The negotiations for the adoption of the Phase II Protocols of the African Continental Free Trade Area (AfCFTA) have started. These legal instruments will cover investment, intellectual property (IP) rights and competition policy. They could add important building blocks to the AfCFTA’s continental scheme of things. The African Union (AU) Commission and the AfCFTA Secretariat will support these negotiations but officials representing the AU Member States will undertake the negotiations. This is a member-driven process.

These will be challenging negotiations in which the linkages to other AfCFTA instruments merit special attention. The outcomes will determine how the objectives of the AfCFTA will be advanced, what institutions will be established, and how the continued existence of the Regional Economic Communities (RECs) will be accommodated. Some of the RECs have their own regional instruments on investment, IP rights and competition.^[1] Most of the participating States also have national laws and institutions covering the same disciplines.^[2] All these arrangements should ideally be blended into one cohesive effort.

Investment agreements are about long-term outcomes and the promotion of economic development in specific jurisdictions. They are not an end in themselves. A continent-wide African investment regime will require a careful calibration of national, regional, and continental industrialization and economic development plans. It should, in addition, take note of new global trade policy and technological developments. Decisions by investors about investment locations and specific sectors are related to competitiveness assessments of their own kind. Investors look at the bigger picture.

The traditional aims behind investment agreements are to promote foreign direct investment (FDI) and to protect the rights of investors. The regulation of the activities of investors has become an important additional objective, as has investment facilitation. Dispute settlement involving claims by private investors against foreign governments have been a prominent feature of Bilateral Investment Treaties (BITs), but this has become a controversial matter. Investor-state arbitration is, as a rule, not included in new generation investment agreements. Special dispute settlement arrangements are being worked out.

The negotiations for concluding an AfCFTA Investment Protocol provide an opportunity to adopt a comprehensive and bespoke instrument suitable for Africa’s needs. Far-reaching changes in the industrialization landscape, new technological developments, the devastation caused by COVID- 19, and the fact that individual African States are keen to promote their own countries as attractive destinations for FDI, will steer the forthcoming negotiations.

Some African States are also contemplating comprehensive bilateral trade agreements with third parties such as the United States (US) and the United Kingdom (UK), in which investment will be an important aspect.^[3] There will be a new era of engagement with external partners via tailored agreements. Some of these developments will be accommodated outside the multilateral context of the World Trade Organization (WTO).

What signals will an AfCFTA Investment Protocol send out to investors? Many investors believe that the AfCFTA will bring new investment and “deal-making” opportunities. As stated in a recent news report: “The good news is that the AfCFTA agreement has done a great deal to bolster foreign investor interest in the region, and dealmakers are taking notice of the agreement’s first movers.^[4]

This keenness for “deal making” is to be welcomed insofar as it shows confidence in Africa’s growth potential. But the continent, and individual African States, need investment of the kind that will bring resources to priority needs. This will not happen in the absence of transparent and inclusive national and regional policies and joint decision making. Africa is replete with examples of the wrong investment incentives and outcomes, of environmental and social harm caused by certain investments, and of red tape and bureaucratic processes that often undermine investor confidence. Such negative outcomes have an impact beyond national borders.

There are other caveats too. The AfCFTA Agreement says that the State Parties shall “cooperate on investment, intellectual property rights and competition policy” for the purposes of fulfilling the AfCFTA’s general objectives^[5]. (Emphasis added.) The pursuit of only cooperation on investment policies and laws may result in a fragmented outcome where sovereign State Parties will determine how an AfCFTA Investment Protocol will be implemented. They will want to retain national policy space and powers over investments and related matters.

The AfCFTA Investment Protocol will have implications for how investors will view investment and deal-making opportunities on the continent. It will also have a direct impact on the ability of the AfCFTA to function as an all-inclusive instrument that will attract investments and promote economic development in an holistic manner. It would be an opportunity lost if these negotiations fail to address critical linkages to services, industrialization and economic integration issues and challenges. If the AfCFTA Investment Protocol would only become an umbrella for national investment related policies and laws based on local goals and preserving national regulatory space, problems that have been around for a long time will remain with us. The forthcoming AfCFTA negotiations are of critical importance.

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^[1] The Southern African Development Community (SADC) adopted its own Finance and Investment Protocol (FIP) several years ago.

^[2] There are several national Competition Commissions, for example.

^[3] Kenya decided in 2020 to negotiate a bilateral trade deal with the US. It has also concluded an Economic Partnership Agreement (EPA) with the UK to roll over preferential market access opportunities from the pre-Brexit period.

^[4] https://www.polity.org.za/article/african-dealmaking-decreases-africas-free-trade-agreement-expected-to-boost-recovery-2021-01-29

^[5] Art 4 AfCFTA Agreement.