The Protocol on Investment (Protocol) is a critical AfCFTA instrument to foster intra-Africa investments in trade-related infrastructure by African investors. The terms of the Protocol are, however, still being negotiated as part of Phase II of the AfCFTA negotiations, which started in earnest at the end of 2021. The Protocol is important because it will provide investors with additional legal protection to mitigate against investment risk on the continent. Such protections are expected to include several protection standards typically found in new generation investment treaties on the continent and to reflect the policy position of African states on investment protection as espoused in the Draft Pan African Code on Investment of 2015 (Draft Investment Code). This is evident from the zero-draft of the Protocol that is currently available in the public domain.

It is understood that that the state parties had two further rounds of negotiations in September 2022 in order to finalise the version of the Protocol.

Bilateral treaties

What is evident from the zero-draft of the Protocol is that the Draft Investment Code has provided the basis for the investment protection being contemplated for intra-Africa investments. A fundamental position that has found its way into the Protocol is that intra-Africa bilateral investment treaties will terminate upon the Protocol coming into effect. However, such bilateral investment treaties will continue to provide protection to investors and their investments post-termination in accordance with such applicable sunset provisions. 

What we also foresee is that some of the drafting in the zero-draft of the Protocol will probably not drastically alter. The following standards of protection that can be expected in the Protocol are:

• Guarantee against unlawful expropriation, with exceptions.
• The most favoured nation treatment standard, with exceptions.
• National treatment standard, with exceptions.
• Physical protection and security, with exceptions.
• Free transfer of funds, with exceptions.

Save for these protections, the Protocol will omit the Fair and Equitable Treatment (FET) Standard and incorporate the concept of “administrative and judicial treatment”. This is a concept in international law, but has found its way into treaty drafting as a consequence of South African policymakers attempting to develop some form of “fair administrative” principle as a substitute for FET.

The Protocol will then, amongst other things, confirm the following new generation investment principles:

• the right of each Africa state to regulate in the public interest to achieve sustainable development, and other legitimate social and economic policy objectives;
• investors must comply with laws and policies to protect human rights, labour rights and the environment; and
• investors must promote and enforce anti-corruption and anti-bribery measures, and protect the rights of indigenous peoples.

Consent to arbitration

Disputes, as provided for under the zero-draft of Protocol, are intended to be resolved between investors and states on the following basis:

• mediation between the investor and host state;
• where an amicable resolution is not achieved through mediation or other means, an investor may deliver a written notice to the state to refer the dispute to arbitration. The investor has a choice of arbitration forms under either the International Centre for Settlement of Investment Disputes or any African institution.

It appears that despite the position of some states towards arbitration, there may well be an option for African investors to refer disputes to arbitration.

This is different to the Draft Investment Code which records that investment disputes between investors and African states “may be resolved through arbitration, subject to the applicable laws of the host state and/or the mutual agreement of the disputing parties, and subject to exhaustion of local remedies”. This did not contemplate an automatic consent to arbitration by an African state. The result being that there will be no automatic right by any intra-African investor to enforce the guarantees under the Protocol, watering down the guarantees and commitment to investors. The wording suggested in the zero-draft of the Protocol, however, appears to contemplate express consent to arbitration, including to provide the investor with an election to choose the forum.

The developments with the zero-draft of Protocol are positive, however, it is important that AfCFTA member states fast-track the negotiation of the Protocol as it plays a critical role in driving private sector investment in trade-related infrastructure. There is also a need for more transparency from the AU on the status of various critical instruments of the AfCFTA, including the Protocol. Such transparency will ensure that the private sector can actively participate in providing input to the Protocol and provide support were necessary to ensure the AfCFTA’s success for all Africans.