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AfCFTA Guide
Investment
The AfCFTA holds significant potential for driving economic growth and prosperity through increased investment across the continent. The Agreement seeks to create a conducive environment for both domestic and foreign investments by promoting transparency, predictability, and the protection of investments.
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Investment Protection Standards
The AfCFTA Protocol includes provisions outlining the standards and principles for protecting investments under the AfCFTA. It comprises key aspects pertaining to investment treatment, exceptions, and other measures to ensure fair and equitable treatment for investors. The aim of the Protocol, in this respect, is to balance the rights of investors with that of the sovereign prerogatives of the Host State, thereby establishing a conducive environment for cross-border investments within Africa. The investment protection standards provide certainty, transparency, and predictability for investors while respecting the legitimate policy objectives of Member States.
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National Treatment: Member States must accord national treatment to investors of another Member State and their investments in like circumstances, i.e., AfCFTA Members must provide treatment no less favourable than it accords to its own investors. National treatment applies to the management, conduct, operation, use, expansion and sale or other disposition of their investments.
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Imagine a Ghanaian company has invested in the agricultural sector of Kenya. The national treatment provision dictates that Kenya must treat the Ghanaian investor as favourably as its own investors. For instance, if Kenya provides subsidies to its local farmers, it must provide the same to the Ghanaian investors operating farms within its borders.
Most Favoured Nation: Each Member State must accord most-favoured-nation treatment to investors of another Member State and their investments in like circumstances, i.e., AfCFTA Members must provide treatment no less favourable than it accords to investors of any other State or Third Party with respect to the management, conduct, operation, use, expansion and sale or other disposition of their investments.
Imagine a South African company that wishes to invest in Mauritius’ pharmaceutical sector. The most-favoured national treatment provision in the AfCFTA dictates that Mauritius must treat all African investors as favourably as all other investors. For instance, if Mauritius provides tax holidays to Indian investors in the pharmaceuticals sector, it must provide the same to South African investors investing within its borders.
What constitutes ‘Like Circumstances’ for National Treatment and Most-Favoured National Treatment?
‘Like circumstances’ requires a case-by-case examination of all investment circumstances. Some factors taken into consideration include:
• Effects on third parties and local communities.
• Impact on local, regional, or national environment and public health.
• Investor's sector of activity.
• Purpose of the measure in question.
• Applied regulatory process.
• Other relevant factors tied to the investment or investor.
Administrative and Judicial Treatment: Each Member State must guarantee fair and just treatment to investors from another Member State and their investments when it comes to administrative and judicial proceedings. This includes preventing fundamental denial of justice, ensuring due process, avoiding arbitrariness, preventing discrimination based on gender, race, or religious beliefs, and refraining from abusive treatment in administrative and judicial processes. This ensures a level playing field for both parties and upholds the principles of justice and equity.
Imagine a scenario where an Egyptian investor is involved in a commercial dispute with a local business in Senegal. In the ensuing legal proceedings, the court in Senegal must ensure that the investor from Egypt receives the same fair treatment and due process as any local investor, without any discrimination or bias.
Physical Protection and Security: Member States must accord to investors and their investments physical protection and security no less favourable than that which it accords to its own investors or the investments of the investors of any other State Party or Third Party, i.e., physical protection and security is subject to the national treatment and most-favoured nation principles. Investors who encounter losses because of a failure of the Host State, for reasons such as war or other armed conflict, revolution, revolt, insurrection, or riot must provide restitution, indemnification, compensation, or other settlement by abiding by the national treatment and most-favoured nation principles.
Expropriation: State Parties should not directly or indirectly, expropriate or nationalise investments in their territory. Expropriation involves expropriation or nationalisation through a formal transfer of ownership, outright seizure; or from a measure or a series of measures having an equivalent effect of direct expropriation without formal transfer of title or outright seizure.
However, where expropriations are permitted for a public purpose, the Host Party should do so in accordance with due process established by the laws in the country; in a non-discriminatory manner; and against a fair and adequate compensation paid within a reasonable period.
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Transfer of Funds: Member States must allow all transfers relating to an investment to be made freely and without delay in and out of the territory after payment of the respective taxes and duties. These transfers may include initial capital, profits, dividends, royalties, interests, proceeds from sales or liquidation, loan repayments, license fees, payments for services, wages, and compensation linked to dispute settlement mechanisms.
Member States must allow transfers to be made in the currency of the host economy, or any other currency recognised by the IMF, at the market rate of exchange prevailing on the date of the transfer.
However, Member States also have the authority to impose impartial restrictions on the transfer of funds linked to investments within their jurisdiction. Restrictions can be imposed on investors regarding meeting tax responsibilities, addressing bankruptcy or creditor rights, dealing with criminal activities and asset recovery, facilitating financial oversight, ensuring legal compliance, safeguarding social security and employee rights, and countering money laundering and terrorism financing.
In certain circumstances, a Member State may adopt or maintain non-discriminatory measures that do not conform with the obligations on the free transfer of funds. These include events and threats of serious balance-of-payments deficits or external financial difficulties; and exceptional circumstances where movements of capital can cause or create risks of serious economic or financial difficulties in the Host State.
Sustainable Development
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The Protocol puts forward a framework for sustainable development within the context of investment under the AfCFTA. It emphasises Member States’ right to regulate investment within their borders in ways that align with their development goals and national policies and priorities regarding the environment, health, climate action, social and economic objectives, and essential security interests. The Protocol, in this sense, aims to ensure that investments are aligned with broader societal and environmental objectives, fostering responsible and mutually beneficial outcomes.
Minimum Standards on the Environment, Labour, and Consumer Protection: Member States must ensure that environmental, labour and consumer rights are protected in accordance with domestic policies, international best standards, and relevant international agreements to which they are parties.
Member States should not promote investment within their jurisdictions by relaxing or waiving domestic standards, or compliance with environmental, labour and consumer protection laws and international minimum standards.
Investment and Climate Change: Taking into consideration domestic climate change policies, the principle of Common but Differentiated Responsibilities, and relevant international climate change instruments, each AfCFTA Member State must:
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Promote and facilitate investments that mitigate greenhouse gas emissions and adapt to the negative impacts of climate change;
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Promote and facilitate investments that are conducive to the financing of regional climate mitigation and adaptation programmes;
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Promote a fair and just transition in sectors such as renewable energy, and low-carbon technologies;
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Promote the adoption of policy frameworks that are conducive to the transfer and deployment of climate-friendly technologies and goods and services;
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Promote and encourage new investment regimes, such as low or zero-carbon Special Economic Zones; and
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Encourage investments that mitigate climate change impacts on exhaustible natural resources such as fresh water and biological diversity.
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​Investment, Public Health, and Pandemics: The AfCFTA Member States have the right to determine their public health policies and priorities. They can establish their own levels of domestic public health protection and adopt or modify their relevant laws and measures in the context of epidemics, pandemics, and other public health emergencies.
Member States are expected to promote and facilitate investments in the public health sector and the subsectors and related industries, including medical equipment, pharmaceuticals, especially for chronic diseases, vaccines, and Intensive Care unit requirements.
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Pursuit of Development Goals: Member States have the possibility of introducing measures to promote domestic development including local content. These could include:
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Preferential treatment for qualifying enterprises to achieve development goals.
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Support for local entrepreneurs, strengthening local capabilities and networks.
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Enhancing productivity, employment, and wealth creation through capacity development, training, and research.
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Appointing nationals for appropriate leadership roles.
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Promoting technology transfer and innovation; and
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Addressing economic disparities suffered by identifiable ethnic or cultural groups, including historically marginalised groups or geographical regions and localities.
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Human Resources Development
Member States must develop national policies to guide investors in developing the human capacity of the labour force, including for mid-level and managerial positions. These could include incentives to encourage employers to invest in training, capacity building and knowledge transfer. Particular attention must be given to the needs of youth, women, persons with disabilities and vulnerable groups.
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Transfer of Technology
State Parties are encouraged to facilitate the intra-regional and international transfer of technology. These may include measures such as encouraging investors to adopt practices that allow the transfer and rapid diffusion of technologies and know-how, with due regard to the protection of intellectual property rights; fostering conditions that encourage investors to undertake research and development; and granting credits on preferential terms for financing the acquisition of capital and intermediate goods, among others.
Investor Obligations
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The Protocol also stipulates the responsibilities and ethical standards expected from investors and their investments within the context of the AfCFTA. One of the core obligations that investors have under the AfCFTA is that they are required to conduct their operations in compliance with relevant domestic laws and regulations applicable in the host country and also need to adhere to applicable international law. This includes standards of corporate governance, fair market transactions, and compliance with tax laws. In addition, other obligations that arise include:
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Business Ethics, Human Rights and Labour Standards: Investors must adhere to high standards of business ethics, human rights, and labour standards. In this respect, investors are expected to support and respect internationally recognised human and labour rights, including compliance with the International Labour Organization’s standards and fundamental principles.
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Environmental Protection: Investors and their investments have an obligation to respect and protect the environment. They must apply the precautionary principle as well as prevention in order to mitigate any significant risk and harm to the environment. Environmental impact assessments must also be undertaken with regard to proposed investments. Investors cannot exploit or use natural resources that infringe on the rights and interests of the Host State and local communities.
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Indigenous Peoples and Local Communities: Investors should respect the rights and dignity of indigenous peoples and local communities in accordance with the domestic laws and regulations applicable in the host country as well as international rights and standards. This includes respecting the right to free, prior, and informed consent and respecting legitimate tenure rights to land and resources, including water, fisheries, and forests.
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Socio-Political Obligations Anti-Corruption: Investors must abstain from interfering in the internal affairs of countries, especially when it comes to intergovernmental relations or the appointment of officials to public office. Investors and their investments are prohibited from engaging in a form of corruption and are encouraged to cooperate with State Parties to prevent and eliminate corruption.
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Corporate Social Responsibility and Corporate Governance: Investors are strongly encouraged to contribute to the sustainable development of the Host State and local communities through the adoption of responsible practices.
Management and Settlement of Disputes
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The Protocol outlines the mechanisms and procedures for the management and settlement of disputes related to investment. A fair and well-defined dispute settlement process enhances a country's attractiveness to foreign investors. The Protocol seeks to establish a comprehensive approach that can provide both host countries and investors with greater certainty and security.
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State-State Dispute Settlement: If countries have disagreements about how to follow the rules in this Protocol, they can have recourse to the steps and rules outlined in the "Protocol on the Rules and Procedures on the Settlement of Disputes" to resolve any disagreements.
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Dispute Resolution: In the case of a dispute between an investor from a Member State and the Host State, they should first aim to resolve it amicably through consultations, negotiations, conciliation, mediation, or other means available in the Host State.
If the dispute cannot be solved amicably, the concerned parties can have recourse to other mechanisms that will be established in the Rules and Procedures governing Dispute Prevention, Management and Resolution of Disputes. These rules are yet to be negotiated and agreed upon.
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Investor Liability: Investors can be subject to civil actions in the judicial process of their Home State for the acts, decisions or omissions made in the Host State where such acts, decisions or omissions lead to damage, personal injuries, or loss of life in the Host State. However, this does not exclude the possibility of bringing civil actions against investors and their investments before the domestic courts of the Host State.