Monday, May 25, 2009

Dispute Resolution for Migingo

Migingo is a small island in the middle of Lake Victoria. Recently, a row erupted over whether Kenya or Uganda controlled this island. There is excellent fishing from this island which is 3 hours from Kenya and 6 from Uganda by boat. Also, there are environmental issues that have eroded fishing conditions on Lake Victoria. A joint survey is currently being conducted that should resolve the matter within the next few months. The survey's technical team consists of representatives from both countries who will also consider legal authorities such as the 1926 British order in council, the 1995 Ugandan Constitution, and the1963 Kenyan Constitution. The dispute has created political tension for Kenya and Uganda, both members of the East African Community (EAC). Whether or not the survey resolves the matter the question arises concerning the appropriate resolution of disputes between members of an economic community. There are several options available for EAC members.

Resort to the East African Court of Justice (EACJ) is one possible avenue for dispute resolution. The EACJ was established by the East African Community Treaty (the Treaty). The Court resolves disputes submitted to it by Community partner states. Certainly, the matter could ostensibly be submitted there. However, the Court must resolve the dispute AND promote the objectives of the Community such as deepening co-operation among partner states. This does not create a conflict per se, what it does do is bifurcate the courts responsibilities which could make dispute resolution a secondary goal. That may not be helpful. In addition, the Court has few resources and it might be wise not to burden it with matters able to be resolved elsewhere.

Of course, dispute can always be submitted to the Hague or the International Court of Justice. This seems to be contrary to the creation of the purpose of the Community. The community is meant to empower each partner state through economic, political and legal co-operation. In any case, these international bodies for dispute resolution were created by the colonial powers whose efforts are often at the heart of boundary disputes in East Africa. Resort to them is a step backwards.

I wonder if it might be possible to utilise the dispute resolution scheme set up under the EAC Customs Union (Customs Union) for this dispute. One of the most attractive aspects of such regimes set up outside of National Courts is their flexibility. Parties can often agree procedural rules that create a co-operative process functioning in all parties’ interests. The Customs Union was created by the signing of the East African Community Customs Union Protocol (Protocol). All 5 partners of the EAC have now signed the Protocol. Article 41 of the Protocol contains provisions for the resolution of disputes. Annex IX of the Protocol contains the specific regulations. They are regular and provide the basics that parties require for proper dispute resolution outside the courts.

This is an imperfect suggestion as these provisions concern the resolution of custom and trade disputes. The cost however of the survey of Migingo is many billion shillings. That is a lot of money. What will happen should the survey fail to resolve the matter? There are existing methods of dispute resolution outside of the National courts that Kenya and Uganda as members of the same Community could avail themselves. There is no need to reinvent the wheel. The structure is there already.

Monday, May 18, 2009

Aid resumes to Zimbabwe

The World Bank is resuming aid to Zimbabwe. But what will Dambisa Moyo say?! Moyo’s book, Dead Aid: Why Aid is not Working and How there is a better Way for Africa (ISBN-10# 0374139563), argues that Aid, in all its shapes, has failed Africa. I have enjoyed reading the book since it expounds such a refreshing point of view. I think it is a beginning, along with other similar books such as William Easterly’s The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, but cannot encompass the complexity of the discussion. Moyo writes like an Economist, which she is. Economic analysis often requires that variables are held still while observing the important one you want to discuss, ceteris paribas. She wants to discuss aid and blame it primarily for corrupt government activity. She pins her entire argument on what she describes as decades of witless activity by individuals at aid agencies who should have known better than to donate money without limit and without the demand of some kind of return. This is overly simplistic and ahistorical. This simplicity limits the power of her arguments to my mind. This should not however, take away from her breaking the conversation wide-open which I truly admire.

Essentially, she argues that agencies continue to promote aid in order to justify their own existence. Agencies employ thousands of people all over the world who are rewarded by continually loaning or donating without thinking. Also, while many politicians are aware that aid does not help, they still go through the motions-they are trapped in a cycle. Additionally, she insists that aid has cultivated and fostered the corruption found in African nations that rely on aid. She provides plenty of statistics and links to websites in her attempt to support her findings. Unfortunately, her arguments sometimes remind me of the lawyer who starts pounding the table when she can no longer pound the facts. Her vilification of aid agencies may be accurate; I cannot say really as I have no background in development. However, she is relentless in her criticism of them from inception until today. This is just too much of an over-statement to be comfortable with. We have learned so much about global economics since Bretton Woods began and these agencies have changed direction several times in their approaches to various regions, presumably in an effort to be more effective. These organisations are too complex to be all good or all bad. They may have outlived their usefulness and this I take away from the book.

Moreover, she has simplified her discussion to such a point that issues such as leadership, power, and responsibility are, for the most part, absent. Why corruption exists anywhere is complex. And corruption exists everywhere and is a human frailty. It is not just about easy money. In Africa, it is something else. I hesitate to describe it as I am not a corruption expert at all but I do have an opinion and I have been thinkinf about it. Martin Meredith, in his book The State of Africa, describes the similar fates of post-independence African nations, due to corrupt leaders. It is relentless, like Dead Aid, in its own historical way. Meredith describes how each nation; one by one goes the same way. This is getting close to an understanding corruption in Africa. It is about getting your own but not in the individualistic way of the West. Getting yours in Africa means taking care of friends and family; very extended family too. It has to do with one’s people and not just one’s-self. (credit to JRW in Zim for the inception of this theory) But this is too in-depth for Moyo to encompass in her discussion. She chose her battles and focused on them.

Having described the limitations of the book let me add that I admire the singularity of her discussion. She has spent an entire book saying something unpopular but true. It is possible that she needed to bang this gong incessantly, without the luxury of giving the other side any credit at all, in order to ensure that her point was heard. She gives China credit for its efforts in Africa which is something not discussed frequently enough. I saw an interview with the author online. She is articulate and a fine ambassador for this new way of thinking. More power to her-I pray people are listening.

For interview see

Sunday, May 17, 2009

Minnesota vs. Iran

This past weekend in the US, there was a prime example of politics affecting State investment fund decision making. Increasingly, these large funds are permitted, indeed required, to make decisions based on political ideas. This is not new but I think it needs to be watched carefully for consequences-good and bad. We need to learn about both the consequences for the State fund and for the target of their political objective. Here, I point out the highlights of a recent bill in one US state that discourages investment in companies doing business in Iran. We leave consequences for future research.

According to a new law in the US state of Minnesota, the Minnesota State Board of Investment is required to divest its holdings in any company doing business in Iran. The Board of Investment is a State agency and manages $47 billion (USD). This figure represents monies in various retirement funds, trust funds, and cash accounts of public employees. Subdivision 7 of the Act permits the State board to retain share ownership of a company doing business with Iran, if it determines in good faith that divestment would be a breach of the fiduciary duties of the board. Also, for investments that are managed indirectly, such as shares in a hedge fund, all the Board need do is encourage those OTHER managers to divest of investments in companies actively doing business in Iran. I could not find any legislative history to find out why this Bill and why now.

It is very difficult to discover how effective these initiatives are. In comparison and historically, there are studies that demonstrate that anti-apartheid shareholder and legislative boycotts did not negatively affect corporations with South African operations or South African financial markets. I think we are worlds away from those days of ineffective campaigns. Today, we communicate much more and much faster. Corporations are more sophisticated and exceedingly media savvy. I am sure some companies doing business in Iran will no longer have the state of Minnesota as a shareholder. Others will find a way around this new restriction. How does this serve the interests of the public employees who have their retirement monies invested with the State investment board?


See Teoh, Siew Hong & Welch, Ivo & Wazzan, C Paul, 1999. "The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott," Journal of Business, University of Chicago Press, vol. 72(1), pages 35-89.

Tuesday, May 12, 2009

Socially responsible investment theory and the developing world

I am attending the Law and Society meeting in Denver at the end of May. I hope to get comments on one of the papers I am presenting. It is tangential to my main research but close to my heart. The thesis is this: Socially responsible investment theories detrimentally affect developing world companies. This requires some explanation.

To begin with, popular investment theories influence the investment decisions of pension managers. Pension managers, more so before the global economic crisis than after, oversee large pools of investment monies. Increasingly, pension mangers are expressing their political ideals by their investment decisions. They avoid ‘bad’ companies and invest in ‘good’ ones. The company they refuse to invest in may reside in the developing world. At the same time, there is a movement to encourage private investment in the South. Can these two ideals be reconciled?

There currently exist notions of sustainability, the green agenda, corporate social responsibility (CSR) and socially responsible investment (SRI), that somehow conflate to form a political movement. They produce public pressure, as well as legislative pressure, to recycle AND to consider these notions when making investment decisions. As a matter of fact, in the UK, this has become pension law. Pension managers must state how and if they consider CSR when making investment decisions. How does all of this affect the developing world?

A UNIDO report says it has a detrimental effect. CSR, as a measurement of corporate appropriateness, creates obstacles for small to medium enterprises (SME) in the developing world. Small budgets do not allow SME's to appear, or indeed BE, socially responsible and profitable. There are shareholders and creditors supporting a company that will return their investment. Who should prevail?

CSR and concepts of sustainability , when employed in the business world, are:

· Ill-defined, yet used permissively,

· Frequently politically hijacked,

· Can be expensive to comply with, and

· Are morally infused.

All of the above give an advantage to media and internet savvy, multi-national corporations, eager not to be regulated, who have developed industry standards to be followed. These are competitors setting standards for everyone.

Save the planet for sure. Don’t do it at anyone’s expense. And do NOT claim you are helping the developing world by imposing impossible obstacles for access to the few existing ladders out of poverty.

See, Peter Raynard, and Maya Forstater, Corporate Social Responsibility: Implications for Small and Medium Enterprises in Developing Countries, UNIDO Report. Vienna 2002

See, Russell Sparkes, Socially Responsible Investment: a Global Revolution, (Chichester:Wiley, 2002)

See also, Richardson, Benjamin, Do the Fiduciary Duties of Pension Funds Hinder Socially Responsible Investment? Banking and Finance Law Review 2007 (22(2) 145-201