African Bilateral Investment Treaties Under Pressure for Reform
Recent reports indicate that the United Nations Conference on Trade and Development (UNCTAD) has released its 2024 African Economic Development Report, highlighting the outdated and imbalanced provisions of bilateral investment treaties (BITs) signed by African nations. The report warns that these agreements could threaten regulatory sovereignty and fiscal stability, prompting experts to call for an urgent modernization of BITs to mitigate potential economic and sovereignty crises.
As of the end of 2024, approximately 20 out of Africa's 54 countries had signed BITs, totaling 1,050 treaties, of which 556 are in force (about 53%). Most of these agreements were signed between the 1960s and 1990s. The top three countries in terms of active BITs are:
1. Egypt (100 signed, 72 in force)
2. Morocco (76 signed, 51 in force)
3. Tunisia (55 signed, 39 in force)
Other nations, including Algeria, Mauritius, and South Africa, also rank among the top ten signatories.
BITs were originally designed to reduce investment risks and attract foreign capital. However, shifting global economic and geopolitical landscapes have rendered many BITs incompatible with contemporary sustainability goals and regulatory sovereignty. Several African nations now face costly litigation risks due to imbalanced treaty terms. For instance:
1. Egypt may face legal claims if political or economic reforms - such as adjustments to energy sector contracts - affect foreign investors' interests.
2. Morocco risks litigation if its renewable energy transition impacts oil and gas investors.
3.Resource-dependent countries like Algeria and Nigeria are particularly vulnerable. If commodity price fluctuations force these governments to adjust taxation policies or nationalize assets, BIT arbitration mechanisms could be triggered.
Moreover, UNCTAD warns that inadequate tax exemption policies could facilitate tax evasion and profit shifting, further escalating legal risks.
Key Issues with Africa's Current BITs
UNCTAD's report identifies three major shortcomings in Africa's existing BIT framework:
1. Regulatory Imbalance
BITs primarily protect foreign investors while lacking reciprocal obligations, such as technology transfer, sustainable employment, or environmental standards.
This reinforces a foreign-dominated extractive economic model, which does not align with Africa's long-term development needs.
2. Unfair Investor-State Dispute Settlement (ISDS) Mechanism
Lack of transparency in arbitration procedures allows corporations to exploit vague provisions, such as “fair and equitable treatment”, to challenge host nations' tax, environmental, and social policy reforms.
3. Lack of Crisis Flexibility
With 50% of Africa's energy supply still dependent on fossil fuels, BITs limit governments' ability to respond to climate and health crises effectively.
Africa's Push for BIT Reform
Despite these challenges, African nations are actively working towards BIT modernization.
1. The African Continental Free Trade Area (AfCFTA) Investment Protocol, adopted in 2023, recognizes governments' rights to regulate in the public health, climate action, and social welfare sectors.
2. The protocol restricts ISDS abuses and requires investors to commit to sustainable development obligations.
3. For dispute resolution, it adopts a WTO-inspired model, offering mediation and independent expert arbitration as alternatives to the traditional ISDS system.
Additionally, South Africa has already annulled 13 BITs, opting instead to handle investment disputes through domestic courts.
UNCTAD believes that regional economic integration will help attract long-term investment and reduce dependence on the outdated, short-term extractive industry model. With AfCFTA accelerating Africa's trade growth, BIT reform has become an urgent priority.