The Legal Protection of International Investments in Eastern and Southern Africa – Lessons From Case

International direct investments can promote sustainable economic developmentThe legal protection of international foreign investments by states is one key instrument and a very important mechanism to ensure the sustainable economic development in African countries. It is one complex issue of Public International Law domain, especially when it comes to specific measures adopted by states at the level of the national legal frameworks.The legal, business and economic environment for FDI in Eastern and Southern Africa (ESA) and the protection of international foreign investments is regulated at various levels, by international agreements / treaties, regional agreements and national codes or legislation. The domestication of international agreements / treaties as well as regional agreements into national legal systems and their subsequent enforcement by individual states requires specific procedures of ratification and implementation.The UN Conference on Trade and Development (UNCTAD) describes investment agreements as “the most important protection of international foreign investment.” They are creating more rights and powers for foreign investors – particularly the transnational corporations. In many African countries, the implementation of international and regional instruments is not as effective as one would expect. The causes of this hiatus are to be traced in various structural and institutional structures inherent to national legal systems in these countries.The topic under investigation relates to the state of effective legal protection of international investments in Eastern and Southern African countries, mainly within two regional blocs; i.e. SADC and COMESA. This article is the summary of a study conducted within the region, with the objective to identify and analyze international law instruments applicable in the region, as well as the national situation in Mozambique as a specific study case on the domestication and enforcement of international agreements.Africa is working hard to improve its general policy framework for FDI The general policy framework of FDI on the African Continent has improved greatly in recent years, a trend that is continuing in many countries that were not in recent past or are not currently affected by wars. However, the environment for foreign investments protection in Africa is still inadequate to attract high quality and efficiency-seeking investments and the incentive framework continues to suffer from a number of deficiencies. Faced with increased international competition, foreign investors’ global strategies seek to maximize their competitiveness by locating facilities in multiple locations around the world. In this “increasingly globalized” world, attracting foreign investment depends more on the ability to provide a favorable investment protection regime and competitive factors of production.The former requires a stable, efficient, and service-oriented environment that welcomes investors into most economic activities without discrimination. Modern legal and intellectual property rights, effective competition policies, a strong judiciary and minimum bureaucratic harassment are all important to attract foreign investors. The latter are the ultimate determinants of FDI. Competitive factors of production no longer mean just cheap raw labor and basic infrastructures. Today they require adaptable labor skills, sophisticated supplier networks and flexible institutions. Tax incentives can enhance a country’s attractiveness but if other factors are unfavorable, they will be insufficient to significantly increase inflows of FDI.This study argues that African countries in the eastern and southern region have made so far commendable efforts to reform their legal and institutional frameworks for the promotion of investments. However, there still need to take into consideration the requirements for attracting foreign investments. In some instance, as illustrated by the case of Mozambique, investment laws were modernized. But the Investment Protection Centre still need to have the authority required to decide on investments, and need to be empowered and given autonomy. An other issue relates to some outdated regulations which need to be harmonized with the new investment regimes. Legislation on land and ownership of production factors, labour laws, financial procedures, and other administrative barriers are the main key issues which need to be streamlined in order to satisfy international standards for attracting foreign investmentsIn their attempted efforts to attract FDI and determined to benefit from it to the fullest, the countries under review reformed their legal frameworks for a better protection of foreign investments. These changes are currently taking place in an environment characterized by the proliferation of investment rules at the bilateral, sub-regional, regional and multilateral levels. The resulting investment rules, numerous Preferential and Free Trade Agreements with investment components, Bilateral Investment Treaties (BITs) and Multilateral Investment Agreements (MIA) are multi-layered and multi-faceted, with a myriad of obligations differing in geographical scope and coverage and ranging from the voluntary to the binding commitments. They constitute an intricate web of obligations that partly overlap and partly supplement one another. This study is of actual interest for research, as it attempts to review this proliferation of legal frameworks for the protection of international investments in the Southern and Eastern African regions. There is real need to understand the policies, mechanisms developed in this very sensitive area, and to analyze the issues that are raised in the implementation of such intricate frameworks.The policy strategy currently pursued by many Southern African countries is explicitly intended to improve conditions for foreign direct investment (FDI). Over the past two decades many countries have implemented broad ranging economic reforms, including the liberalization of domestic markets and some privatization, which has had an effect on the flow and nature of foreign investment. However, In the past, Africa has, on average, been relatively unsuccessful in attracting FDI in spite of very large increases in global flowsHowever, the general policy framework of FDI on the African Continent has improved greatly in recent years, a trend that is continuing in many countries that are not destroyed by wars. However, the environment for foreign investments protection in Africa is still inadequate to attract high quality and efficiency-seeking investments and the incentive framework continues to suffer from a number of deficiencies. Faced with increased international competition, foreign investors’ global strategies seek to maximize their competitiveness by locating facilities in multiple locations around the world.In this ‘increasingly globalized’ world, attracting foreign investment depends more on the ability to provide a favorable investment protection regime and competitive factors of production. The former requires a stable, efficient, and service-oriented environment that welcomes investors into most economic activities without discrimination. Modern legal and intellectual property rights, effective competition policies, a strong judiciary and minimum bureaucratic harassment are all important to attract foreign investors. The latter are the ultimate determinants of FDI. Competitive factors of production no longer mean just cheap raw labor and basic infrastructures.Today they require adaptable labor skills, sophisticated supplier networks and flexible institutions. Tax incentives can enhance a country’s attractiveness but if other factors are unfavorable, they will be insufficient to significantly increase inflows of FDI.Experiences in Eastern and Southern Africa for FDI protection are changing rapidlyMany countries of the Eastern and Southern African region, mainly through their respective Economic Integration Organizations, have adopted adequate legal environment to attract foreign investments. Legal guarantees and protections for foreign investments are generally contained in the national Constitutions and in specific Investments laws. In a broad legal framework, the Governments assure investors security of title and guarantees that investment in the country will not be expropriated. There are also statutory guarantees for contract enforcement, recourse to legal systems for redress and binding arbitration conclusions. These are all part of a well-established legal system whose independence and integrity continue to be guaranteed by the national Constitution.The level of investment protection is generally measured on the basis of criteria related to: the standard of treatment of investment (MFN and National treatment principles), the performance requirements, expropriation and nationalization regime and dispute settlement laws.
The commitment to sound and consistent macroeconomic polices, constitutional guarantees against expropriation of investment and for protection of investment are clearly outlined in the Constitution and the national investment laws and regional strategic orientation documents. Since developed countries and international development agencies have emphasized the need for democratization as a determinant criteria for attributing funds to African countries, there are new trends and strategic approaches of attracting foreign funds, under the logic of good governance and transparency.In general, legal protection of foreign investments covers the following key aspects:(a) Discrimination in treatment of foreign investments.(b) Expropriation requirements for foreign investments.According to the new trends in investment regimes, constitutional provisions and investment codes adopted a general legal framework for investment policy in the countries under review. These trends can be summarized in the following important guarantees:(i)Liberal, free market economic environment together with appropriate political and social policy and pro gram framework;(ii) Adherence to the principles of democratic governance, constitutional guarantee of rights to freedom and liberty, welfare, property ownership and protection. In this regard, the countries are constitutionally obliged to encourage, promote and protect beneficial investment as the enabler of socioeconomic change and progress.(iii) Full integration into the wider global economy through regional organizations membership of and adherence to charters and principles of and a host of bilateral trade agreements among others. These testify to these countries resolve at participation and integration in the global economy.(iv) Articulation of policies and strategies to make trade and investment development a gateway to regional and the larger African continental market.(v) Conducive legal and institutional framework with more open laws that support and encourage free circulation of goods and persons, including modern labor laws.The principles above highlighted are however more often on the papers than really implemented in practice. The framework of regional cooperation is becoming a more compelling channel for the improving of national laws and policies.During the lat two decades, the overwhelming experience in many Eastern and Southern African countries is of poor investment environment. African countries in general, have not offered foreign investors the kind of investment climate that they find attractive. For a number of years, some African governments were very suspicious of foreign investors. In very recent years, many African countries have reformed their policies toward foreign investors. Some have also acted to reduce the administrative barriers that have so commonly remained long after policies were reformed. Yet, the reforms have not led to the increased inflows of foreign investment that were anticipated and needed.Part of the explanation derives from the fact that investors often are ill informed about the changes that have occurred in countries whose investment climates were once inhospitable. Another part of the explanation lies in the tendency of many investors to think of Africa, or at least parts of Africa, as facing similar problems, even those problems that may in fact be quite localized. Thus, war, civil disturbances, collapsed regimes, as well as continuing bureaucratic barriers and remaining inhospitable policies toward investors affect the reputation of neighboring countries, as well as the country experiencing the problemsExperience in African countries has demonstrated that creating an enabling environment for investment requires finding solutions to constraints, which include, among others:-unstable macro-economic framework or conditions; inadequate infrastructure; inappropriate banking and financial systems and regulatory and supervision legal and institutional frameworks;-inadequate resource mobilization and allocation mechanisms; lack of or limited information; socio-economic problems;-unstable political and social environment; cumbersome legislation and procedures, rules and regulations etc.;-lack of specialized or some legislation and procedures;-skilled human resources;-market size, debt burden and balance of payments problems; ineffective and inefficient institutional framework, set-up or delivery; etc.An enabling environment for foreign investment should include:-stable macro-economic environment , good and reliable infrastructure , law and order; secure property rights; enforceable contracts; a functional financial system; market determined prices – including the exchange rate and interest rates; etc.The legal and institutional frameworks are not sufficient to guarantee a flow of foreign investments in the Eastern and Southern African region. Other key factors are equally importantConclusionIn its final conclusion, the study finds that over two decades, countries in the Eastern and Southern African region have made considerable efforts to create adequate legal and regulatory frameworks for the protection of foreign direct investments. However there remain serious impediments which still affect negatively the flow of foreign investments. Inconsistent policies and inadequate host country operational measures HCOMs, together with outdated labour laws are some of the challenges which call for more reforms.It further reaches the conclusion that there is need for awareness within the governments in the region on key issues related to the promotion and protection of investments. It can be formulated as follows: foreign investors want to gain market access, have their investments protected and be free to operate in a manner of their choosing. Host countries want to develop services and infrastructure, meet local needs, produce exportable goods and improve locally available technology.The interest of foreign investors and host governments can be harmonized if the investment meets both sets of agendas. This can be done if investors decide on the viability of specific projects and the host governments decide on the priority sectors and conditions of FDI consistent with their economic and development objectives.As in the case of Mauritius, this should be a credible development programme backed by credible policy framework conducive to long-term economic and social stability. With such policies, the countries are more likely to have the capacity over time to service the repatriation of profits, provide a skilled and healthy labour force, and develop suitable infrastructure.Part of this credible programme should cover the need for convergent bilateral and multilateral investment and trading arrangements in the COMESA and SADC regions to avoid trade and investment deflection and diversion. This should also go along way towards removing administrative and fiscal barriers to the promotion of investments. There is also need to adopt appropriate legal, regulatory and institutional frameworks to ensure efficient and smooth implementation of the Work Programme.