Ghana awaits AfCFTA investment protocols

Finally, Ghana can start looking towards having a new investment code the design and introduction of which have been put on hold for the past two years because of the African Continental Free Trade Area. Simply put, the Government of Ghana has decided that it will wait for AfCFTA to finalize its investment protocol before completing a revision of its own investment laws to ensure that the national investment laws are in consonance with that of the African common market whose secretariat is hosted by Ghana.

This has led to a two year delay in completing a task that the President Nana Akufo-Addo administration regards as one of utmost importance. Indeed, when the current top management of the Ghana Investment Promotion Centre, led by former investment banker Yofi Grant, was put together in 2017, it was told that a revision of Ghana’s investment code was a key priority task. It duly complied, putting together draft proposals for new investment regulations alongside its other priority task of significantly increasing foreign, direct investment inflows into Ghana.

However, since then, the standoff between the Ghana Union of Traders Associations (GUTA) and Nigerian retail traders in Ghanaian markets – with government uncomfortably caught in the middle – has persuaded officialdom to change its strategy; with the Nigerian trader's imbroglio a result of clashes between Ghanaian investment laws and ECOWAS protocols, government has become acutely aware of the need not to make the same mistake on the pan-continental stage.

Indeed such a situation on a pan African level would be disastrous for Ghana’s efforts to mint the location of the AfCFTA headquarters in Accra to become the continent’s business capital an aspiration being made possible by the AfCFTA initiative itself.

Government’s decision to host the AfCFTA secretariat was based on the reasoning that this would attract the major companies – and their investment – that provide business support services. The decision of Twitter to establish its regional headquarters is in part confirmation that government’s reasoning seemingly was right; the best place to locate the headquarters of a pan African business service provider is the place where the pan African single market is administered from.

However, this means Ghana’s national investment code has to be in sync with that of AfCFTA as a whole, unlike the situation between Ghana and the ECOWAS protocols; and therefore Ghana is waiting for the AfCFTA investment protocols to be decided first.

The problem however has been that this is part of phase two of AfCFTA’s negotiations, originally slated to begin in the second half of 2020 and completed by the end of the year. But the postponement of the commencement of phase one by six months, due to the arrival of the COVID 19 pandemic on the continent similarly pushed the start of phase two negotiations by six months as well.

Now, however, the negotiations for the adoption of the Phase II Protocols of the African Continental Free Trade Area (AfCFTA) have started. They will cover investment, intellectual property rights and competition policy. (E-commerce will be added during a third Phase.) It is not yet known in terms of what modalities they will be negotiated, but they must add important building blocks to the AfCFTA’s scheme of things, despite each covering a specific discipline. They are pieces in the puzzle for continental integration and for boosting trade.

As of yet, the negotiations are still being kept under a close wrap. But importantly it has been decided to keep them as loose as possible enabling member states to retain as much sovereignty as possible with regards to their individual stances on direct foreign investment. This will make Ghana’s task of balancing its own FDI objectives with the tenets of the continental free market to which it belongs all the easier.

The negotiations on an AfCFTA Investment Protocol provide an opportunity to adopt an instrument suitable for Africa’s needs. Far-reaching changes in the industrialisation landscape, new technological developments, the consequences of Covid 19, and the fact that individual African States are keen to promote their own countries as attractive destinations for Foreign Direct Investment (FDI), will have to be weighed. African Governments must take note of global economic and political shifts, technological challenges and opportunities. Some are contemplating comprehensive bilateral trade agreements with external parties such as the United States the European Union and the United Kingdom in which investment will be an important aspect. For instance, Ghana is already a party of an Economic Partnership Agreement between ECOWAS and the European Union. This could lead to a new era of engagement with outside partners via tailored agreements; outside the multilateral context of the World Trade Organisation (WTO).

The facts are that the AfCFTA is a member-driven arrangement, that provisions in the AfCFTA Agreement indicate that a cooperation model is envisaged for investment, and that difficult national choices about policy space and unique domestic needs are part of the process of adopting this Protocol.

International investment agreements (IIAs) are international legal instruments that address issues relevant to cross-border investments, usually for the purpose of protecting, promoting, and liberalizing investments. Members accept legal obligations to adhere to specific standards on the treatment of foreign investments within their territory.

Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter. IIAs further define procedures for the resolution of disputes should these commitments not be met. The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential Trade and Investment Agreements. Investment facilitation has become part of new IIAs. This important aspect refers to the governance side of attracting and regulating investments and the activities of investors. This must be done in a manner that will provide for legal certainty and for remedies where needed. Due process rules must be respected. This development flows from a growing consensus that host governments need the domestic laws and procedures to ensure legitimate public interest goals are advanced and protected. Investment facilitation includes measures necessary to deal with sustainable development, the protection of the environment and of labour standards.

Ultimately IIAs are about advancing the joint efforts of the member countries to promote welfare, development, and prosperity at home and within the regional trade arrangements to which they belong. How will the AfCFTA Investment Protocol promote this important aspect?

The Investment Protocol of the AfCFTA will be an IIA of a specific kind. It will have unique features and will be implemented in the manner foreseen under the broader AfCFTA design.

This will be a cooperation agreement. It means the member states will decide on the domestic enforcement and they will retain national regulatory powers. This is a prominent feature of the AfCFTA. The AfCFTA Protocol on Services, for example, confirms “the right of State Parties to regulate in pursuit of national policy objectives, and to introduce new regulations, on the supply of services, within their territories, in order to meet legitimate national policy objectives, including competitiveness, consumer protection and overall sustainable development….”

Under the AfCFTA design only the member states (AU member States that have ratified the AfCFTA Agreement and for whom it has entered into force) will have rights and duties and only they will be able to bring disputes under the AfCFTA Dispute Settlement Protocol when provisions in this Protocol are violated. Since most investments will come from private investors in third countries, there will have to be provisions on how individual member states shall protect the rights of such investors under their national legal systems.

All the AfCFTA member nations need resources and must attract FDI. The AfCFTA Investment Protocol will not change the fact that individual Governments will continue to compete for FDI and will offer different kinds of investment incentives. The AfCFTA is a member-driven arrangement and will not have supra-national institutions. The member states will retain their national investment laws and institutions and will determine the rules on domestic incorporation of foreign firms and investors. It is likely that the definition of an “investor” will refer to enterprises governed by the laws of individual State Parties, as is typically done.

And there will be additional investment agreements. Many of the AfCFTA State Parties have concluded investment treaties with third parties. Some are contemplating new ones. For instance in 2020 Kenya announced that it will negotiate bilateral trade deals the United States and the United Kingdom, in which investment will be an important component.

The AfCFTA member countries will belong to different types of investment treaties with different partners within and outside Africa. They will continue to implement their national investment laws too. This multi-layer of investment-related obligations should not pose too much of a theoretical problem when it comes to implementation. However, the practicalities will be more challenging. Investors will have to do their homework.

The AfCFTA Investment Protocol will therefore not constitute one single regime for the African continent and investors will not be able to make all their investment decisions under the rules of this Protocol. Investment decisions are sector specific. Decisions about investing in mining operations are very different from investing in banking or the production of automobiles. Investors will be guided by market access opportunities, the level of regional integration and membership profiles of host countries (to what other RECs do they belong?) and by what exists elsewhere in terms of commercial opportunities.

The AfCFTA Investment Protocol may have one specific new effect: All the member states will in future share at least one common investment instrument. Whether this will result in attracting investments to more sectors and countries will depend on what this Protocol will provide for. If it is predominantly about how national investment regimes will continue and how member countries will cooperate (or not cooperate) about investment issues, the AfCFTA Investment Protocol cannot be a game changer.

The legal regimes of the eight Regional Economic Communities (RECs) recognised by the AfCFTA Agreement – including ECOWAS of which Ghana is a member – as building blocks of the African Continental Free Trade Area will not disappear when the AfCFTA is implemented. These arrangements are founded on legal instruments for the promotion of their own integration agendas. Investment regulation and facilitation in Africa will, to the extent provided for, also be governed by the relevant REC arrangements. Investment may, in addition, also be governed by the national legislation (regarding matters such as incorporation and regulation) of the member states of the RECS. This is and will be the case where REC instruments allow for cooperation on investment among the relevant Member States.

This has implications for Ghana in that it will still have to reconcile its investment code with that of ECOWAS, the emergent AfCFTA protocols notwithstanding as the latter are being designed to supplement rather than replace the former.’

The RECs are at different levels of integration. It means that an assessment of the regional legal regime of each such REC needs to be made in order to form a final picture of how and by what legal instruments Foreign Direct Investment (FDI) will be governed in specific configurations. The effect of overlapping membership must also be considered. Most African states belong to more than one REC or regional trade arrangement. For instance several members of the East African Community (EAC) are members of the Common Market for Eastern and Southern Africa (COMESA). Overlapping membership may increase the number of potentially relevant investment regimes. These complications will be tackled and tidied up at some future point when the jurisdictional issues pertaining to the advancement of the goals of the AfCFTA will have to be clarified.

The jurisdictional implications of each investment choice need to be analysed. This will have to take note of ongoing and future developments. The AfCFTA Protocol on Trade in Services for example provides that “… two or more State Parties may conduct negotiations and agree to liberalise trade in services for specific sectors or sub-sectors in accordance with the objectives in this Protocol. Other State Parties shall be afforded opportunity to negotiate the preferences granted therein on a reciprocal basis”.

Investors incorporated in a particular REC member state would obviously want to use the wider market access opportunities made possible as a result of the integration agendas of the RECs as well as the AfCFTA, once fully operational. One of the AfCFTA’s potential benefits is the fact that all the AfCFTA State Parties will eventually belong to a continent-wide regime for trade in goods and services, as well as cooperation in investment, competition, intellectual property rights and other disciplines (e.g., e-commerce) to be added in a third and subsequent phases of AfCFTA negotiations. However, even in these relationships there will be layers of investment regimes stemming from agreements with third parties and from national laws. The AfCFTA is a member-driven arrangement in which the State Parties will retain the right and flexibility “… to regulate within their territories … to achieve legitimate policy objectives in areas including public health, safety, environment, public morals and the promotion and protection of cultural diversity”.

New trade and investment agreements with third parties (Kenya has e.g., announced that it will negotiate such agreements with the United States and the United Kingdom) will introduce a whole new challenge to ensure jurisdictional clarity and effective implementation. Thus in some ways the AfCFTA, despite being aimed at promoting continental integration, will complicate matters.

Interestingly, for now Ghana appears more interested in seeing how it can fit its own national investment code into the emergent AfCFTA investment protocols than in taking the lead in the negotiation of the latter. Here the strategy is based on retaining bits competitiveness in attracting foreign direct investment, against alternative destinations in Africa.

Start of trading under the AfCFTA Agreement began on 1 January 2021, in line with a Decision and Declaration adopted during the 13th Extraordinary Session of the Assembly of the Union on 5 December 2021.