International Investment Law and Policy in Africa

Exploring a Human Rights Based Approach to Investment Regulation and Dispute Settlement

Fola Adeleke

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9780367884741
• eBook ISBN: 9781351998819
• Edition: 1
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

This book studies the international investment law regime in Africa and provides a comprehensive analysis of the current treaty practices in Africa from global, regional and domestic perspectives. It develops a public interest regulation theory to highlight the role of investment regulation in sustainable development and the protection of human rights. In doing so, the book identifies seven factors that should be considered by arbitrators in resolving international investment disputes that affect the public interest. It considers how corporations can be held accountable through investment treaties in the absence of a global treaty on business and human rights while protecting the rights of investors and their investments. Furthermore, the book explores the current objectives and features of investor-state dispute settlement (ISDS) as well as the deficiencies and its intersection with the rule of law. It identifies alternatives for ISDS and the extent to which these alternatives address the objectives of attracting investment, depoliticise investment disputes, promote the rule of law and offer remedies to investors. These solutions are offered in relation to the protection of human rights, the promotion of sustainable development and the right of states to introduce domestic public interest regulation. Finally, the book takes a prospective stance and discusses future trends for dispute settlement and investment rulemaking in Africa.

1
Introduction

Introduction

International investment agreements (IIAs), with their neoliberal origins and favourable protections for investors and their investments, may appear to be an unlikely place to protect human rights and promote inclusive and sustainable development that addresses social and economic inequalities between global north and south states and within individual states. IIAs have gained notoriety for preferencing the interests of corporate foreign investors, limiting state regulation that can advance public interests and adopting secretive dispute resolution processes that erode the rule of law. However, IIAs have tremendous potential to help states in imposing human rights obligations on non-state actors and in the realisation of economic policies that will tackle global challenges.

There are currently over 3,304 IIAs, with 150 economies negotiating 57 new IIAs by the end of May 2016.¹ A large number of these IIAs are Bilateral Investment Treaties (BITs) with 2946 in existence at the end of May 2016. Given the recent backlash across the globe against multilateral treaties it is possible that we may see an increase in the conclusion of BITs between states.² Furthermore, the number of active BITs with long periods of enforcement means that BITs will continue to substantially impact global financial activity for a considerably long time.

The role of IIAs in the implementation of a sustainable development agenda and in the protection of human rights have not received sufficient attention. If IIAs are to become a useful tool to ensure inclusive and integrated economic development, states must find ways to integrate stronger protections for human rights and sustainable development objectives into the language of IIAs themselves.

IIAs have experienced major developments over the last few years and have become the governing framework for foreign direct investment (FDI) particularly through BITs. The proliferation of BITs in the 1990s was as a result of the acceptance of the ideology of neo-liberalism, which was driven by the USA and international financial institutions of the time.³ However, more recently, there has been a retreat from neo-liberalism, which has also resulted in a decline in the number of BITs being concluded by states on an annual basis after the explosion of this phenomenon during the 1990s.⁴ In addition, recent developments in the international investment regime show that there is a greater emphasis on the sovereign right to regulate of states and the protection of national interests.⁵

The roots of the proliferation of BITs can be traced back to the end of colonialism. Shortly after the decolonisation period of the 1960s, countries concluded BITs with their former colonies – a process that was instigated by these countries to protect their interests in the new independent states.⁶ Following the wave of trans-continental BITs signed by newly independent African countries, African countries also embraced the conclusion of BITs with each other in recognition of common interests in the regulation of investment as well as ‘a means to attract greater investment and to deepen regional integration’.⁷ This led to a period of globalisation, which gained momentum in the 1990s for several reasons. These included the dissolution of the Soviet Union, the increase in a large number of developing countries opening up for foreign investment, and the rise in investors from advanced economies seeking ways to reduce costs and gain market access abroad.⁸ BITs were seen as the signal that a state has liberalised and as a result, most countries signed a few BITs within a decade between 1990 and 2000.⁹

It has been suggested that African countries continued to sign BITs that negatively affected their interests due to a lack of awareness and understanding of the financial implications in the event of breach of an agreement.¹⁰ Furthermore, a lack of understanding of the consequences of change in government or any other external factor that made compliance with BITs difficult, poor knowledge of treaty language that increased the liability of states in terms of the protections offered to investors continued to affect the interests of African states.¹¹

Notwithstanding the problems BITs created for states, BITs have continued to fill the space of investment regulation in the absence of a multilateral treaty on foreign investment protection.¹² BITs are popular among states under the false premise that they promote FDI and that foreign investments are beneficial to the economic development of host states.¹³ However, emerging empirical evidence is increasingly showing that not all foreign investments contribute to economic development or alternatively, have a positive impact on public policy considerations of states.¹⁴ As a result, recent BITs are introducing screening tests to ‘keep out investments that do not promote the economic objectives of the state’.¹⁵ In cases where BITs do increase FDI, it has been suggested that the benefits do not outweigh the costs of lost policy space and investor–state litigation risks.¹⁶ Given the lack of concrete evidence to link the conclusion of investment treaties with FDI, a rethink of the role of IIAs such as BITs in advancing FDI is necessary.

FDI trends in Africa

While a large number of BITs form the core of regulation of investment in Africa, within the last decade there have been regulatory developments in sub-regional institutions such as the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) aimed at making the Southern African and East African regions investor friendly with the aim of developing a harmonised regional approach towards FDI regulation.¹⁷

Recent data on trade in Africa show that only 17.9 per cent of international trade in goods and services takes place between African countries.¹⁸ However, these data do not capture the informal trade that takes place between African countries which constitute 55 per cent of Africa’s gross domestic product (GDP).¹⁹ With such informal trades going undetected and regulation measures not taking them into consideration, African economic integration has a long way to go.²⁰

While FDI was exclusively the playground of western investors, multinational companies (MNCs) in Africa are also playing an increasing role. African companies have driven growth in the telecommunications, mining and retail, as well as financial services industry.²¹ For example, South Africa is currently the largest out ward investing economy within Africa.²²

There are also signs of diversification with the services sector recording the largest growth in Africa in 2015 moving away from the extractive industry.²³ Drivers that have shaped FDI into Africa according to United Nations Conference on Trade and Development (UNCTAD) include the rise in intra-African FDI, the expansion by emerging-market firms and nontraditional actors such as private equity, as well as growing consumer markets.²⁴ Despite the growth in Africa and the liberal economic policies adopted by states, the global share of FDI into Africa remains low with only 6 per cent of such flows occurring between 2007 and 2013.²⁵ Some of the reasons for this include poor infrastructure availability and regulatory uncertainties, which limit business confidence.

In the past, FDI mainly originated from advanced economies; as a result, BIT approaches in African states have mainly developed from that perspective. The Canada and US model BITs are said to ‘represent the broader, Western Hemisphere approach, while the model BITs of European countries stand for the narrower, European approach’.²⁶ While both approaches protect FDI flows, the Western Hemisphere approach also covers the liberalisation of investment. One important feature of the Western Hemisphere approach is that it prohibits performance requirements. These requirements are imposed by host states to ensure foreign investors export a percentage of their production, buy local products and services as well as employ local labour among other requirements. These requirements enhance the value of foreign investment in developing countries.²⁷ The debate on the value of performance requirements is unsettled and arguments such as the distortion of international trade have been used by advanced economies to argue against the use of performance requirements. However, performance requirements aid the developmental goals of host states and it was on the basis of policy approaches such as these that developed countries built their economies.

IIAs are often concluded between unequal partners, particularly, when developed and developing states are involved. Developing states, in expectation of investment flows,²⁸ cede part of their sovereignty to offer external protection from investor–state dispute settlement (ISDS) mechanisms, which are often insulated from the reach of domestic laws.²⁹

However, there has also been an increase in the conclusion of BITs between developing states.³⁰ This is occurring at a period where there is an increase of FDI flows between South–South countries, which is taking place as a result of growth opportunities in developing markets, procurement of raw materials and extractives, demand for lower labour costs as well as geographic proximity.³¹ South–South economies, such as China, have also become a strong player in FDI outflows into Africa, with China’s demand for mineral resources to build its economy growing exponentially.³²

In ...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of cases
• List of tables
• List of acronyms and abbreviations
• Acknowledgements
• 1 Introduction
• 2 The public interest role of investment regulation
• 3 The rule of law and depoliticisation of investment disputes
• 4 Developing alternatives to investor–state dispute settlement
• 5 Promoting sustainable development and human rights through investment treaties
• 6 Domestic investment regulation and the influence of regional investment agreements
• 7 Conclusion and recommendations
• Bibliography
• Index