Discussions
Investment policy reforms in Africa: How can they be synchronised?
Talkmore Chidede, tralac Researcher, discusses how investment policy reforms in Africa can best be harmonised in order to avoid undesirable fragmentation and overlaps of investment regimes
African countries are increasingly implementing investment policy reforms as part of their efforts to build policy frameworks that are development-oriented and that balance investor and state rights and obligations. Such reforms are currently being adopted at continental, regional, bilateral and national levels, and include the negotiation of new investment treaties or policies and improving the existing investment policies or laws. However, the United Nations Conference on Trade and Development (UNCTAD) World Investment Report (2017),[1] notes that, if not carefully managed, the reforms ‘risk overlapping with one another, potentially diluting the impact of regional reform efforts and creating a more complex regime instead of harmonising and consolidating it.’ This will result in unfavourable treaty multiplication as well as policy uncertainty and unpredictability and, ultimately, reduce investor confidence. Promoting investor confidence and policy certainty is key to Africa considering the continent’s desire to stimulate and expedite investment.
This Discussion Note briefly examines current examples of investment reforms in Africa and how they can be synchronised to bring about the intended reform without posing new challenges and jeopardising investment promotion and protection. The Note significantly draws on insights from the 2017 UNCTAD World Investment (ibid).
Investment policy reforms in Africa
At the continental level, the fifty-five African Union member states anticipate to launch a continental free trade area (CFTA) by December this year which is expected to include an investment chapter. The chapter is scheduled to be negotiated in the second phase of the CFTA negotiations together with competition and intellectual property issues. Though too early to project, the investment chapter is to be aligned with the overall objective of the CFTA – to create a single continental market for goods and services, with free movement of business persons and investments. Considering that the CFTA will bring together all the AU countries, it is critical for African leaders to start thinking how to effect investment reforms within the CFTA in such a manner that will not cause the abovementioned challenges.
At the regional level, the South African Development Community (SADC) member states at the 36th SADC Summit in August 2016 adopted an agreement amending Annex 1 of the SADC Protocol on Finance and Investment (2006).[2] The Annex was amended to remove fair and equitable treatment as well as investor-state dispute settlement provisions, to refine the definitions of investment and investors, and include public policy measures exceptions to expropriation as well as to include regulatory autonomy of host states and investor obligations. However, the amendments will come into effect upon ratification by three-quarters of the SADC member states.
Also important to mention here is investment issues in the Tripartite Free Trade Area (TFTA),[3] which are scheduled to be negotiated in the second phase of the negotiations together with together with trade in services, competition policy and intellectual property rights.
At national levels, many countries including Botswana, Egypt, Nigeria, South Africa and Morocco are reforming their investment policies with a view to adopting ones that carve out policy space and are aligned to their national development objectives.
Moreover, African countries continue to conclude and negotiate bilateral investment treaties (BITs) or treaties with investment provisions with countries within and outside the continent. In 2016, for instance, Nigeria concluded BITs with Singapore and United Arab Emirates; Morocco concluded a BIT with Russia; and Rwanda concluded a BIT with Turkey.
In addition, six SADC member states (Botswana, Lesotho, Mozambique, Namibia, Swaziland and South Africa) concluded, with the European Union (EU), the Economic Partnership Agreement in 2016 which contains provisions relevant to investment including market access, national treatment (NT) and most favoured nation (MFN) with respect to commercial presence, free movement of capital.[4] The EU is negotiating similar agreements with Central African, East African, West Africa as well as Eastern and Southern African countries.
Furthermore, African countries are developing guiding principles for investment policymaking with Caribbean and Pacific Group of States, and the EU.[5] These principles are developed in line with the ongoing relations between Africa and the EU, Caribbean and Pacific states and will be used to inform their investment relations and policies in the future.
Synchronising the investment policy reforms
In investment policy reform processes, African countries must cooperate at continental, regional, bilateral and national (as well as multilateral) to avoid undesirable treaty disintegration, overlaps and multiplication. The UNCTAD (2017) has provided ten policy options to serve as important reference for countries reforming their investment policies, particularly those negotiating new treaties or adopting new laws. Among these options include: joint interpretation of treaty provisions; amending treaty provisions; replacing outdated treaties; consolidating treaties; managing relationships between co-existing treaties; referencing global standards; engaging multilaterally; abandoning unratified old treaties; terminating existing old treaties; withdrawing from multilateral treaties. Important to note is that each option has pros and cons, therefore determining the best option requires ‘a careful and facts- based cost-benefit analysis, while addressing many of broader challenges’.[6] It is submitted that the best option is one which is balanced, predictable and suitable for sustainable development.
Joint interpretation of treaties includes shared government action of interpreting treaties without amending or re-negotiating (re-signing or re-ratifying) the treaty.[7] This is probably the fastest and simplest way of treaty reform; and it brings clarity to treaty obligations or provisions for investors, host states and tribunals. Recent treaties including, for example, the EU-Canada Comprehensive Economic and Trade Agreement (2016), Trans-Pacific Partnership (TPP)[8] Agreement, ASEAN Comprehensive Investment Agreement (2009) and even the Morocco-Nigeria BIT (2016) expressly address joint interpretations. However, this policy option may be difficult to negotiate in situation where there are pending disputes involving the application of provisions in question. It is also restricted in its effect in that it cannot wholly create a new meaning to the provision being interpreted.
Amending treaty provisions involves making changes or improvements to specific clauses of existing treaties. It allows states to expressly carve out their intended policy objectives and priorities. However, amendments of treaty provisions require agreement among and subsequent ratification by contracting parties, and this may be difficult to achieve if they are multiple contracting parties with contrasting views. For instance, the SADC member states amended Annex I of the SADC FIP in August 2016 and the amendments are yet to be ratified.
Replacing or substituting outdated treaties with new ones is another policy option and has been used by Morocco recently. Per UNCTAD (2017), ‘approaching the treaty afresh enables the parties to achieve a higher degree of change (vis-à-vis selective amendments) and to be more rigorous and conceptual in designing an IIA that reflects their contemporary shared vision’. However, this process ‘can be cost- and time-intensive, as it involves the negotiation of the treaty from scratch, does not guarantee inclusion of reform-oriented elements (depends on the negotiated outcome), and requires effective transition between the old and the new treaties’. To safeguard smooth transition, it is important to include explicit transition clauses clearly defining the time-period for applying old BITs.
Consolidating the investment treaty network means replacing pre-existing treaties by signing a regional/plurilateral agreement. For example, Australia agreed to terminate its BITs with Mexico, Peru and Vietnam on entry into force of the TPP.[9] This is a holistic and comprehensive approach to investment reform and can reduce the risk of fragmentation and overlaps. But, this can be more difficult to achieve particularly in plurilateral negotiations and requires the consent of all contracting parties. As TFTA and CFTA have the potential to replace existing BITs between the contracting parties (intra-African investment agreements), the question is will the African countries agree to terminate their existing intra-Africa investment treaties? To overcome these challenges, it may be appealing to grant flexibility to the parties to decide their preferences.
Another policy option is to manage the relationships of co-existing (old and new) treaties. This is mostly possible when the new treaties are plurilateral or regional free trade agreements with an investment chapter and the old treaties are BITs. However, this policy option is not conducive for investment reform specifically in cases where the treaties differ in content and scope. To overcome these challenges, countries need to include specific provisions clarifying how the treaties will interact – for instance, in situations of conflict, the new treaties will override the old ones.
Referencing global standards relates to mentioning globally agreed best practices or instruments (e.g. UN Sustainable Development Goals, UNCTAD Investment Policy Framework for Sustainable Development, the ILO Tripartite MNE Declaration and the UN Guiding Principles on Business and Human Rights). In the African context, it may also be important to mention relevant continental initiatives (e.g. Agenda 2063, Accelerated Industrial Development for Africa and Programme for Infrastructure Development in Africa). This is cost-effective and time-efficient in that countries will make use of previously agreed instruments. However, this option provides wide interpretive discretion for the arbitrators, and parties will not have control over future developments of the agreed instruments.
Engaging multilaterally is the most effective way to address the inconsistencies, overlaps arising from individual countries’ reforms and it is more likely to result in uniform, binding and comprehensive investment standards at global level. But is also the most difficult as obtaining the consensus of many countries is hard to achieve. The failure of the multilateral agreement on investment in 1995 is a point of reference here.
Abandoning unratified old treaties is another way of synchronising investment reform. A country can simply abandon unratified treaties (not ratifying them) or expressly take a decision not to be bound in order to negotiate new treaties – for instance, the US publicly announced its intention not to be party to the TPP early this year.[10] As of December 2016, 165 intra-African BITs have been signed and only 38 are in force, according to UNCTAD.
Another option available for countries is to unilaterally or mutually terminate existing old treaties. For instance, South Africa unilaterally terminated its old BITs with nine EU member states[11] between 2013 and 2014 with a view to signing new ones preserving regulatory autonomy.[12] Quite often rules for the termination of treaties are set out in the treaty. The termination of old treaties could result in situations where investors of one party no longer have legal protection in the host state.
Lastly, withdrawal from multilateral treaties is another policy option for countries to consolidate investment reforms. According to UNCTAD, the ‘unilateral withdrawal from an investment-related multilateral treaty releases the withdrawing party from the instrument’s obligations and – depending on the treaty at issue – can help minimise a country’s exposure to investor claims. Unilateral withdrawal can also signal the country’s apparent loss of faith in the system and a desire to exit from it (rather than reform it)’. However, withdrawal from could negatively affect the country’s cooperation with other countries.
Conclusion
While African countries are (individually or cooperatively) transforming their investment laws and engaging in new investment policymaking negotiations, it is crucial for policymakers to consider harmonising or consolidating these reforms at all (continental, regional and national) levels to avoid undesirable fragmentation and overlaps of investment regimes. It is also important to consider the countries’ investment agreements with external partners. More importantly, policymakers should carefully consider facts-based cost-benefit analysis of a particular policy choice that will reflect the aspired reforms, while addressing many of broader challenges.
See also the related post: Recent FDI trends in Africa: Summary analysis of the UNCTAD World Investment Report 2017
[1] UNCTAD World Investment Report (2017), available at https://www.tralac.org/news/article/11726-digital-radically-changes-global-investment-patterns-says-world-investment-report-2017.html
[2] Agreement Amending Annex 1 (Cooperation on Investment) of the SADC Protocol on Finance and Investment (2016), available at https://www.tralac.org/documents/resources/sadc/385-agreement-amending-annex-1-cooperation-on-investment-of-the-sadc-protocol-on-finance-and-investment-august-2016.html
[3] The TFTA, between the 26 member states of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and SADC, was launched in June 2015 and will come into effect once ratified by two thirds of the member states.
[4] Articles 40 and Chapters VIII and IX of the SADC-EU EPA.
[5] These discussions took place during the UNCTAD World Investment Forum 2016, in Nairobi, Kenya and the December 2016 Joint Africa-European Commission Trade Ministerial in Brussels, Belgium, among others.
[6] Challenges such as: balancing states’ right to regulate and investor protection; gaps, overlaps and fragmentation of investment policy; among others.
[7] For a detailed discussion, see D Gaukrodger (2016) ‘The legal framework applicable to joint interpretive agreements of investment treaties’, http://www.oecd-ilibrary.org/finance-and-investment/the-legal-framework-applicable-to-joint-interpretive-agreements-of-investment-treaties_5jm3xgt6f29w-en
[8] The TPP, between the 12 Pacific region countries, was signed in February 2016, but its future is now uncertain after the US withdrawal from the Agreement early this year. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/january/US-Withdraws-From-TPP. However, the remaining parties are engaging in discussions to continue with the Agreement. See http://thediplomat.com/2017/03/tpp-signatories-to-meet-in-chile-to-explore-the-future-of-the-agreement/.
[9] See the Australian government letters to the Mexican, Peruvian and Vietnam governments at http://dfat.gov.au/trade/agreements/tpp/official-documents/Pages/official-documents.aspx.
[10] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/january/US-Withdraws-From-TPP.
[11] Austria, Belgium-Luxembourg, Denmark, France, Germany, Netherlands, Spain, Switzerland and the UK.
[12] Since then South Africa has not (yet) signed new BITs.