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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 Protocol is not publicly available, however this post examines the provisions of the final draft (“Draft Protocol”) in a bid to anticipate the extent of protection under the adopted Protocol.
Background
The AfCFTA has been signed by 54 states and entered into force in May 2019. It creates the largest free trade area in the world in terms of geographical size and population. It aims to spur economic development on the continent by facilitating intra-African trade and investment. To further its objectives, Member States have concluded protocols regulating intellectual property, competition policy and investment in the free trade area.
Africa’s investment protection framework
Investment protection on the continent is regulated by a web of instruments on a national, bilateral, and regional level. Of the 852 bilateral investment treaties concluded involving African states, 515 are currently in force, and 173 are intra-African. These bilateral instruments, alongside national investment laws and regional initiatives, regulate foreign investment across the continent.
The Investment Protocol
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). 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).
Covered Investors and Investments
The Draft Protocol covers investments made by investors in a Member State and defines these terms more restrictively than older generation treaties. It requires investors to maintain substantial business activity in the Host State, and requires investments to involve commitment of capital, expectation of profit, certain duration, assumption of risk and contribution to Host State’s sustainable development (Article 1). Notably, Host States may deny investors the benefit of the Protocol on a number of grounds including 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).
Standards of Protection
Covered investors enjoy important protections under the Draft Protocol, including the right to:
Importantly, the Draft Protocol preserves the Host State’s right to regulate, and exempts measures taken in exercise of this right (Article 24). It also contains specific carve-outs to allow measures aimed at protecting and enhancing “legitimate policy objectives, such as public morals, public health, safety and the protection of the environment.” These carve-outs exclude liability for otherwise discriminatory (Articles 13 & 15) and expropriatory measures (Article 20). The same applies in respect of breaches of the transfer of funds obligation (Article 23).
The Draft Protocol also places obligations on investors, including to:
Dispute Resolution
The Draft Protocol contains no provisions on dispute resolution but states that such provisions will be included in an Annex to the Protocol, to be finalised within 12 months from adoption of the Protocol (Article 46.3). Although a draft Annex is not publicly available, a previous version of the Draft Protocol provides for arbitration under the UNCITRAL arbitration rules, or the rules of any arbitral institution, after failed amicable settlement.
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 ISDS. It remains to be seen if the provisions of the Draft Protocol have been adopted in the Protocol, and how these will be implemented once the Protocol comes into force.
This article was amended shortly after publication to reflect a final (rather than initial) draft of the Protocol that was kindly made available to the authors.
16 May 2023
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