Facilitating and protecting sustainable investments: the G20 Compact with Africa

On 20 November 2023, the 5^th G20 Compact with Africa (CwA) and the 4^th G20 Investment Summit took place in Berlin. The CwA was launched in 2017 under the German G20 Presidency and aims to increase private investments in African states by improving (i) macroeconomics, (ii) the local business environment and (iii) the financing framework. There are currently 13 African “Compact Countries”: Benin, Burkina Faso, Côte d’Ivoire, Democratic Republic of the Congo, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia. Other African countries attended the conferences as guests: Angola, Nigeria, Kenya and Zambia. The CwA is supported, among others, by the International Monetary Fund, the World Bank Group, and the African Development Bank Group.

Improving foreign investment and economic development

The potential for investment in African states is substantial. Many sectors require considerable investments to improve infrastructure and for industrialisation, but the CwA underlines the importance of this being sustainable investment targeting UN Sustainable Development Goals. At the CwA, Germany pledged 4bn euros of investments in African green energy projects by 2030. This is in line with the EU’s Africa strategy for 2030, which includes the conclusion of investment facilitation agreements (such as the EU-Angola Sustainable Investment Facilitation Agreement, SIFA) to improve transparency and predictability of local rules and administrative practice to attract foreign investment.

Furthermore, African states have a large and still growing young population that needs education and job opportunities. The CwA Monitoring Reports have been emphasising the importance of entrepreneurship to boost economic development, building on the strong entrepreneurial spirit present across the continent. There is a growing number of tech-start-ups in Africa, with 11 unicorns, mostly in the fintech sector. Local companies could profit from foreign partners to enable or leverage their growth. 

Despite these opportunities, there is room for improvement in investments from European – especially German – companies in African states. This coincides with increased interest in the African continent, and not just in Compact Countries. German companies have a lot to offer but also to gain and the 4^th G20 Investment Summit in Berlin (organized by the Sub-Saharan Initiative of German Business (SAFRI) and supported, among others, by the German-African Business Association) illustrates this. 

Underscoring France’s continued wish to strengthen its economic cooperation with Africa, French President Emmanuel Macron attended the G20 CwA meeting and co-presented, alongside Germany, a joint proposal to strengthen the G20 CwA around three core principles: 

• encouraging further like-minded and reform-oriented African countries to join the CwA, willing to implement private sector-oriented reforms
• reinforcing incentives for African partner countries engaging in business environment reforms, through enhanced financial support as well as strengthened financial offers to African entrepreneurship, by generating synergies and better coordination and efficiency
• providing enhanced technical support for the implementation of reforms through capacity building to help African partner countries conduct those reforms in line with the best international standards.

Although the UK was not represented at the G20 CwA meeting this year, it is set to host a UK-African Investment Summit in London on 23-24 April 2024, a sign of the its desire to maintain and deepen its ties with African states. The Summit will be hosted by Prime Minister Rishi Sunak and bring together Heads of State and Government from 24 African countries (Algeria, Angola, Cameroon, Côte d’Ivoire, Democratic Republic of Congo, Egypt, Ethiopia, Ghana, Kenya, Malawi, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Tanzania, Tunisia, Uganda, and Zambia) with British and African business leaders.

Building on the UK-African Investment Summit 2020 – which marked an important milestone in the UK’s partnership with African countries and announced over GBP6.5 billion of deals, plus a further GBP8.9 billion of investment commitments – the 2024 Summit aims to (i) create jobs and growth, (ii) support African and British talent in sectors such as finance and technology, and (iii) promote female entrepreneurs. 

Improving local business environments

The purpose of the CwA is to increase foreign direct investments into African states. First and foremost, as for every investment, this requires an investment-friendly legal and practical environment in the host state. Improving the investment conditions in African states is a priority for the CwA. 

Given the historical background, the CwA emphasises that “[t]he driving force behind the Compact is African ownership, not Western prescription”. Increased foreign investments should create a win-win situation for the investor and the host states (including local communities). Additionally, improvements to the legal and regulatory framework with the aim of instigating investments may not necessarily only be aimed at foreign investors, but also at local companies that will profit from a better legal and commercial environment.

Existing investment protection framework

A further foundation of foreign investment is a protection by the rule of law. As an export-oriented nation, Germany has been a driving force behind rules on international investment protection. It has signed bilateral investment treaties (BIT) with a number of African states (a list of all BITs is available here), including with 12 of the 13 African Compact Countries. Older treaties concentrate on minimum standards of investment protections, while some more recent treaties also contain arbitration clauses to enforce these protections outside the local courts if needed (eg the BITs with Egypt, Morocco and Ghana).

Many European countries have likewise concluded investment treaties with African states. According to UNCTAD, there are over 300 BITs in force between the two regions. Depending on the legal structure of the investment (i.e. where the investment vehicle is seated), German companies may be able to rely on these additional treaties as well should a protection of their investments be required.

These treaties may in practice be mostly perceived as a one-way route, assuming that a German or European investor is investing in an African state, but it would be a strong-co-benefit if more African investors could also rely on the treaties for their investments in Europe.

For completeness, foreign investments between African states (intra-African investments) are also protected by a number of regional treaties. The newest is the Protocol on Investment, adopted in February 2023 as part of the African Continental Free Trade Area (AfCFTA). This is a modern-type investment protection regime which includes more detailed provisions on the protected investments. These provisions are clearer but also limit the scope of protection for investors while emphasising the host state’s right to regulate, and also require the investor to abide by national and international laws. Nonetheless, the Protocol on Investment protects investments and its emphasis on sustainability and accountability alongside rules on investment facilitation and promotion may improve general acceptance of foreign investments with local communities. German or European investors are not directly protected by the Protocol on Investment, and getting under its umbrella requires substantial business activities in another African state party of the Protocol.  

Managing collaborations with local business partners

The third element of an investment decision, and likely also for a successful investment, is good cooperation with local business partners. Notwithstanding this, disputes may still occur and it is therefore crucial to agree on a suitable dispute-resolution mechanism upfront. Particularly in cross-border and multi-cultural commercial relationships, an arbitration clause may be the best option for both parties, for the following reasons:

• arbitration is inherently international, catering to the different cultures involved (for instance by appointing arbitrators with the relevant backgrounds)
• arbitration is flexible, with arbitrators used to applying different substantive rules of law, or even international standards, and also shape the proceedings to the parties’ needs
• arbitration is well developed, with parties choosing from many well-developed arbitration rules, either from established institutions in Africa or internationally neutral institutions (such as the International Chamber of Commerce)
• arbitration decisions are enforceable, with final decisions by arbitral tribunals enforceable almost globally and thus not only in the home or host state of an investment.

In short, arbitration can provide both protection to foreign investors by giving a sense of (internationally accepted) familiarity and a level playing field for local business partners.

Conclusion: strong potential for future investment

Significant opportunities exist in African states for foreign investors, including German companies, especially for sustainable investments. While domestic and international legal and commercial environments may still pose challenges, commencing or bolstering business ties now could prove highly beneficial in the future – both for the investor and African host state. Investments often generate challenges, and if the parties cannot overcome these through negotiation, commercial or investment arbitration – if applied correctly – can provide both sides with a level playing field for a fair and reasonably fast dispute resolution.