*Muhammad Siddique Ali Pirzada
I. Introduction
The nations comprising the African Union (AU) jointly affirmed their endorsement for the Protocol on Investment (the Protocol), an integral part of the broader agreement that underpins the African Continental Free Trade Area (AfCFTA). The Protocol marks a significant shift in Africa’s investment landscape by terminating intra-African BITs and adopting a state-centric framework that fundamentally reshapes the continent’s approach to investment regulation. The Protocol, as of January 2023, has been made publicly accessible for examination and review. As prescribed in Article 48, the Protocol is presently available for ratification, and accession by the parties to the AfCFTA. As per Article 23 (2), “The Protocols on Investment, Intellectual Property Rights, Competition Policy and any other Instrument within the scope of this Agreement deemed necessary, shall enter into force thirty (30) days after the deposit of the twenty second (22nd) instrument of ratification.” Though the specific status of ratification is not publicly disclosed, it is apparent that the requisite procedures are diligently progressing.
This piece endeavors to elucidate three pivotal ramifications that are likely to arise from the imminent commencement of the Protocol: (a) the abrogation of the majority of intra-African bilateral investment treaties (BITs); (b) diminished protections for investors and the imposition of new duties on them, alongside an effort to establish extraterritorial liability for their actions; and (c) the strong likelihood that the Protocol’s stance on dispute resolution will exclude provisions for Investor-State Dispute Settlement (ISDS).
Finally, this piece adopts a more panoramic view, highlighting two primary, overarching inferences from this unfolding development. First, the Protocol’s tangible influence is likely to be limited, given the modest scale of intra-African foreign direct investment (FDI) relative to the far greater influx of extra-African FDI into the continent, which also aligns with the fact that most ISDS claims against African states to date have been initiated by non-African investors. Second, while protections under BITs for AU investors within AU member states are poised to erode, the safeguards granted to non-African investors in these same jurisdictions will remain largely intact.
II. Reevaluating Investor Protections: The Shift in Existing Intra-African Investment Agreements
Presently, African states have entered into a total of 173 intra-African BITs, excluding those previously abrogated or rendered void. Of this corpus, 145 BITs are between AU member states, with approximately a quarter still in effect. In accordance with the provisions of Article 49(1) of the Protocol, all BITs executed between the Parties to the Protocol are unequivocally destined for termination within a period of five years from the Protocol’s promulgation. Consequently, the aforementioned 145 BITs are scheduled for termination within this stipulated five-year period following the Protocol’s effective date. Furthermore, Agreement for the Termination of All Intra-EU Bilateral Investment Treaties serves as a significant parallel to the approach reflected in Article 49(1) of the Protocol, which aligns with the collective strategy adopted by the European Union.
Article 49(1) of the Protocol decrees that, following the cessation of existing BITs, “their survival clauses shall also be extinguished.” This stipulation fundamentally subverts the very essence of sunset clauses, which are traditionally intended to preserve a modicum of stability by ensuring the continued applicability of certain provisions for a defined period post-termination. Such a stipulation is poised to provoke intense debate regarding the extent to which investors have secured inviolable entitlements under international law and whether sovereign nations possess the prerogative to unilaterally rescind these rights once bestowed.
Article 49(3) of the Protocol further enjoins the signatories to exert their utmost endeavors in scrutinizing and amending the regional investment accords forged by the African Regional Economic Communities (RECs) — a body of 12 treaties incorporating investment provisions, including those of RECs recognized by the AU — with the overarching goal of securing seamless “alignment” with the Protocol within a timeframe of five to ten years from its inception.
While certain RECs incorporate provisions that echo those in the Protocol, they appear to fall short of embracing its transformative ethos. The Protocol’s ambiguously worded mandate regarding RECs raises concerns about the potential dilution of investor protections across the continent, fostering uncertainty and indeterminacy, as it provides little clarity on what precisely constitutes “alignment.”
III. The Investment Protocol: Erosion of Investor Protections
Unpacking the Carve-Outs
Article 3(3) of the Protocol meticulously delineates a series of exclusions from its ambit, which include: (a) government procurement activities; (b) subsidies or grants provided by State Parties; (c) fiscal measures relating to taxation; and (d) preferential treatment extended by development finance institutions. Additionally, Article 3(3) unequivocally precludes from the Protocol’s purview investments undertaken by State-Owned Enterprises, alongside those “derived from capital or assets of illegal origin.” Though other International Investment Agreements (IIAs) may also exclude certain areas, the Protocol’s treatment of investments with an “illegal origin” is especially unconventional. Notably, the phrase “illegal origin” remains undefined within the Protocol itself, rendering it ambiguous and subject to a wide range of interpretations. This lack of clarity opens the door to a potentially sweeping and unpredictable scope of exclusion.
Fair and Equitable Treatment Exclusion
In redefining investor protections, Article 17 of the Protocol substitutes the former concept of Fair and Equitable Treatment (FET) with the more circumscribed and judiciously defined standard of Administrative and Judicial Treatment. Through this shift, signatories are obligated to guarantee that investors and their investments are not subjected to any form of treatment amounting to a flagrant miscarriage of justice, a manifest violation of due process, arbitrary caprice, or discriminatory animus on the grounds of gender, race, religion, or other similarly protected characteristics.
Moreover, Article 17(2) unequivocally clarifies that such treatment shall not be construed as synonymous with the former standard of fair and equitable treatment, but rather as a minimum threshold of protection — a safeguard against the egregious maltreatment of investors within both administrative and judicial domains. This recalibration represents a deliberate shift towards a more measured approach to investor protection, emphasizing procedural rectitude and the avoidance of unjust, arbitrary, or unduly prejudicial actions in state-administered legal processes.
This articulation signifies a purposeful divergence from the traditional and expansive contours of FET, as exemplified by Article 2 of the 2006 Egypt-Ethiopia BIT, which unambiguously asserts that capital allocations “shall at all times be accorded fair and equitable treatment” while refraining from imposing any constraints on the breadth of FET’s application. In contrast, the Protocol explicitly invokes the minimum standard of treatment (MST). Notably, Article 17(2) categorically ostracizes FET from its ambit. The pragmatic consequences of this shift may bear a striking resemblance to the way arbitral tribunals have construed FET clauses in treaties that unequivocally tie them to the MST. This is particularly evident in the case of Article 14.6 of the USMCA, where the interpretations of FET provisions have often aligned with the MST framework.
A Hollow Guarantee
Articles 12 to 16 of the Protocol, which enshrine the principles of National Treatment (NT) and Most-Favored Nation (MFN), afford substantially less robust protections than conventional NT and MFN provisions. A case in point is Article 4 of the 2009 Burundi-Kenya BIT. The protections offered by Article 12 and 14 of the Protocol are confined to the post-establishment phase of investments, explicitly excluding the pre-establishment stage from their scope. In Article 12(2), a comprehensive set of factors is outlined to assess “like circumstances,” purposefully shifting the focus from the investor’s interests and the impact on the investment to broader societal concerns and the regulatory framework.
Article 13 of the Protocol provides several exceptions to the NT provision, including measures for public interest, national development, and support for disadvantaged groups or regions. It also allows states to adopt NT exceptions for sectors or regions of strategic importance—though these exceptions are vaguely defined—granting states broad discretion to implement such measures without prior notice to investors.
Moreover, the MFN provision enshrined in Article 14(3) of the Protocol narrows the scope of “treatment” by expressly excluding dispute resolution mechanisms, provisions governing admissibility and jurisdiction, as well as substantive commitments embedded in other IIAs. This restriction significantly curtails the safeguard against discriminatory practices for investors from third-party states, diverging from the broader, more traditional formulations of MFN clauses typically found in other IIAs, which customarily encompass these elements with greater breadth and inclusivity.
Compensation Rights – Scarcity of Redress
Compared to the typical expropriation clauses in most IIAs, such as Article V of the 1997 Egypt-Malawi BIT, the expropriation provisions enshrined in the Protocol establish a notably more stringent and narrowly defined framework. Article 20(2) of the Protocol limits the definition of expropriation by excluding “non-discriminatory regulatory measures . . . aimed at safeguarding legitimate public policy objectives.” This aligns with provisions in recent IIAs, such as Annex 8-A(3) of the 2014 Comprehensive Economic and Trade Agreement (CETA), which similarly exempt regulatory actions from expropriation claims.
Articles 19 and 21 of the Protocol impose unconventional restrictions on compensation for expropriation. Notably, instead of the traditional requirement that compensation be “made without delay“ or “without undue delay” as seen in Article 5(3) of the 2006 Gambia-Morocco BIT, the Protocol replaces this traditional requirement with the more ambiguous phrasing “paid within a reasonable period of time.”
The Protocol also departs from the traditional standard of “prompt, adequate, and effective compensation” as exemplified in Article 6 of the 2009 Mauritius-Tanzania BIT. It conditions compensation on the host state’s domestic laws (Article 19(1)(d)), while also requiring a fair balance between public interest and the rights of affected parties (Article 21(2)), and various other factors come into play, including the investment’s market value, purpose of expropriation, profitability, investor conduct, and duration.
The Case for Limited Security – A Constrained Approach?
In a departure from customary practice, Article 18 of the Protocol notably deviates from established norms by subtly constraining the conventional application of Full Protection and Security (FPS), a time-honored pillar in the lexicon of IIAs. Consider, for instance, Article 4(3) of the 2019 BIT between the Central African Republic and Rwanda explicitly guarantees that investments made by investors from either state shall be accorded “full protection and security” within the territories of the other. However, the Protocol curtails the breadth of protection by restricting it to “physical” security, deliberately omitting the term “full” from its language. In doing so, it narrows the scope of safeguards afforded to investments, deliberately excluding not only legal protections but also any broader interpretations of FPS that might encompass elements beyond the mere physical safeguarding of investments. This shift signifies a deliberate move toward a more limited and restrictive understanding of FPS, contrasting with the traditionally more expansive and inclusive standards.
Moreover, Article 18 of the Protocol introduces an additional layer of limitation by tethering the obligation of physical protection and security to the “capabilities” of the State Party. Specifically, it invokes the “obligation of due diligence” that a State must uphold within its own borders, in alignment with the principles of Customary International Law. In doing so, this provision recalibrates the level of protection afforded to investors, linking it to the host state’s practical capacity. This creates a flexible framework that undermines the traditionally steadfast FPS standard, lowering the threshold of protection that investors might otherwise anticipate and introducing an element of variability based on the state’s resources and capabilities.
Chapter 5 of the Protocol sets out a comprehensive array of investor duties, encompassing adherence to the legal framework of the host state; the upholding of rigorous ethical standards in business conduct, labor practices, human rights, and corporate governance; the safeguarding of environmental integrity and the rights of indigenous communities; the prohibition of corrupt activities and interference in the internal affairs of the host state; and the active promotion of sustainable development. These obligations reflect a commitment not only to legal compliance but also to the ethical, social, and environmental imperatives that underpin responsible investment.
In an innovative extension of investor obligations, Article 47 of the Protocol introduces the concept of extraterritorial liability. It specifies that investors and their investments may be subject to civil actions in their home state’s judicial system for any acts, decisions, or omissions related to their investment in the host state that result in harm, personal injury, or loss of life. This provision represents a pioneering attempt within an IIA to address competence obstacles, such as issues of territoriality and forum non conveniens, among others. While a full examination of its practical ramifications and enforcement complexities is beyond the scope of this discussion, the provision will likely provoke significant opposition from investors who could face such legal actions.
IV. Dispute Settlement in the Investment Protocol: A Shift Away from ISDS
Initially, the signatories to the Protocol aimed to conclude the Annex on dispute settlement within one year of the Protocol’s adoption, as enshrined in Article 46(3). Yet, the Annex remains incomplete to this day. The Draft Annex, spanning Articles 5 to 21, sets forth the framework for Investor-State Dispute Settlement (ISDS). Notably, Article 6 grants investors the flexibility to pursue arbitration under the ICSID Rules, the UNCITRAL Rules, or, intriguingly, “any other arbitration framework or set of rules of their choosing.” This exceptional flexibility allows investors to select the arbitration mechanism that best aligns with their preferences, thereby expanding the range of available dispute resolution options.
The Protocol’s endorsement of traditional ISDS mechanisms starkly contrasts with its broader shift away from established investor protection standards. This adherence to the conventional framework also fails to reflect the growing skepticism within certain African nations—South Africa in particular—toward the continued application of ISDS. This signals a deliberate move towards alternative, more balanced approaches to resolving investment disputes, diverging from the entrenched ISDS model. Given this precedent, one might reasonably expect that the final iteration of the Protocol’s Annex on dispute settlement would notably refrain from incorporating provisions that compel host states to grant prior consent to ISDS mechanisms. Furthermore, it would be surprising if the Annex were to include a standing, unilateral offer permitting investors to unilaterally elect the arbitral rules under which to advance their claims.
V. Conclusion
The Protocol’s reforms, while ambitious, are likely to have a limited impact, predominantly altering protections for intra-African FDI under existing BITs, while leaving safeguards for non-African investors largely intact. In 2022, the bulk of FDI into Africa came from outside the continent, with the Netherlands (USD 109 billion), France (USD 58 billion), and the United States and United Kingdom (USD 46 billion each) leading the charge. South Africa continued to be the primary origin of intra – African FDI totaling (USD 33 billion). Thus, while the Protocol may reshape intra-African investment dynamics, its effect on the broader flow of external FDI—which defines Africa’s investment infrastructure—will remain negligible.
The majority of ISDS disputes lodged against the member states of the AU have predominantly stemmed from investment treaties involving African and non-African counterparts, rather than from intra-African agreements. According to the 2023 UNCTAD Investment Dispute Settlement Navigator, African investors represent a mere fraction—below 10%—of ISDS cases pursued against African nations. Should current trajectories continue, this Protocol appears poised to exert minimal influence on roughly 90% of potential ISDS claims that might emerge post-ratification.
In this context, investors from the AU—particularly those from South Africa—appear to be in the best position to benefit from the limitations imposed by the Protocol. This contrasts sharply with the dissolution of intra-EU BITs, which, despite their termination, left European investors protected under the EU’s robust legal framework. By comparison, while the Protocol curtails protections for AU investors under intra-African BITs, it fails to establish equivalent safeguards to compensate for these losses.
* Mr. Muhammad Siddique Ali Pirzada is a final-year LL.B. (Hons.) candidate at the University of London (Pakistan College of Law – PCL), currently serving as Managing Editor of LEAP, President of the PCL Study Circle Society, and a YIAG member. Additionally, he has competed as an Oralist in the Philip C. Jessup International Law Moot Court Competition. He has authored numerous articles for prestigious global publications and gained work experience at Al Tamimi & Co. (DIFC), Bhandari Naqvi Riaz, Mohsin Tayebaly & Co., and The Supreme Court of Pakistan, focusing upon: International Litigation & Dispute Resolution, Commercial Litigation & Advisory, Constitutional Law and Corporate Governance.