The Africa investment protocol: a prickly pear for Africans

Current State of Play of the AfCFTA

In April the secretariat of the Africa Continental Free Trade Area (AfCFTA) agreement announced that the July 2020 launch would be postponed. The launch is now set for January 2021. Africa needs this agreement to facilitate enhanced intra-Africa and international trade as a cornerstone of the African Union’s Agenda 2063, which should result in the elimination of barriers to the free movement of goods, services and people.

What strikes me as odd in the implementation programme this late in the game, is the absence of meaningful protections for private investors in the new trade architecture. State parties concluded the AfCFTA protocol on the settlement of disputes between member states, therefore, they have a mechanism to resolve disputes. Private investment drives the continent’s economic engine. The question is: Why were African leaders forging ahead with the AfCFTA in the absence of an agreement on investor protections?

The South African experience

The South African investment-protection framework illustrates the challenges many African countries face with the Africa protocol on investment under negotiation. South Africa has rules for different investors, restricting certain sectors to black economic empowerment (BEE) participation and placing trade barriers on certain industries such, as textiles and automobiles. Similar protections that seek to preserve various economic sectors for citizens exist in Botswana, Lesotho, Ghana, Ethiopia, Kenya and elsewhere across Africa.

Indigenisation policies have landed South Africa in disputes with international investors. Italian investors for example, sued the government at the International Centre for the Settlement of Investment Disputes. In the case, Piero Foresti, Laura de Carli and Others vs South Africa, awarded on 4 August 2010, investors argued that BEE legislation enacted after they had made their investments constituted regulatory expropriation. Their contention was that BEE laws requiring investors to give shares to black people triggered compensation under the bilateral investment treaty signed between South Africa and Italy. A settlement was reached in favour of the investors. The Protection of Investments Act and the recent Expropriation Bill attempt to make South African courts the final arbiter of all disputes with foreign investors.

The government, in its justification for issuing cancellation notices to various Western powers, argued in 2013, that bilateral investment treaties are unconstitutional and that they prevented the state from regulating in the public interest. The matter of South African courts having sole jurisdiction of investor-state disputes will undoubtedly be contentious, especially in cases in which bilateral investment treaties exist. Many of these treaties have sunset clauses that can remain active 10 to 15 years after cancellation.


What about SADC and the SADC Tribunal?

The SADC protocol on finance and investment was ratified by South Africa on 4 February 2008. It sets a high bar for compensation for expropriation. Article 28(1) of the protocol allows investors to seek international dispute resolution after the exhaustion of local remedies, although recent amendments have attempted to water down these provisions. The tribunal’s constitutive statutes allow disputes to be filed against the host state after the exhaustion of local remedies.

In Mike Campbell (Pvt) LTD and others v Zimbabwe, and in Government of Zimbabwe v Fick and Others, private investors prevailed at the SADC Tribunal and South Africa’s Supreme Court of Appeal, respectively, when challenging the legality of expropriations of their farms.

The court of appeals held that the decisions of the tribunal sitting in Namibia are enforceable in South Africa and that property belonging to the government of Zimbabwe could be sold in execution of the tribunal’s costs order.  This decision was upheld by the Constitutional Court on 27 June 2013. The SADC heads of state and government had decided to suspend the Tribunal using technical procedure of review, and failed to communicate reasonable grounds for grounding the Tribunal’s operations altogether.

This was challenged in the Constitutional Court in South Africa, the high court in Tanzania and the African Court of Human and People’s Rights. In December 2018, the South African Constitutional Court ruled that the participation of the president of South Africa in the SADC decision to suspend the Tribunal was unconstitutional, unlawful and irrational. President Cyril Ramaphosa withdrew South Africa’s vote in 2019 from the fateful decision to suspend the Tribunal. The high court in Tanzania ruled against the government’s participation in a 4 June 2019 decision in the matter of Tanganyika Law Society v Minister of Foreign Affairs and International Co-operation of the United Republic of Tanzania and the Attorney General of the United Republic of Tanzania.

The AfCFTA and the African protocol on investments: What’s next for the investor?

African states face a prickly pear as they attempt to achieve uniformity of regulation of trade and investment across the continent. It’s not only about protecting non-African investors: these protections are equally important for African investors. Case in point is the regulatory battles MTN has been fighting in Nigeria. We pray the AfCFTA negotiating teams find the right balance between continental free trade, investment aspirations and unique national interest aspirations.

The views expressed are those of the author and do not reflect the official policy or position of the Mail & Guardian.

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Mthandazo Ngwenya
Dr Mthandazo Ngwenya is managing director of development advisory and impact division of the Bigen Group in South Africa.

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