This is the eighth in a series of articles on the African Continental Free Trade Area (AfCFTA) agreement. The aim of the series is to unpack the agreement’s various protocols and related matters and highlight:

• key opportunities and potential inhibitors for businesses to consider in undertaking a regional growth strategy;
• the roles of legal advisors in navigating the AfCFTA institutions and member states in supporting a regional trade or investment strategy; and
• avenues for the private sector to influence the trajectory of the implementation of the AfCFTA instruments.

The Protocol on Investment (Investment Protocol or Protocol) to the African Continental Free Trade Area (AfCFTA) agreement was adopted by African Union Heads of State on 19 February 2023. Although the final Protocol is not yet available, the final draft (dated January 2023) is (here).

Once implemented, the Protocol is anticipated to facilitate the protection of investments, foster sustainable development, provide security and predictability to intra-African investment, and ultimately enhance trade and investment in Africa.

What does the Protocol mean for foreign investors?

The Protocol comprises 54 articles spread over eight chapters which cover various aspects including investment protection standards, sustainable development related issues, investor obligations, and management and settlement of disputes.

The Protocol will not only apply prospectively to all investments by investors from State Parties made in the AfCFTA area after entry into the Protocol, but also retroactively to all investments of such investors made prior to entry into the Protocol if they (i) meet the criteria of an investment under the Protocol; and (ii) are still present in the territory of the Host State at the time of the entry into force of the Protocol.

The Protocol defines investment with a greater specificity in comparison to the definitions found in most bilateral investment treaties (BITs). Notably, for an investor to benefit from the protections of the Protocol it must maintain a substantial business in both its Home State and the Host State, and its investment must contribute to the Host State’s sustainable development.

Scope of the Investment Protocol

The salient features of the latest draft of the Protocol include the following:

• State Parties are obliged to treat investors of another State Party and the investments of such investor no less favourably than it would, in like circumstances, treat its own investors, another State Party or a Third Party with respect to the management, conduct, operation, use, expansion and sale or other disposition of their investments.
• Investors are also protected against (i) arbitrary treatment in administrative matters and judicial proceedings; (ii) physical and other threats to their investments in the Host State; (iv) unlawful expropriation of their assets and investments by the Host State; and (v) measures affecting the free transfer of their funds related to their investments.
• The Protocol also enjoin investors to (i) comply with national and international law; (ii) comply with business ethics, human and labour rights; (iii) respect and protect the environment; (iv) respect the right and dignity of indigenous people and communities; (v) refrain from interference with the Host State’s internal affairs; (vi) refrain from corrupt practices; and (vii) contribute to the Host State’s sustainable development.

Where there are any disputes relating to alleged breaches of the Protocol, the Protocol mandates investors and Host States to initially seek to resolve disputes through amicable dispute resolution mechanisms available in the Host State.  The Protocol does not currently include dispute resolution provisions in the event that such disputes are not resolved amicably but notes that the dispute resolution provisions will be set out in an Annex to the Protocol.

The Annex must be finalised by 19 February 2024. The State Parties are also mandated to develop mechanisms that will facilitate the bringing of civil action claims against investors in their Home States for the investors’ acts or omissions which are related to their investments and cause harm in the Host State.

Exclusions and exceptions

The Protocol has a number of exclusions and exceptions, a few of which are as follows:

• The Protocol will not apply to (i) any investment dispute that arose or any claim that was settled before the entry into force of the Protocol; (ii) government procurement; and (iii) taxation measures taken in accordance with the applicable laws and regulations of a State Party.
• The Protocol will not apply to any dispute arising solely from an alleged breach of a contract between a State Party and an investor.
• The Protocol also provides exceptions to the ‘no less favourable principle’ for State Parties where necessary to protect or enhance legitimate public policy objectives such as public health, prevention of diseases and pests in animals or plants, climate action, essential security interests, safety, the protection of environment, and to comply with its obligations under other regional or international agreements.
• Further, the Protocol entitles State Parties to deny an investor of another State Party and the investment of such investor the benefits of the Protocol in certain defined circumstances, subject to review in terms of the Protocol.

What does this mean for BITs?

The relevance and importance of BITs has been the subject of debate across Africa and globally for some time. Some States have been entering into a flurry of new treaties (with a view to promoting foreign direct investment); others have been terminating their BITs (rather offering domestic legislation as a means to grant foreign investor protection without undermining a State’s right to regulate in the public interest and monitoring compliance with subtle nuances in different BITs); and others have been scrambling to reshape their BITs (in the face of lessons learnt on the potential impact of BITs).

Notably, the Investment Protocol seeks to replace existing BITs between State Parties within five years from entry into force of the Protocol and prohibits State Parties from concluding new BITs among themselves. However, the Protocol does not prohibit State Parties from entering into new BITs with third-party States neither does it direct that the affected State Parties modify or terminate their domestic legislation that grant foreign investor protections.

The Protocol will replace intra-Africa BITs, binding governments to modern standards that cannot be unilaterally amended. It will be interesting to monitor developments in the relationship between the Protocol and domestic legislation aimed at guaranteeing certain protections to foreign investors.

It will be critical to the success of the Protocol and AfCFTA that State Parties collaborate to give effect to its implementation.