Indaba 2025: Treaty Protections for Resource Investments in Africa24 January 2025

The importance of Foreign Investment

Foreign investment is an important driver of economic growth, especially for many African States where it can play a pivotal role in the development of domestic mineral resources. In recognition of the value of foreign investment, in February 2023 the African Union (“AU”) adopted the Protocol on Investment under the Agreement Establishing the African Continental Free Trade Area (“the AfCFTA Protocol”) to facilitate and protect investment between its parties. For other, non-AU, investors, there are also a range of bilateral investment treaties (“BITs”) and free trade agreements (“FTAs”) that are useful tools to mitigate sovereign risk and encourage capital investment.

This Insight article examines the AfCFTA Protocol and explains what it offers to intra-African investors. It then explains the broader range of treaties potentially available to protect foreign investors from outside of Africa and provides examples of how these treaties have been used by investors in the resources sector. Understanding how to access these protections is critical for any foreign owned resource project in Africa and should be a key consideration at an early stage of any project.

The African Continental Free Trade Area’s Protocol on Investment

The AfCFTA Protocol aims to facilitate and protect intra-African investment and align regulatory strategies by building upon existing policies and best practices that apply within its parties. It is intended to replace the current 156 BITs that are in force between the AfCFTA Protocol’s parties, which Article 49(1) requires each party to terminate within five years of the AfCFTA Protocol entering into force.

While finalising an investment agreement between all of the AU Member States is a momentous achievement, the AfCFTA Protocol contains a range of limitations as compared to traditional BITs and FTAs that will likely limit its impact, including:

• replacing the broadly understood concept of fair and equitable treatment (“FET”) with a narrower “Administrative and Judicial Treatment” provision that only obliges States to not deny justice in legal proceedings or allow for denials of due process, manifest arbitrariness, discrimination or abusive treatment in administrative or judicial proceedings;
• limiting the obligation to provide full protection and security to “physical” protection and making this “subject to [each State’s] capabilities”;
• containing significant limitations on the non-discrimination obligations contained in the National Treatment and Most-Favoured Nation provisions; and
• narrowing the right to compensation for expropriation.

The AfCFTA Protocol itself also does not contain investor-state dispute settlement – a key mechanism in many BITs and FTAs that enables private investors to directly enforce treaty protections against their host State. While Article 46(2) and (3) of the AfCFTA Protocol does require the parties to negotiate an Annex to govern disputes between investors and States, this is not due to be finalised until 12 months after the entry into force of the AfCFTA Protocol. An early draft of the Annex did allow for recourse to international arbitration by the investor (“Investor-State Dispute Settlement” or “ISDS”), including under the International Centre for Settlement of Investment Disputes and United Nations Commission on International Trade Law arbitration rules. However, it is unclear if binding ISDS will survive through to the final Annex – particularly considering domestic policy developments in some AU Member States in regard to ISDS.

Existing African investment treaties

For investors from outside of Africa, AfCFTA’s benefits are likely to be limited. However, there are still a range of existing BITs and other treaties with investment provisions that apply to foreign investment into key mining jurisdictions within Africa (see Table 1).

To benefit from these treaties, investors need to ensure their investment meets the relevant requirements under each agreement – including but not limited to ensuring that the investment is structured through a country that is party to the relevant treaty. Once these and other requirements are met, these treaties can be useful guarantees against adverse regulatory developments and mitigating political and sovereign risk.

The benefits of investment protections

Past ISDS cases provide useful examples of the ways in which treaty-based investment protections can provide tangible outcomes for investors subject to improper and unlawful treatment by their host State. In the twenty years between 1993 and 2023, UN Trade and Development reported 171 ISDS cases against African States (this likely understates the number of cases and indeed the overall use of these treaty protections). We have previously explored how investment treaties have been used to protect international projects that are put at risk from resource nationalism and windfall taxes. Examining some recent cases arising from investments in Africa in greater detail helps to concretely demonstrate the value that recourse to ISDS can have for foreign investors.

Remedy for unlawful expropriation of retention licence

In Nachingwea U.K. Limited (UK), Ntaka Nickel Holdings Limited (UK) and Nachingwea Nickel Limited (Tanzania) v Tanzania (July 2023) (“Nachingwea”),¹ a United Kingdom investor used ISDS to obtain a remedy for the unlawful expropriation of its retention licenses. It then used that award to settle its claim with the Tanzanian government for US$90m.

This case followed Tanzania’s 2017 amendment of its Mining Act, which resulted in several license areas reverting to the government. This reversion of rights followed years of investment into exploration and investigation within the tenement areas.

The investor in Nachingwea claimed, and the ISDS tribunal agreed, that the forced reversion of its rights to its exploration area amounted to an unlawful expropriation under the United Kingdom-Tanzania BIT. The tribunal found that the actions of the government lacked due process, the purported public purpose for the measures was not sufficiently demonstrated, the measure was discriminatory as it primarily affected foreign investors, and there was no compensation. The tribunal also rejected the State’s defence that the legislative changes were legitimate regulatory measures covered by the ‘police powers’ doctrine. As a result, the tribunal awarded the investor US$76,704,461.76 plus interest from 10 January 2018.

Nachingwea provides a good example of a clear-cut case of expropriation of a foreign investor’s rights and how protections under BITs can be used to obtain damages for such unlawful action.

Remedy for improper treatment

In Unión Fenosa Gas, S.A. v. Arab Republic of Egypt (August 2018) (“Unión Fenosa”),² a Spanish investor used ISDS to obtain a remedy for its improper treatment by the State in breach of expectations it had established based upon representations by the State at the time of the investment. The investor was awarded damages of US$2bn.

The investor in Unión Fenosa established a gas liquefaction plant in Egypt that depended upon the supply of gas. Egypt reduced and then ceased the supply of gas to the plant rendering it inoperable and thus unable to generate any income. Importantly, a ministry of the State had endorsed undertakings provided by a State-owned entity to the investor in a contract, including that the State-owned entity undertook to procure that the authorities would not interfere with the investors’ contractual rights or affect the ability of the investor or the State-owned entity to perform their contractual obligations.

The investor brought a claim under the Egypt-Spain BIT that Egypt had breached its obligation to accord the investor FET. The tribunal agreed, finding that the State had frustrated the investor’s legitimate expectation as grounded in the State’s endorsement of the undertakings provided by the State-owned entity to the investor by ceasing the supply of gas to the liquefaction plant.

This decision is also of interest as the tribunal considered whether alleged corrupt conduct in association with the investment was fatal to the claims made. The tribunal found that while proven corruption would prevent a claim from being heard, in this case the State had not made out its allegations of corruption on the balance of probabilities.

Remedy for unlawful imprisonment

In Mohammed Abdel Raouf Bahgat v Egypt (I) (December 2019) (“Bahgat”),³ a Finnish investor used ISDS to obtain compensation following his improper and unlawful imprisonment in Egypt, freezing of his assets, and cessation of his commercial activities. The investor was awarded over US$115m for the loss of his business and imprisonment.

In Bahgat, the Finnish investor owned an iron ore mine concession and steel production facility in Egypt. The State arrested the investor in 1999 following an allegation that he failed to make certain consortium payments and sentenced him to fifteen years hard labour. This conviction was overturned and he was released from prison in 2003, but was then subjected to a travel ban and asset freezes until 2006.

The investor lodged a claim under two Finland-Egypt BITs as well as Egypt’s domestic investment law, alleging the government’s actions resulted in the cessation of his commercial activities and thus breached protections against expropriation and the guarantee of FET.

The tribunal agreed with the investor. In relation to the claim regarding fair and equitable treatment, the tribunal noted the criminal proceedings brought against the investor were not in accordance with fair trial principles and constituted a denial of justice. It also noted that Egypt’s Supreme State Security Court had itself found that the arrest and detention of the investor was without cause, arbitrary and in bad faith.

This case demonstrates how ISDS can also be a useful protection against serious misconduct directed at individual investors personally, in circumstances where domestic processes may not be sufficient.

Restoration of legal rights

Finally, in von Pezold and others v Zimbabwe (July 2015),⁴ a dual Swiss-German national used ISDS to contest the expropriation of farmland owned in Zimbabwe. The case concerned a complex land dispute that was deeply rooted in Zimbabwe’s changing political landscape in the post-colonial period. The investor owned 78,275 hectares of farmland that was expropriated without compensation as part of Zimbabwe’s land reforms in the early 2000s. Zimbabwe conceded that its actions constituted expropriation, but argued the expropriation was lawful and for a public purpose. The tribunal disagreed, finding that the expropriation was unlawful, discriminatory and lacked due process, and also finding that Zimbabwe had breached FET and other protections in Zimbabwe’s BITs with Switzerland and Germany.

This case is of interest as, in ordering a remedy for Zimbabwe’s unlawful expropriation, the tribunal ordered Zimbabwe to make restitution to the investors by reissuing to them the title for the property that had been seized in addition to an amount of compensation for damages suffered including moral damages. The tribunal’s order also specified that if the restitution was not made in full within 120 days of the award, the State would be required to pay additional compensation.

Restitution is a relatively uncommon remedy in international investment disputes. Restitution may only be awarded where it is materially possible (i.e. the property in question is not destroyed or fundamentally changed) and where it does not impose a disproportionate burden on the respondent State. In practice, arbitral tribunals considering a request for restitution are careful not to interfere with the State’s sovereign powers, especially in cases where restitution may imply an obligation of the respondent State to annul or enact legislation. Investors themselves also tend to primarily request monetary compensation given the relative ease of enforcing such awards. At the same time, restitution can be useful where an investor wishes to continue operating its project within a country rather than merely be compensated for their loss. For example, a resource investor could request restitution in the form of an order for specific performance requiring the State to reissue an exploration or exploitation licence. ISDS can thus provide a range of remedies beyond just monetary compensation for loss and damages.

Conclusion

The examples examined in this Insight show the breadth of ways in which foreign investors in Africa can use ISDS to protect their investments and their interests. This includes unexpected and unfair regulatory developments, direct interference with their investments, or personal targeting. It also provides concrete remedies whether it is monetary compensation or orders to restore legal rights. The potential recourse to ISDS, even if not actually used, can also play an important role in negotiations with governments when facing adverse regulatory action.

While the AfCFTA Protocol may not be directly applicable to the activities of most foreign investors in Africa, there are several other treaties that still apply in many African jurisdictions. Giving due consideration to the protections that are available to an investment is therefore critical, preferably at an early stage of any project, when it is easier to ensure the investment will be able to access investment protections (under BITs, FTAs, domestic laws, or contractual arrangements). Securing such protections also helps support the raising of capital, by reducing uncertainty and mitigating against political and sovereign risk.

[1] Nachingwea U.K. Limited, Ntaka Nickel Holdings Limited and Nachingwea Nickel Limited v. United Republic of Tanzania, ICSID Case No. ARB/20/38, Award, 14 July 2023.
[2] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, 31 August 2018.
[3] Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt (I), PCA Case No. 2012-07, Final Award, 23 December 2019.
[4] Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015.