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The AfCFTA and Investors

Avatar: Samrawit Behailu
Samrawit Behailu, Ivory Kairo MukamiFebruary 16, 2021
EconomyOpinionBusiness
The AfCFTA and Investors

               A. INTRODUCTION

“African unity and solidarity are no longer dreams. They must be expressed in decisions.” ~ Patrice Lumumba (1)

Patrice Lumumba served as Congo’s first Prime Minister and played an active role in the transition of Congo from a colony to a republic. Lumumba wanted more for Africa as he could see the continent’s potential when he said the words above during one of his speeches. 

Africans dreamt of the day they would trade with each other without hurdles and 61 years since Lumumba’s speech, they have stood in solidarity and made the decision to commence free trade. The African continent is nothing but a fine example of commitment, resilience and unity.

The continent’s resilience brings hope in terms of trade, investment and services through the African Continental Free Trade Area (AfCFTA) which was launched in January 2021 in order to facilitate free trade amongst African nations. With the conclusion of the first phase of the negotiations coming to an end soon, the Phase 2 negotiations are yet to commence. The second phase of the negotiations will include investment, competition policies and intellectual property rights (2).  

As Africa eagerly awaits for the commencement of these negotiations, the authors seek to focus on the investment bit in this article. The article seeks to zoom in on the aspects of investor responsibility under the AfCFTA on matters pertaining to the environmental concerns of the continent. As Africa is yet to receive regulation on investment, the article will purely provide suggestions on the matter.

“Not all trade agreements are trade related, as some focus on development (3),” Jean-Frédéric Morin and Rosalie Gauthier Nadeau. It is for this reason African states require investors in order to develop their infrastructure, agriculture, natural resources, education and health sectors. The investment protocol must therefore be skillfully crafted in a manner that aims to protect the African environment. 

It is for this reason the article discusses: 

  1. The proposed provisions in investment agreements geared towards the protection of the environment;
  2. The upcoming AfCFTA Investment Protocol; and
  3. The proposed dispute resolution mechanisms between the investors and the host states.             

B. INVESTMENT AGREEMENTS AND THE ENVIRONMENT 

One has to set high standards, I can never be happy with mediocre performance.” ~ Patrice Motsepe (4)

Mr. Motsepe’s words are proof of the importance of setting high standards, not just by individuals but also by governments as he is now among the few African billionaires. The AfCFTA must also set high standards for investors in a bid to protect the environment.  

The OECD in 2011 conducted a survey with the intention of bringing to light the number of BITs that sought to protect their environments using 49 countries (5). The survey also sought to inform the public on the progression of the inclusion of environmental protection provisions. As a result, it showed that countries included environmental protection provisions in the 1985; that of China and Singapore, then on to the mid-1990s and properly in the 2000s (6). There were only 3 African countries sampled in the survey and those were; Egypt, Morocco, and South Africa. 

It is the author’s hope that more African countries will be included in a similar survey in the near future as all of them will have included as they will have such provisions in their BITs. As the continent gears up to establishing investment laws under the AfCFTA, the authors seeks to give the following suggestions as favorable provisions of the investment treaty. 

First both parties, the investor and the host state must be responsible for climate protection. However, the BITs ought to consider the different capacities of the parties considering most African countries fall under developing and least-developed countries. Their position will leave them financially vulnerable should they decide to reverse the damage caused by investors.

BITs that focus on environmental protection either take a general or specified approach. The general approach sees BITs use the term “general concerns'' meaning both parties consider their actions in relation to the country’s current environmental concerns (7). On the other hand, specific issues specify the area of environmental concern the country is dealing with such as exhaustible natural resources. Canada has severally taken a general approach by stating “Nothing in this Agreement shall be deemed as preventing either contracting party from protecting the environment as they conduct their investment activities.” The authors propose a general approach as a specific one might see some areas of the environment deteriorating while others remain intact. 

Second, the investor should provide emergency assistance in the event of an environmental disaster caused by the investor’s actions. This is a concept introduced by the Yaoundé Convention under Article 18 (9). It mandated the investor to create an emergency fund to mitigate environmental emergencies caused by the investor. This may be an area African countries may wish to consider in their BITs. 

Third, the host states must consider carbon taxation in order to ensure the investor emits little carbon into the atmosphere. Carbon taxation is placing a price on carbon in a bid to shift the burden of carbon control to the emitters rather than the country (10). States should have a maximum carbon emission set and tax anything higher. Alternatively, countries may tax carbon emitted at a standard rate. 

As of May 2020, readings by Scripps Institution of Oceanography and the National Oceanic and Atmospheric Administration show that the amount of carbon dioxide (CO2) in the atmosphere hit an all-time high of 417 parts per million (ppm) (11). A majority of African countries are not high carbon emitters except South Africa which is the only African country with a Carbon Taxation Act (12). Therefore, including a carbon taxation clause will ensure African countries maintain a low carbon emission as they protect their environments. 

Lastly, the AfCFTA must include a provision precluding member states from lowering their standards in order to attract investment. Lowering of standards may come in the form of speeding up the process for certain documents, giving the go ahead to investors to start their activities without certain documents or allowing investors to commence their operations without a single document. As the OECD conducted its survey, found that several countries had included clauses preventing parties from lowering their standards. One such example is BITs between Belgium/Luxembourg – Ethiopia and Togo in 2006 and 2009 respectively. The United States and Rwanda BIT of 2008 goes as far as mandating consultation between the two states in the event this occurs. It is therefore advisable for the AfCFTA to not only include such a provision but also provide for possible dispute resolution avenues in the event of such. 

C.  AfCFTA INVESTMENT PROTOCOL

African countries must be keen on investment as it is a source of employment and revenue for many if used effectively. The AfCFTA investment protocol aims to facilitate growth by promoting intra-African investment however, just like intra-African trade, intra-African investment is currently low. The AfCFTA expects state parties to build adequate infrastructure with the help and guidance of the AfCFTA secretariat in order to facilitate investment through removing trade and investment barriers (13). The investment protocol should therefore be an instrument to implement the objectives stated under Article 3 of the AfCFTA. 

The Protocol will be part of the AfCFTA general agreement and enter into force thirty (30) days after the deposit of the 22nd instrument of ratification (14). The Protocol, once negotiated, should complement the other protocols negotiated in Phase 2 as it will enhance competition. Competition in turn will see an increase in intellectual property rights. The end result of this is that African economies will compete in the global market; promote industrial development through diversification and regional value chain development, agricultural, and food security development (15).

The authors also propose that the Protocol create a level playing field for the Multinationals and Small and Medium Enterprises (SMEs). This is because SMEs have difficulty due to low capital, making it harder to conduct cross-border trade. The current issues countries face are not only tariffs but also non-tariff barriers to trade. Additionally, these SMEs may not have enough or properly trained staff, political influence, or capital like big corporations. The authors therefore suggest preferential treatment of the SMEs to facilitate trade. 

Lastly, the investment protocol is expected to force African countries to improve their transport systems to facilitate faster trade. This will eventually strengthen the value chain amongst African countries.  

  1. Quality over Quantity Investment

African countries receive large amounts of Foreign Direct Investment (FDI) from Europe, China, and North America. However, this does not reflect in the lives of the African citizens as majority of them live in poverty. One may beg to investigate the reason behind this, and this is because most African governments focus on the quantity of FDI rather than the quality. Further, Chidede noted that it is only when African governments focus on quality FDI will the people’s livelihoods improve as their countries develop (16). In the same vein, respective governments should hold Investors accountable for any violation, such as labor rights, guarantee access to justice for employees, and involve corporations in corporate responsibility for sustainable development and environmental protection.

Quality over quantity also mandates governments to adhere to Article III of the AfCFTA on National Treatment. National Treatment essentially means that foreign investors should be treated as the local investors are treated (17). Fair and equitable treatment of an investor should not be broad to the extent that countries are fearful of changing their regulations as they try to keep an investor, investors must also be willing to understand the need for change in their host states. 

African countries should guarantee that investment facilitation will be first and foremost be about attracting quality investment. This is not to say that investment should be made difficult for the investors, it should be convenient as it is fair. The AfCFTA investment protocol should therefore be crafted to attract quality investment that will eventually improve the Africans’ livelihoods. 

D. DISPUTE SETTLEMENT 

To quote Mahatma Gandhi, “An eye for an eye makes the whole world blind,” and it goes without saying that there is anticipated tension between investors and host states under the AfCFTA. It is only prudent for the authors to consider possible amicable dispute resolution mechanisms between investors and host states. 

The United Nations Conference on Trade and Development presented their stocktaking on investment dispute settlement in the first quarter of 2019 (18). UNCTAD concluded that BITs present 5 approaches to resolving investor- state disputes: a) No Investor-State Dispute Settlement (ISDS), b) a standing ISDS tribunal, c) Limited ISDS, d) Improved ISDS procedure, and e) unreformed ISDS mechanisms (19)

The no ISDS approach either does not provide for ISDS or one party is given the power to withhold consent for arbitration. This is seen in BITs between Brazil-Ethiopia, Brazil-Guyana, and Brazil-Suriname (20). The authors do not recommend this approach as disputes should be resolved rather than be swept under the rag. Additionally, taking this approach entices either party to breach the terms of the BIT. 

The standing ISDS tribunal approach calls for the appointment of a tribunal by the contracting parties. The tribunal is not ad-hoc but rather a long standing tribunal that lasts for the period the BIT exists. This is an option African states may wish to consider as it gives comfort in the line of thought the tribunal has on certain matters. On the other hand, this comfort does not provide much room for different opinions on similar disputes. 

The limited ISDS provides for exhaustion of local remedies before turning to arbitration. This is a favorable option for the host state but investors may shy away from investing in the event the courts are not independent. African states must therefore consider this option only when they consider their courts impartial and not meddle with the judiciary’s affairs. 

The improved ISDS procedure advocates for the increased access proceedings, and provides access for the public and third parties to follow the proceedings. This has been witnessed in the Argentina-Japan BIT and the Armenia-Japan BIT. The improved ISID method is another African states must consider as it proves to potential investors the state values transparency.

African states must therefore not shy away from negotiations and terms that are favorable for them. It is important for African states to work towards attracting investors and being open to dispute resolution. 

E. CONCLUSION 

The authors conclude that African states must protect their environment even as they seek investment opportunities for development. They must negotiate the best terms for their countries and the environment while they allow themselves to resolve their disputes in an amicable manner. Are we, as a continent, going to take a lesson from the current pandemic? With borders closing that we should rely on ourselves as a manufacturing hub? Because for example, China's closing borders meant we could not get many things; we had to wait for masks and test kits to come from China, so we have to make the AfCFTA a more significant priority now to become self-sufficient. We have a massive opportunity to reconfigure our supply roots and value chains in the region not to disconnect from the global economy but to be more self-sufficient

 

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 References 

 1. Patrice Lumumba, ‘Opening Speech’ (All-African Conference, Leopoldville, 25 August 1960) <https://thisisafrica.me/politics-and-society/10-quotes-from-patrice-lumumba/> accessed 20 January 2021

2. Article 7, Agreement Establishing the AfCFTA

3. JF Morin and RG Nadeau, ‘Environmental Gems in Trade Agreements Little-known Clauses for Progressive Trade Agreements’ <file:///D:/Publications/Effect%20of%20the%20AfCFTA%20on%20Investors/Sources/Environmental%20Gems%20in%20Trade%20Agreements.pdf> (2017) 4 accessed 9 January 2021

4. Forbes, ‘20 Inspirational Quotes From The Richest Africans’ <https://www.forbes.com/sites/mfonobongnsehe/2013/11/13/20-inspirational-quotes-from-the-richest-africans/?sh=43a946af1351> accessed 20 January 2021. Patrice Motsepe is the chairperson and founder of African Rainbow Minerals, a private equity firm that seeks to enhance investment in Africa. Forbes, ‘Patrice Motsepe’ <https://www.forbes.com/profile/patrice-motsepe/?sh=584a7c0e6c93> accessed 20 January 2021

5.  K Gordon and J Pohl, “Environmental Concerns in International Investment Agreements: A Survey”,  <file:///D:/Publications/Effect%20of%20the%20AfCFTA%20on%20Investors/Sources/OECD%20Envt%20Concerns%20in%20IIAs.pdf>   (OECD Working Papers on International Investment, 2011/01, OECD Publishing 2011) 5 accessed 9 January 2021  

6.  ibid

7.  ibid 5, 14

8.  Canada-Barbados (1996), Canada-South Africa (1995)

9.  Yaoundé Convention <http://aei.pitt.edu/34505/1/A674.pdf> accessed 9 January 2021

10.  The World Bank, ‘Pricing Carbon’ <https://www.worldbank.org/en/programs/pricing-carbon> accessed 20 January 2020

11. Andrew Freedman and Chris Mooney, ‘Earth’s Carbon Dioxide Levels Hit Record High, Despite Coronavirus-Related Emissions Drop’ The Washington Post (4 June 2020) <https://www.washingtonpost.com/weather/2020/06/04/carbon-dioxide-record-2020/> accessed 20 January 2020

12.  South African Government, ‘Carbon Tax Act’ <https://www.gov.za/documents/carbon-tax-act-15-2019-english-afrikaans-23-may-2019-0000> accessed 20 January 2021

13. Tekedia- Adeola Onikoyi, ‘The challenges and benefits of African Continental Free Trade Area (AfCFTA)’ (20 July 2019) <https://www.tekedia.com/author/onikoyi/> accessed 4 February 2021 

14.  AfCFTA treaty consolidated text, March 21, 2018, Article 23 (2)

15.  Talkmore Chidede, ‘How can the AfCFTA Investment Protocol Advance the AfCFTA Objectives Realization?’ (TRALAC, 17 May 2019) <https://www.tralac.org/blog/article/14065-how-can-the-afcfta-investment-protocol-advance-the-realisation-of-the-afcfta-objectives.html> accessed 4 February 2021

16. ibid

17. AfCFTA Treaty Consolidated Text, March 21, 2018, Part II non-discrimination Article 5 

18.  UNCTAD, ‘Reforming Investment Dispute Settlement: A Stocktaking’ (2019) <https://unctad.org/system/files/official-document/diaepcbinf2019d3_en.pdf> accessed 21 January 2021

19. ibid 

20. ibid 

Author: undefined undefined
A PIECE BYSamrawit Behailu

Samrawit Behailu is a Junior Associate at Tameru Wondm Agegnehu Law Office and graduate of law from Adama Science and Technology University and has gotten her Masters Degree from Turin School of Development in Italy in International Trade Law.

Author: undefined undefined
A PIECE BYIvory Kairo Mukami

Kairo Ivory Mukami is a Kenyan lawyer, a graduate of Kenyatta University and soon to be admitted into the Kenyan bar. She has experience in Trade and Investment, Energy, Fintech, Data Protection and Gender Law. Ivory has a vision for Africa and aspires to be a vanguard in promoting the success of the AfCFTA for a better Africa.