest in contributing. Norway and most of the OECD countries have expressed willingness as well, but none have presented a legally binding promise. Financial assistance could also come from companies.
Oil and mining companies are interested in assisting the Facility. It is good for them to have a country that can negotiate a good deal, for if a good deal is negotiated, it is likely to have a long term benefit, while any short term negotiation is delicate. For example, if there is a change of government, everyone stands to lose. It is, thus, in the best interest for African governments and the companies that good contracts and agreements are properly negotiated.
We expect the companies to contribute as well, as it will be a win-win situation for countries and companies.
Is there no danger that allowing companies to contribute funds to the Facility could create another vulture environment?
No. While the company can contribute, it will not be part of the management of the Facility. And even when it provides funds, the company will not be allowed to attach conditions to the funds.
These are some of the principles of the Facility. I cannot see, legally, how companies could become vultures if they are reputable companies. But of course, as companies, they can take advantage of weak negotiating positions. Most of them know that it is in their best interest to have a well protected and defended partner rather than having a short term gain.
For how long will the Facility operate?
It has been set up for a 14 year period, but the time can be extended.
What types of resources has the AfDB mobilized to ensure adequate operation of the facility, and how will it mobilize additional resources for the Facility?
The Facility will handle administration and management of the funds. It will be managed by a Director selected by the entity's Management Board, and staffed with 5 professionals. It doesn't need a bigger staff. Typically, the Facility will enter into agreement with law firms to defend countries. Some of them are here. If a country makes an application to the Facility, it will find a law firm to handle the task.
Have any countries deposited requests for help?
Answer: Many. Most of the requests coming in are for helping countries negotiate their resources-- diamond, gold, and other minerals. Some countries may also try to settle lawsuits quietly but when they know of the existence of the Facility, more will send requests.
Countries have the right to defend themselves.
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Emmanuel Ngwainmbi
