AfCFTA Investment Protocol: Unlocking Investment Opportunities within the African Continent

By invitation

The successful implementation of the AfCFTA demands a comprehensive and integrated approach that goes beyond the mere reduction of tariffs and extends to the removal of constraints on the free movement of capital and labour. This can be accomplished through a multifaceted strategy, which involves introducing incentives to stimulate the active engagement of countries and businesses in AfCFTA negotiation and implementation processes, while concurrently creating a strong investment promotion and protection framework. This holistic strategy should be further fortified by the establishment of effective platforms for dispute resolution mechanisms, ensuring that the entire spectrum of challenges and opportunities is duly addressed.

In fact, the African investment landscape is characterized by distinctive challenges that require particular attention, including the high cost of capital and the elevated risk associated with doing business on the continent. The increasing cost of capital in Africa, exceeding levels observed in other regions, has not only ruled certain African governments out of bond markets, but also acted as an impediment to investments in many critical sectors. Furthermore, the lack of reliable information and data, essential for investors to make informed decisions, represents another major impediment to new investments in Africa. In this context, data also indicates a significant decline in Africa’s share of greenfield FDI, underscoring concerns about the continent’s appeal to foreign investors.

Against this backdrop, the AfCFTA Protocol on Investment represents a significant step towards fostering an environment conducive to investment within the African Continent. The Protocol is distinguished by its ambition for investment facilitation by reducing transaction costs for investors and preventing conflicts between investors and host states. In addition, it is equally centred on investment protection by instituting legal safeguards against political risks in a bid to enhance investors’ confidence. It also aims to strike a balance between the obligations imposed upon investors and the commitments made by member states.

Furthermore, considering the ever-growing significance of Foreign Direct Investment (FDI) in Africa's development, particularly in a context marked by insufficient levels of domestic private investment and the increasing need for private finance to contribute to the financing of the SDGs in line with the recommendations of the Paris Summit for a New Global Financing Pact, the importance of attracting FDI becomes even more pronounced. This is further amplified by the expansive market opportunities created by the AfCFTA, enhancing the appeal of the market to foreign investments. Consequently, it is imperative that the AfCFTA framework capitalizes on this opportunity and actively promotes not only intracontinental investments but also foreign investments. In addition, it is also imperative that the AfCFTA investment protocol incorporate mechanisms to address the investment gap in Africa and most importantly to involve promoting investments in sectors that contribute to environmental sustainability, social-well being and economic transformation of African economies.

Within this framework, the Policy Center for the New South, in cooperation with the European Centre for Development Policy Management (ECDPM), the African Center for Economic Transformation (ACET), the Institute for Security Studies (ISS), are organizing a closed expert workshop taking place in Addis Ababa and online to discuss “AfCFTA Investment Protocol: Unlocking Investment Opportunities within the African Continent”.

This workshop is part of a project on Africa-Europe cooperation co-funded by the European Union.

The objective of the workshop is to bring together experts from European and African countries to tackle the following key questions linked to the AfCFTA Investment Protocol:

1. 1. Within the AfCFTA Protocol on Investment, what mechanisms and incentives can be strategically integrated to effectively bolster private investment in Africa, encompassing both intra-African and foreign investors?
2. 2. What role do harmonised legal frameworks and dispute resolution mechanisms play in ensuring robust protection for private investments in practice?
3. 3. To what extent does the AfCFTA framework represent an opportunity to increase qualitative and sustainable private sector investment to achieve the financing of the SDGs and to orient investment towards long-term impact and sustainable development priorities?
4. 4. What innovative financing institutions and derisking mechanisms could be put in place to attract private finance in Africa? What can MDBs do better in that regard, in particular African financial institutions, the EIB, EBRD?
5. 5. Drawing from the experience of other regional blocs, such as the European Union (EU), what valuable lessons can Africa glean to navigate challenges and opportunities related to the implementation of the AfCFTA, especially in shaping and operationalizing its Protocol on Investment? In particular, how can the articulation at all levels of governance – country, regional and continental be thought to foster harmonised regulatory frameworks and effective operationalisation of the Protocol?