On 19 February 2023, the African Union heads of state agreed to adopt a Protocol on Investment Protection to the African Continental Free Trade Area (AfCFTA) Agreement. The protocol not only aims to encourage intra-Africa investment flows and opportunities, and to protect investments made thereunder, but also to protect the sustainable development of member states and to incorporate environmental, social and governance (ESG) principles in a way that is relevant to Africa.
The recently-adopted protocol will be followed by an annex which will tackle the contentious issue of regulating trade and investment disputes.
The adopted protocol is not publicly available, but the final draft version provides insight into its objectives and how member states will seek to achieve them. “Currently, foreign investment on the continent is regulated by a complex web of regional, bilateral and national investment treaties,” noted Chandni Gopal. “The protocol seeks to replace bilateral investment treaties through the negotiation of a regional investment treaty.”
One of the protocol's important stated objectives is to provide a sound legal framework for the prevention, management and settlement of investment disputes. “This issue has been rather contentious,” Gopal commented. “While the latest draft protocol includes provisions related to state–state dispute settlement and dispute prevention and grievance management, it does not contain concrete provisions on dispute resolution when these measures have failed.”
Article 46, which deals with dispute resolution, indicates that rules and procedures governing dispute resolution will be negotiated and set out in an annex which will be finalised and adopted within 12 months of the protocol being adopted.
“It is not surprising that the annex remains the subject of scrutiny and protracted negotiation between AfCFTA member states,” said Sarah McKenzie. “The resolution of investment disputes between investors and states is a complex and thorny issue on the continent.”
“Historically, investment treaties have included Investor–State Dispute Settlement (ISDS) provisions which provide that an investor from one country (the home state) who has invested in another country (the host state) can bring a claim directly against the host state in an arbitral forum, rather than in the domestic courts of the host state,” added Yael Shafrir. “Without ISDS, investors wanting to enforce their rights would have to seek the intervention of their home government if the actions of a host state caused them harm or loss of profit, or rely on actions in the local courts of the host state. ISDS provisions were a breakthrough, giving investors a direct right of recourse and protection; they were also widely assumed to boost foreign direct investment.”
However, ISDS provisions give investors almost unfettered power to institute proceedings directly against sovereign states, and they have been criticised for limiting governments’ ability to regulate as they see fit.
“The annex is expected to include the possibility of international arbitration,” noted Shafrir. “A statement by the task force responsible for finalising the annex suggests that the relevant ‘dispute resolution mechanisms … could include, amongst others, utilising the Dispute Settlement Body established under the AfCFTA Protocol on Dispute Settlement or arbitration or domestic or regional courts’.”
“It is encouraging that the latest available version of the protocol seeks to balance investor protection with the right of member states to regulate their own affairs, especially with regard to sustainable development,” commented McKenzie. “Article 24 specifically provides that measures taken by member states to comply with international obligations under relevant treaties will not constitute a breach of the protocol.”
The annex may also include a mechanism that would allow host governments to invoke relevant international treaties such as those relating to human rights, ESG imperatives and sustainable development in defending claims, and would allow member states to counterclaim for breaches of investor obligations set out in the protocol.
“As the annex is negotiated, member states will need to engage with difficult questions about whether or not to include ISDS, and how to ensure adequate investor protection more broadly,” Shafrir concluded.
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