Key facts to know about the Investment Protocol to AfcFTA

Introduction

On 19 February 2023, the African Union Heads of State adopted the Protocol on Investment (“Protocol”) to the African Continental Free Trade Area Agreement (“AfCFTA”).

The AfCFTA treaty is an attempt by member states to integrate, cooperate and help one another develop more and is an active means of attracting direct foreign investment as well by improving infrastructure and capacity building. Africa’s fragmented internal market has been the largest impediment to economic growth and sustainable development of the continent as a whole and the AfCFTA treaty seeks to cure these divisions by launching intra-Africa trade and other key components. The benefits of a free trade area include removing heavy trade tariffs, synchronizing regulatory systems and making a single market for goods and services will pave the way for a reshaping of markets across the continent and enhance intra-Africa investment.

It is important to note that the Investment Protocol is not a means to encourage competition among states but to allow for collaboration of economies at a larger scale. There is expectations of increased investments in Africa from foreign direct investments as a result of the successful negotiations and this can lead to lower transaction costs as tariff and non-barriers reduce and number of consumers increase and revenue rises as well. These mutually advantageous benefits can attract more capital and input from FDI that is searching for efficiency and market power.

Chidede says that direct investment from other African states can help foster regional integration and that development have led to an increase in intra-African investment. Examples of states investing in Africa include South Africa, Nigeria, Algeria, Morocco and Egypt. It is submitted that this can help alleviate poverty in certain parts of Africa by creating jobs, compelling industrial development and economic growth as well.

Objectives of the Protocol

The Investment Protocol’s overarching policy objectives are to foster the continent’s structural transformation, harness private initiatives’ business potential and translate it into sustainable outcomes for host communities. By establishing a clear, predictable and equal playing field for all private actors it will encourage an efficient and competitive private sector to flourish.

The Protocol will govern investment in the free trade area and define the rights and obligations of investors and Member States. The Draft Protocol however notes that it will not apply to certain matters such as lawful taxation measures and property acquired for non-business purposes (Article 3.4). The Host State may deny investors the benefit of the Protocol if their ‘investment is owned or controlled directly or indirectly, by persons of a non-state Party that has no substantial business in the host State.’(article 5) This shows that the Protocol truly seeks to promote intra-African investment and that the proceeds go to a Member state and not to a non-state Party that is not conducting business in the Host state.

The preamble makes it clear and says the following as the objective of the Protocol:

‘…to promote within State Parties an overall attractive investment climate conducive to the development of a more vibrant and dynamic private sector that encourages mutual beneficial partnerships, facilitates job creation, promotes technology transfer, supports long-term economic growth and contributes effectively to social development and the fight against poverty;’

Its stated objectives include the protection of sustainable investment, balancing of investor and state interests, protection of indigenous communities, and efficient dispute resolution (Article 2). Notably, the Draft Protocol seeks to replace bilateral investment instruments between Member States and requires that Member States align all regional instruments with the Protocol (Article 49).

Standards of protection

Covered investors enjoy important protections under the Draft Protocol, including the right to:

· be treated in a manner no less favourable than investors of the Host State and other Member/Third States (Articles 12 & 14)

· not be subjected to arbitrary treatment in administrative matters and judicial proceedings (Article 17)

· be and have their investments physically protected by the Host State (Article 18)

· not have their investments or assets unlawfully seized by the Host State (Article 19)

· freely transfer funds relating to their investments (Article 22)

Importantly, the Draft Protocol preserves the Host State’s right to regulate, and exempts measures taken in exercise of this right (Article 24).

Obligations of Investors

The Draft Protocol also places obligations on investors, including to:

· comply with national and international law (Article 32)

· comply with business ethics, human and labour rights (Article 33)

· respect and protect the environment (Article 34)

· respect the rights of indigenous people and communities (Article 35)

· refrain from interference with Host State’s internal affairs (Article 36)

· refrain from corrupt practices (Article 37)

· contribute to the Host State’s sustainable development (Article 38)

Conclusion

The AfCFTA is poised to radically transform trade and investment in Africa. The Draft Protocol, which is the result of collective effort by Member States spanning several years, addresses contemporary issues such as environmental protection, human rights, and sustainable development.