Black Affairs, Africa and Development

Navigating risk in Africa: Treaties, courts and arbitration

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Geopolitical risk is never far from the surface in discussions around investment in Africa. For companies seeking to balance risks, understanding the legal mechanisms and potential hurdles investors may encounter will be vital to navigating their expansion plans in the region.

In a new report from insurer Aon, which maps changing geopolitical risks that affect businesses operating in emerging markets year on year, the highest concentration of risk in 2015 was found on the African continent. However Africa, as one might expect from a vastly diverse continent, includes countries ranging right across the risk spectrum.

The impacts of low commodities prices for resource-driven economies and security threats, particularly from non-state actors such Boko Haram in Nigeria and Al Shabaab in Somalia, emerged as key trends.

Similar challenges concern emerging markets across the globe. Africa is certainly no exception. However despite these challenges, companies in Europe, the Americas and in the East – Japan and China in particular – are unlikely to want to put the brake on their growth plans for the region.

As a result, companies looking to invest and develop their operations in Africa require a clear approach to the management and mitigation of risk. A sound strategy for the avoidance of disputes, and for their swift, effective and final resolution when they do arise, will be key.

International arbitration

International arbitration permits investors to ensure that their disputes are adjudicated by a tribunal under the laws of a chosen jurisdiction, unconnected with the location of the investment.

It also allows for investors to conduct proceedings under tried and tested procedural rules, and with the supervision of the courts of the “seat” of the arbitration, which can be selected on the basis of a record of independence and support for (and non-interference in) the arbitral process. By providing for international arbitration, investors can introduce a measure of predictability into the inherently uncertain landscape of a dispute in an unfamiliar territory.

These processes may allay some of the concerns commonly voiced about domestic courts in some African jurisdictions, including case backlogs and delays, lack of judicial familiarity with complex cross-border transactions and worries that the “home” party may be favoured at the expense of the investor.

A further crucial benefit of international arbitration is the international enforceability of an arbitral award through the 1958 New York Convention (to which some 30 African countries are party). As a result, the process of arbitration on investments in Africa can end up having little to do with the continent itself. In many cases, investment contracts provide for a foreign seat of arbitration, stipulate an administering institution (such as the International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA)) from outside the continent and apply a substantive law from an overseas jurisdiction. In addition to this, foreign parties will often seek to enforce awards in jurisdictions outside Africa, provided that assets can be found.

An emerging trend among African governments, sometimes in response to public disquiet about international arbitral awards which have been unfavourable, is to insist that contracts with overseas investors are subject to locally-seated arbitration under local laws. Tanzania is a case in point. Coupled with the fact that to enforce an arbitral award the prevailing party must look to where the assets are located – which may well be on the continent – serves to highlight the importance of understanding the African legal and arbitration landscape.

Local arbitration centres

In recent years, a small but growing number of arbitration centres have been established within Africa. Prominent among these is the LCIA-MIAC Arbitration Centre in Mauritius. The centre reflects efforts by the Mauritian Government to capitalise on that country’s strategic position between Africa and Asia (culturally, as well as geographically) and to develop a regional investment and arbitration hub.

In central Africa, Rwanda’s Kigali International Arbitration Centre has also attracted attention, and a growing caseload. To the north, the Cairo Regional Centre for International Commercial Arbitration provides support for arbitrations in relation to the significant investment flows passing into Africa from the Middle East.

Investment treaties

Bilateral and multilateral investment treaties typically provide protections for investors against matters such as the expropriation of assets, denial of justice or discrimination. The countries of Africa are party to many bilateral investment treaties (“BITs”) – indeed every African country is party to at least one.

The exact protections offered and the investors and/or investments which qualify for protection will depend on the terms of the particular treaty. Protection is also dependent on ensuring that there is a valid and current BIT in place between the investor’s country of origin and the host state of the investment. Accordingly, an important consideration may be to ensure that that an investment is appropriately structured, perhaps routed through a third territory, in order to ensure that it benefits from the most appropriate treaty protection.

A BIT can provide an investor with a valuable negotiating tool. BITs typically provide for the arbitration of disputes before the International Centre for Investment Disputes (ICSID), and awards, once made, tend to be complied with.

A recent development that is causing some disquiet among investors is South Africa’s recent termination of a number of its BITs with European states. The new South African Investment Promotion and Protection Bill serves to limit recourse to investor-state arbitration. It remains to be seen whether this course will be followed by other African countries.

As Aon’s map aptly illustrates, the African landscape presents a mosaic of risk and opportunity. By controlling the former, the investor will be best placed to avail itself of the latter. Accordingly, an investor cannot afford to ignore the importance of the options, considerations and developments in dispute resolution as a key part of its overall risk management strategy.

Kwadwo Sarkodie is a partner at international law firm Mayer Brown

http://www.thisisafricaonline.com/Business/Navigating-risk-in-Africa-Treaties-courts-and-arbitration

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