Substantive issues the AfCFTA Investment Protocol should address
The envisaged Protocol on Investment in the African Continental Free Trade Area (AfCFTA) would be about intra-Africa investment. At this stage the bulk of foreign direct investment (FDI) into African countries comes from sources outside Africa including the United States, the United Kingdom, France, Netherlands, China and India. However, there are important developments related to intra-Africa investment. For example, South Africa, Nigeria, Algeria, Morocco and Egypt are the leading investors on the continent. The biggest FDI recipients in Africa include Egypt, South Africa, Congo, Morocco and Ethiopia.
Economists usually distinguish static and dynamic benefits of a free trade area. Among the dynamic benefits – expectations of increased investment, including FDI (attracted to the larger market – offering economies of scale, and lower transaction costs as tariff and non-tariff barriers come down and trade facilitation benefits are realised. The AfCFTA will mainly attract market-seeking and efficiency-seeking FDI if it accelerates economic growth and consumer income, reduce tariff and non-tariff barriers and improve trade-related governance. FDI within the AfCFTA, if managed well, can drive regional integration, promote industrial development, economic growth, create jobs and alleviate poverty across the continent. Investment is also complementary or closely related to trade in goods, trade in services (especially Mode 3 supply), intellectual property rights (IPRs) and competition policy and law. That said, there is a need to adopt a coherent continental investment governance framework within the AfCFTA to promote, facilitate and protect investors and ensure that the said benefits are enhanced. The ambition of African Union (AU) member states is to cooperate on investment (Art. 4 (c) of the AfCFTA Agreement). Thus far, it is not yet clear what Member States will agree on investment; whether they will adopt binding or non-binding commitments or what substantive issues on investment they will agree to cooperate.
Whether the Investment Protocol fulfil the AfCFTA’s development objectives will largely depend on the substantive issues covered and how the legal instrument is crafted and implemented. This blog highlights some substantive issues the AfCFTA Investment Protocol should address.
The AfCFTA Investment Protocol will only apply to intra-Africa investment. Non-African investors and investments may benefit indirectly from the Protocol through the most-favoured nation principles in investment treaties and improved governance in the AfCFTA.
The AfCFTA Investment Protocol should adopt legally binding commitments (such as investment facilitation, investment protection and investor obligations) to enhance rules-based investment governance and predictability on the continent. Non-binding commitments investment provisions are not justiciable and cannot reinforce investment governance. Annex 1 of the SADC Finance and Investment Protocol contains a standard example of binding commitments on cooperation of investment. The Protocol contains binding commitments for State Parties, investment protection standards, and a dispute settlement mechanism.
Investment facilitation under the AfCFTA Investment Protocol promote and facilitate investment across the continent marked with various barriers to FDI entry. Some countries (e.g. South Africa and Zimbabwe) have already adopted unilateral investment facilitation measures such as one-stop investment services. Continental investment facilitation would help to tackle barriers to investment entry, reduce time and costs of investment approvals, enhance transparency, improve efficiency, and promote investment-related cooperation and coordination across the continent. The Protocol could adopt binding investment facilitation commitments with special and differential treatment or perhaps follow the Trade Facilitation Agreement with self-selection commitments and providing for technical and financial assistance to countries to implement their commitments. Investment facilitation framework in the AfCFTA would be complementary to the proposed multilateral investment framework at the World Trade Organisation.
The AfCFTA Investment Protocol should contain host state guarantees to investors such as access to law, protection against discriminatory treatment, expropriation, denial of (criminal, civil and administrative) justice, transfer of funds, as well as access to dispute settlement (courts) and remedies. The AfCFTA Investment Protocol provides an opportunity for AU Member States to deal with their fears regarding ISDS as well as their investors’ fears to settle disputes through inter-state dispute resolution or domestic courts and tribunals. A dispute settlement mechanism allowing investors to enforce their rights and access remedies as well as safeguarding host governments’ right to regulate akin to that of the new NAFTA may provide guidance in this regard.
The Protocol should also contain investor obligations to offset the concerns that investment law is biased towards foreign investors against host governments’ right to regulate. With the right to regulate, investor obligations and investment protection standards, the AfCFTA Investment Protocol would be appealing to both investors and host governments, and the civil society. The SADC Model BIT, COMESA Investment Agreement and Pan-African Investment Code may provide good examples in this regard.
The AfCFTA Investment Protocol should address the existing African investment governance landscape which is fragmented in numerous regional and bilateral investment treaties (BITs), regional treaties with investment provisions as well as national legislations with transnational implications on foreign investment regulation. According to UNCTAD, African countries have signed a total of 854 BITs (512 in force); 172 intra-Africa BITs (47 in force). There are regional investment agreements including the SADC FIP, ECOWAS Supplementary Act (both in force), COMESA Common Investment Agreement (not in force yet), and the SADC Model BIT and EAC Investment Code (both non-binding model BITs). These investment agreements contain overlapping rules on investment regulation particularly on investor and investment definition, treatment standards, expropriation and dispute settlement. The AfCFTA presents an opportunity to address the overlaps and inconsistencies; to foster investment integration and establish a coherent continental investment legal framework. Based on the acquis principle in Article 5 of the AfCFTA Agreement, the AfCFTA Investment Protocol will build on what has been achieved by the regional blocs and perhaps the Pan-African Investment Code of the AU.
UNCTAD shows that African inward FDI is concentrated more in the services sector (i.e. business, construction, electricity, gas, water, transport, storage and communications) and manufacturing (i.e. chemicals, coke and petroleum products, metals, food, beverages and tobacco). Unlike the traditional investment treaties mainly focused on primary sectors, the AfCFTA Investment Protocol should provide a transformative investment legal framework capable of driving and regulating investments in services and manufacturing sectors. These sectors can deliver significant development benefits associated with FDI.
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