Africa is keen to change terms of engagement with investors

THERE is no evidence to prove bilateral investment treaties signed by African countries have made them more attractive to foreign direct investment, despite it being the main reason to sign them.

The private sector tends to be the main beneficiary of treaties, with governments weakened by a lack of negotiating capacity.

These are among the findings of an Economic Commission for Africa report looking at issues about, and the consequences of, investment policies and bilateral investment treaties. The report was launched at the African Development Week in Addis Ababa. The decision to do the research was based partly on pressure from SA, which has terminated its bilateral investment treaties, replacing them with legislation that makes the government the guarantor of investments in the country.

SA came under fire from many of its key trading partners for the move but, going by the discussion at the report’s launch a fortnight ago, held under the auspices of the commission and African Union, there is wide support in Africa for a change in the terms of engagement with international investors.

Africans have, over many years, used these treaties to attract investors to opportunities in their countries in a move to counter perceptions of the risk they faced in these markets.
Collectively, Africa has the highest number of such treaties globally — more than 1,000 — mostly with non-African nations.

But the report suggests that Africa has been short-changed, exploited by more developed countries that have been able to influence bilateral terms of engagement by allowing their high-powered and experienced legal teams to outmanoeuvre their less experienced African counterparts easily.

One outcome is that investor disputes are generally heard in international — rather than local — courts or tribunals, which have tended to find in favour of investors.

It has come at a high financial cost for defending governments. More than 100 investment disputes have been lodged in the past few decades, with Egypt the respondent in the highest number of cases.

The texts of these treaties are often ambiguous and tend to reflect developed country rather than African priorities, the report maintains. Critics of thee treaties argued in Addis Ababa that the array of treaties tends to provide loopholes for the type of corporate behaviour that leads to illicit financial outflows, a subject also being probed by the commission and the African Union.

Many such treaties, which typically have a tenure of 25 years, were negotiated at a different time in Africa’s development and priorities have changed, but countries remain locked into terms that reflect a different era, the report reads.
The commission has a number of recommendations about how to tackle the problem of uneven and unfavourable investment treaties. They include building regional models, finding a way to leverage international negotiating capacity and bolstering pan-African legal bodies to deal with dispute settlement.

Investors would argue that these treaties might be less important if policy makers attended to the many issues that make African countries less attractive to investment. These include unpredictable regulatory frameworks and application, unduly difficult and costly operating environments, complicated and onerous tax systems, and the fact that many justice systems are inefficient and vulnerable to political pressure.

“Demonising” the private sector, as some of these discussions do, certainly does not help investor confidence. Increasingly, business leaders inside and outside Africa understand the need for African countries to align investment incentives to development. They are not mutually exclusive concepts.

The need for investment continues to be important to African governments. But there is a shift in thinking at the top levels of continental policy that is highlighting issues related to the private sector.

It would probably be foolish for investors to ignore it.source : http://www.bdlive.co.za/