The Agreement establishing the African Continental Free Trade Area: Will it spur foreign direct investment in Africa?

• Jurisdiction: South Africa
• Citation: 2018 Acta Juridica 43
• Pages: 43-73
• Published date: 19 December 2019
• Author: Forere, M.A.
• Date: 19 December 2019

43

The Agreement establishing the African

Continental Free Trade Area: Will it

spur foreign direct investment in Africa?

MALEBAKENG AGNES FORERE*

This essay analyses the potential impact of the AfCFTA and in particular

the envisaged investment protocol to the African Continental Free

Trade Agreement on investment ows. Since the investment protocol

has not yet been drafted, the rst task of the essay is to determine the

potential standards of investment liberalisation and protection, using

the regional economic communities (RECs) and the national laws

of the two major economies in Africa – Nigeria and South Africa.

This is because the investment protocol cannot fall too far away from

the position that African countries have adopted in their respective

RECs and the national laws of the most inuential countries in Africa.

The essay nds that the investment protocol will not be anything

other than the international standards, as modied to respond to

challenges in international investment regulation. It is then argued

that the investment protocol will nonetheless improve investment in

Africa and South Africa by creating policy certainty and increasing the

market size. However, the author cautions that greater benets can be

realised if African countries diversify their economies and participate

signicantly in global value chains.

I INTRODUCTION

In the quest to improve continental integration in Africa, the

African Union adopted the Agreement establishing the African

Continental Free Trade Area (AfCFTA), which seeks to create a

continental customs union through the incremental liberalisation

of markets. With this ultimate objective in mind, the AfCFTA seeks

cooperation in the areas of trade in goods and services, competition,

investment and intellectual property.1 While there are many aspects

of cooperation, this essay focuses only on investment, particularly

* BA Law LLB (Lesotho) LLM (Essex) PhD (Bern); Associate Professor, School

of Law, University of the Witwatersrand.

1 Article 4 of the Agreement establishing the African Continental Free Trade

Area, signed 21 March 2018 at Kigali.

2018 Acta Juridica 43

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44 FOREIGN DIRECT INVESTMENT AND THE LAW

engaging in a discussion on the likely impact of the AfCFTA on

foreign direct investment (FDI) in the continent and South Africa

in particular. Since the protocol on investment has not been adopted

yet, section II of this essay will focus on the likely provisions of

the proposed AfCFTA investment protocol, while section III will

focus on whether the investment protocol will encourage FDI

in the continent and South Africa. As international treaties are

concluded for good reasons, section IV will focus on identifying

the beneciaries of the investment protocol to the AfCFTA. Since

FDI is known to create fertile ground for foreign interference in

the host country,2 section V will focus on AfCFTA investment

cooperation and its potential for promoting the rule of law. Section

VI will conclude this essay.

II THE POTENTIAL STANDARDS OF LIBERALISATION

AND PROTECTION OF THE INVESTMENT

COOPERATION AGREEMENT

As indicated in the introduction, the investment protocol to the

AfCFTA has not yet been adopted and its provisions are therefore

unknown. To understand the potential impact that the investment

protocol will have on FDI inows in the continent and in South

Africa in particular, we need to start by mapping out the potential

provisions of the envisaged protocol. This section will start with

a brief description of the international approach to investment

regulation, as background information, to determine whether

African countries will provide better standards than the ones that are

currently in place in order to encourage FDI. Next, this section will

look at the current political economy of FDI regulation in Africa,

because this should shed some light on the future provisions of

the investment protocol. Having provided a brief description of the

international standards of investment protection and liberalisation,

as well as a discussion of the political economy of FDI regulation

in Africa, this section will then map out the potential provisions of

the investment protocol to determine if these will encourage FDI

in Africa or not.

2 H Deng, L Higgs & V Chan ‘Redening transnational corporations’ (2009) 1

Transnational Corporations R 69-80.

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