African Law & Business | 7 August 2019
Investor-state disputes in Africa
by Ignacio Torterola, Bethel Kassa
In the first of a two-part article, Ignacio Torterola and Bethel Kassa of GST explain the current framework for investor-state dispute settlement in Africa.
Africa has continued to attract foreign investments from across the globe. In 2018, foreign investment in Africa increased by 6% with Egypt and South Africa receiving the largest shares of the investment. Foreign investment in Egypt increased by 7% with real estate, food processing, oil and gas exploration, and renewable energy taking the major share of investment. South Africa reported the next highest foreign investment in mining, petroleum refining, food processing, information and communication technologies, and renewable energy. In West Africa, Ghana received the largest foreign investment and Ethiopia took the highest share of foreign investment in East Africa.
The United Nations Conference on Trade and Development (UNCTAD) predicts that the recently enacted African Continental Free Trade Agreement (AfCFTA) will likely increase foreign investment in Africa. In March 2018, forty-nine African Union member states signed the AfCFTA with a mission of creating a single trade market, and five more, including Nigeria, have since signed it. Having now received the ratification of 27 member states, the AfCFTA will now soon go into effect. The United Nations Economic Commission for Africa (UNECA) anticipates that this agreement will increase intra-African trade by 52.3%.
BILATERAL AND MULTILATERAL INVESTMENT AGREEMENTS
Having recognized the key role of investment in economic growth, most African states have entered into various international investment agreements (IIAs), assuming a link between foreign direct investment and IIAs. The Convention of the International Centre for Settlement of Investment Disputes (ICSID) has been ratified by 45 African states and 53 are members of the Multilateral Investment Guarantee Agency (MIGA). To date, African states have entered into more than 1000 bilateral investment treaties (BITs) geared towards attracting foreign investment.
African Regional Economic Communities, established to foster regional integration and ultimately continental integration, have also been active in crafting regional investment agreements. This includes the Investment Agreement for the Common Market for Eastern and Southern Africa COMESA Common Investment Area (CCIA), the Supplementary Act adopting Community Rules on Investment and Modalities for their implementation with the Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC) Protocol on Finance and Investment and the model BIT, and the East African Community (EAC) model BIT.
At a continental level, African member states, under the auspices of the African Union (AU), adopted the Pan-African Investment Code (PAIC) in April 2016. The PAIC is a testament of African states desire to shift from the traditional international investment agreement (IIA) ideologies and accommodate states’ interest in ensuring sustainable development.
The code stands for the promotion and protection of investment but also preserves the host state’s power to develop and execute policies that advance sustainable development. The PAIC imposes numerous responsibilities on investors. It obliges investors to comply with human rights, intellectual property rights, environmental law, corporate social responsibility rules, and anti-bribery rules. Unlike traditional IIAs, the PAIC has omitted the fair and equitable and full protection and security standard and only provides limited protections for investors in areas, such as most favored nation and national treatment. The code has kept investors’ right to resolve their dispute with the host state through arbitration. However, it only permits such disputes to be arbitrated by an African dispute resolution center and governed by UNCTRAL rules. Although not binding, the African Union has called on member states to adopt the code as a guiding instrument in entering or re-negotiating investment agreements.
FOREIGN INVESTMENT DISPUTES INVOLVING AFRICAN STATES
In May 2017, out of 613 cases brought under the ICSID Convention and Additional Facility Rules, 135 cases involved African states, of which 45% were brought based on states’ consent in BITs. The main sectors of dispute were oil, gas and mining investment. Africa has continued to receive an increasing number of investor claims. In 2018, African states were a party to 12 investment disputes out of a total of 56 investor-state disputes registered under the ICSID Convention and Additional Facility rules.
The second part of the article will deal with lessons for preventing or settling investment disputes.
Ignacio Torterola is a partner at international arbitration boutique GST, which has offices in Washington, Miami and, London. Previously, he served as a diplomat, counsel and Deputy Director of the Argentine Treasury, Attorney General’s Office.
Bethel Kassa is an Associate at GST. She has assisted Ignacio with analysing investment regulation and disputes in Africa.