Sustainable Investment Policy Perspectives in the Southern African Development Community

2. Rebalancing and aligning investment policy for sustainable development

Abstract

This chapter undertakes a baseline comparative analysis of the legal framework governing investment at the continental, regional and national levels in the Southern African Development Community (SADC). The analysis focuses on how governments in SADC are incorporating sustainability dimensions into their national treaties and domestic investment laws, as well as on the coherence between action at the national, regional and international levels.

Investment policy making today is placing greater emphasis on sustainable outcomes as part of a broader shift away from investment for its own sake and towards a more nuanced appraisal of its potential impact. As such, this new approach is generally to be welcomed, but many of the innovations are relatively recent and it is too soon to assess which provisions will have a lasting positive impact on sustainable development. The impact on attractiveness for foreign and domestic investment also remains unclear.

What is clear is that sustainable development requires both substantial investment and good regulation. The legal framework for investment comprises two levels: (i) a domestic regime involving many laws regulating market activities, often supplemented in Africa by an investment law; and (ii) international treaties that offer additional provisions and protections applicable to covered foreign investors. The international regime is in turn divided into bilateral, regional, and plurilateral approaches, including investment treaties as well as free trade agreements (FTAs) with an investment chapter.

At the international level, the new approach to sustainability can encompass several facets, from hortatory clauses in the Preamble or articles, to limitations on the scope of protections, to investor obligations. To date, concrete impact in preserving policy space has been difficult to demonstrate (OECD, 2022[1]).

A key factor in effectiveness of sustainability efforts may be regional standard-setting coupled with effective and aligned action at the domestic level. The development of regional approaches can allow a full debate with greater resources. National implementation aligned with regional approaches can increase visibility and coherence of the measures.

In Africa, sustainability dimensions are likely to become even more important once the African Continental Free Trade Area (AfCFTA) Investment Protocol is finalised. These developments will raise the issue of alignment between regional and national action. Comparing regional and national approaches to sustainable development is challenging. This chapter engages in an initial analysis to compare innovations at the regional and continental levels with the approaches embodied in national investment-related legislation within the Southern African Development Community (SADC). The analysis focuses on how governments in SADC are incorporating sustainability dimensions into their national treaties and domestic investment laws, as well as on the coherence between action at the national, regional and international levels.

The analysis below suggests that national investment laws do not yet fully reflect innovations at a regional or continental level, although newer investment laws seem to be closer to regional practice. Furthermore, there is still considerable diversity in individual laws across the SADC region. Greater coherence in approaches within and across regions in Africa at all levels could contribute to improved clarity and predictability for both governments and investors, although sufficient room should be left for further experimentation at national level.

The international regime for investment protection is under increasing strain

More than 2 500 bilateral investment treaties (BITs) and multilateral agreements with an investment chapter or provisions are in force today. Traditionally, these agreements focused on the protection of investors and investments at the post-establishment phase and had as their main goal to foster foreign investments, including by providing more legal certainty and reducing unwarranted risks for foreign investors. These international investment agreements (IIAs) constitute an important part of a country’s investment framework as they offer protections and guarantees that often go beyond what is included in domestic investment laws.

IIAs typically offer covered investors substantive and procedural protection. Classic substantive standards of protection include, for instance, the protection against unlawful expropriation and against discrimination, whether between foreign and domestic investors or among foreign investors, through the National Treatment (NT) and Most-Favoured Nation (MFN) provisions. They also often cover the guarantee of fair and equitable (FET) treatment and of full protection and security (FPS), which are sometimes equated with the international minimum standard of treatment of aliens under customary international law. Lastly, they also provide a guarantee for the free transfer of funds and profits in and out of host states. From a procedural point of view, most IIAs provide for an investor-state dispute settlement (ISDS) mechanism, which allows investors to bring claims against the state in which they invested before international arbitral tribunals for an alleged breach of the IIA.

States are currently reconsidering the role, purpose and content of investment treaties, particularly the earlier generation treaties, for several reasons. Firstly, investor-state arbitration cases have risen exponentially in the past decade, including cases involving public policy or regulatory measures, with the added risk of a regulatory chill to avoid the possibility of future disputes. Secondly, academic studies have reached inconclusive results with regard to whether the treaties increase inflows of investment. Thirdly, societal demands are mounting that international investment should contribute positively to sustainable development. It is increasingly recognised that while FDI can play a crucial role in making progress toward all SDGs, particularly in advancing decarbonisation, increasing innovation, creating quality jobs, developing human capital and promoting gender equality, the effects of FDI are not always positive and impacts can differ across areas of sustainable development.

Partly as a result, some countries such as India, Indonesia and South Africa have terminated their treaties. Many other governments have worked to improve the functioning and perceived fairness of treaties. The United Nations Commission on International Trade Law (UNCITRAL) is currently working on a comprehensive reform of the investor-state dispute settlement (ISDS) system. The OECD is also embarked on a work programme on the Future of Investment Treaties, with one track addressing investment treaties and climate change, and the other considering updating older treaties to conform to approaches widely used in recent treaties.

Treaty innovations at regional and continental level in Africa

Different countries and regions have adopted different strategies for reform, and Africa has in many ways been at the forefront of innovative approaches. These can be seen in the non-binding Pan-African Investment Code, and likely in the Investment Protocol as part of the AfCFTA, once it is completed, as well as regional approaches in SADC, the Economic Community of West African States (ECOWAS) and elsewhere. They place much greater emphasis on achieving sustainable development outcomes from treaties, as explained below.

An increasing number of states and regional organisations, including African states and Regional Economic Communities, incorporate sustainable development considerations in their new investment agreements or model agreements and adopt innovative provisions on various policy issues. The analysis of some investment instruments adopted in Africa at the continental and regional levels reveals the states’ desire to: (i) attract and protect investments that foster sustainable development; (ii) preserve their regulatory policy space, including on sustainable development-related policy issues, by better delineating and limiting some of the core standards of protection; (iii) achieve a better balance between the investors’ and states’ rights and obligations, including on sustainable development-related matters; (iv) make commitments on sustainable development-related issues; and (v) redesign the ISDS system.

This section reviews developments in the following regional and continental approaches:

• The SADC Protocol on Finance and Investment, particularly Annex 1 on co‑operation on investment (SADC PFI, signed 2006, entered into force 2010 and as revised as per the Agreement Amending Annex 1 signed in 2017);

• The SADC Model BIT (2012, a 2017 version is not available);

• The ECOWAS Supplementary Act Adopting Community Rules on Investment and the Modalities for their Implementation (ECOWAS SA, signed 2008, in force 2009);

• The ECOWAS Common Investment Code (ECOWIC, adopted in 2018);

• The draft Pan-African Investment Code (PAIC, 2016).

Language in the Preamble and in separate articles

The preambles of the SADC Model BIT and the ECOWIC provide that the parties to these instruments are “seeking to promote, encourage and increase investment opportunities that enhance sustainable development within the territories of the State Parties”. The preambles also often expressly recognise the key role of investment or the private sector in achieving various sustainable development objectives, such as the reduction of poverty, the increase of productive capacity or the furtherance of human rights and human development. All of the instruments repeat the sustainable development objective in a separate article. The SADC Model BIT, ECOWIC and PAIC set out the characteristics that an investment must have to be protected (based on the Salini test in the ICSID jurisprudence), including the “significant contribution to the host State’s economic development” (e.g. art. 4(4) of the PAIC).

All instruments set out in their definition of “investment” several exclusions, particularly for “portfolio investments” and certain “investments of a speculative nature”. This underlines the states’ desire to attract long-term or more substantial investments which have a better chance to make a positive contribution to sustainable development. Some instruments, such as the ECOWIC and PAIC, also exclude from their coverage “investments in any sector sensitive to its development or which would have an adverse impact on its economy” (art. 1(h) and art. 4(4) respectively).

Better delineation of substantive standards of protection, affirmation of the state’s right to regulate and general exclusions to seek to preserve policy space on key sustainable development-related matters

The investment instruments clarify, limit and sometimes delete certain substantive standards, mainly to preserve policy space. The most recent instruments all contain detailed provisions on non-discrimination (which usually cover the National Treatment (NT) and Most-Favoured Nation (MFN) principles, apart from the SADC instruments which only cover the former) and on the protection against expropriation. They set out numerous limitations and exceptions to these standards, some of which are particularly relevant from a sustainable development point of view. For instance, nearly all the instruments list examples of elements that should be considered when assessing whether investors or investments are in “like circumstances” for the purpose of NT or MFN principles and refer to the effect on the environment. Some also authorise the adoption of measures that derogate from the NT and/or MFN principles, including regulatory measures designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment (ECOWIC, art. 7; and PAIC, art. 8 and 10 – provided they are not arbitrary). Certain instruments also exclude from the scope of MFN treatment dispute settlement procedures and/or substantive obligations of other treaties (e.g. ECOWAS SA, art, 6(1) or PAIC, art. 7(4)) which preclude investors from invoking broader provisions than those contained in these instruments. Lastly, some instruments provide that measures designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriation (the PAIC adds that the measure must be non-discriminatory but not the revised version of Annex 1 of the SADC PFI, while the SADC Model BIT leaves a choice).

The most recent instruments do not include an FET provision. The initial version of Annex 1 to the ECOWAS SA contains the FET standard but qualifies it by reference to customary international law. Some instruments also list a series of obligations relating to procedural fairness which, if breached, could constitute a breach of this standard (ECOWAS SA, art. 19). The SADC Model BIT advocates for an alternative and more restrictive option, “fair administrative treatment”, which protects, inter alia, against denial of justice, un-remedied and egregious violations of due process, targeted discrimination on manifestly unjustified grounds and manifestly abusive treatment.

The instruments also aim at preserving the state’s right to regulate on sustainable development-related issues by affirming this right in the agreement and by providing general exceptions. All instruments except the ECOWAS ones refer to the right to regulate and/or to the balance of rights and obligations between investors and states in their preamble. The SADC instruments also contain a separate provision affirming, inter alia, the right to take regulatory or other measures to ensure that “development in their territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives” (art. 20). All instruments except the Annex 1 of the SADC PFI (both versions) also set out general exceptions for various measures including, inter alia, those aimed at protecting human, animal or plant life and the environment or at promoting the achievement of equality in their territory or designed to protect or advance persons or categories of persons disadvantaged by long term historic discrimination (usually provided these are applied in a non-arbitrary and non-discriminatory manner). Certain instruments also authorise the state to take non-discriminatory measures to comply with its international obligations under other treaties, which could include, for instance, measures aimed at achieving the commitment of the Paris agreements or other conventions or standards that promote sustainable development (SADC Model BIT, art. 6, revised version of Annex 1 of the SADC PFI, art. 5).

Introduction of a broad range of investor obligations and mechanisms to address breaches

All instruments incorporate a broad range of obligations for investors, many of which relate to sustainable development (except for both versions of Annex 1 of the SADC PFI). The PAIC and the ECOWIC are the most comprehensive in this respect. All instruments set out a general obligation to comply with domestic laws and regulations for investors and/or their investments. Most (except both versions of Annex 1 of the SADC PFI) also incorporate more specific pre‑ and post-establishment obligations for investors on a wide range of topics, including the environment, labour practices and standards, human rights, corruption or corporate social responsibility (CSR).

Investors are required to conduct environmental and sometimes social impact assessment (ECOWAS SA, art. 12, ECOWIC, art. 27 and PAIC, art. 37) or to comply with the assessment screening criteria and processes applicable to the proposed investment, as required by the laws of the host state or home state or international standards, whichever is the most rigorous (SADC Model BIT, art. 13, which requires considering impacts on human rights). Many instruments specify that the precautionary principle should be applied when conducting such assessments and to decisions taken in relation to a proposed investment. Investors are also required to comply with domestic environmental laws and multilateral agreements (ECOWIC, art. 27), protect the environment in performing their activities (PAIC, art. 37), repair any damages caused (PAIC, art. 37; ECOWIC, art. 27), maintain an environmental management system (SADC Model BIT, art. 14) or use environmentally sound management practices (ECOWIC, art. 29).

All instruments (except both versions of Annex 1 of the SADC PFI) provide that investors shall not engage in corrupt practices (as a main author or as an accomplice) before or after the establishment of the investment. Many also impose obligations related to human rights (such as the obligation to uphold, support and respect such rights, not to undertake any act that would breach these rights or be an accomplice to such acts) and labour, such as the obligation to act in accordance with or apply the standards stipulated in the 1998 ILO Declaration (the SADC Model BIT and ECOWAS SA) or, more generally, to comply with international conventions on labour issues (the PAIC). Some instruments include specific obligations concerning CSR but also hortatory clauses. The ECOWIC provides that investors “shall endeavour to promote and engage in CSR in accordance with international best practices” (art. 34).

The ECOWIC and PAIC also include certain obligations but also hortatory clauses concerning the transfer and diffusion of technology (including horizontal obligations, i.e. applicable to the state as well). The ECOWIC imposes an obligation on investors “to adopt, where practicable in the course of their business activities, practices that permit the transfer and rapid diffusion of technologies” and “to diffuse technology and upgrades as well as improvements thereof through various mechanisms such as the demonstration and competition effects, the movement of labour from foreign affiliates to local firms and through the creation of linkages between foreign and local companies and their customers” (art. 47 and 48; the PAIC uses hortatory language for the first obligation).

The enforceability for such obligations can vary and is not always clear. The ECOWAS SA is the most comprehensive on this topic while both versions of Annex 1 of the SADC PFI and the ECOWIC remain silent. Various consequences are foreseen under different treaties. For instance, several instruments (i) provide that the tribunal or competent adjudicatory body shall consider whether an alleged breach of obligations raised by the host state, if proven, is materially relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the merits of a claim or on the damages awarded (if any); and (ii) authorise to bring counterclaims against the investor (SADC Model BIT, art. 19(1) and (2); ECOWAS SA, art. 18(2), (4) and (5) and PAIC, art. 43(1) and (2)). Some of these instruments authorise the home or host state (or other actors) to initiate proceedings before a tribunal established under the instrument or to initiate civil action before the domestic courts for the breach of certain or all obligations (ECOWAS SA, art. 18(3) and SADC Model BIT art. 19(3) and (4)).

The breaches of corruption-related obligations often have separate consequences. The ECOWAS SA provides that a breach of such obligations, if established by a court, can prevent an investor from initiating dispute settlement procedures under this instrument (art. 18(1)). The SADC Model BIT considers that a breach of the article on corruption is “deemed to constitute a breach of the domestic law of the Host State concerning the establishment and operation of an investment” and therefore constitutes a breach of the treaty (art. 10(3) and 17(4) respectively). Many instruments also require the state parties to prosecute, and where convicted, penalise such acts of corruption.

Lastly, certain instruments further provide that investors can be subject to civil actions before the domestic courts of their home state or the host state for acts and decisions made in relation to their investment when such acts and decisions have led to “significant damage, personal injuries or loss of life” in the host state (ECOWAS SA, art. 17; see also SADC Model BIT, art. 17 which also includes “omissions” and does not require that such acts, decisions or omissions are made in relation to investment). The SADC Model BIT further adds that “home states shall ensure that their legal systems and rules allow for, or do not prevent or unduly restrict such actions” (see also, ECOWAS SA, art. 29).

State commitments and obligations concerning key sustainable development matters

All instruments contain obligations and commitments for the state parties concerning key sustainable development matters, including on the environment, labour, human rights and corruption. Like for the investors’ obligations, both versions of Annex 1 of the SADC PFI are relatively succinct on this issue. By contrast, the ECOWIC is particularly detailed and sets out a broad range of commitments and obligations for the member states.

All instruments explicitly require the state parties not to lower certain standards. Most provide that the states recognise that “it is inappropriate” to encourage investment by relaxing labour, health, safety or environmental measures or some subset of these measures (both versions of Annex 1 of the SADC PFI, art. 13 and 11, ECOWAS SA, art. 20) or “domestic environmental and labour legislation” (SADC Model BIT). The ECOWIC goes further by providing that member states recognise that “it is unlawful” “to encourage investment by relaxing national health, safety or environmental measures” and by “reducing the protection afforded in their respective environmental laws” (art 21‑22). Concerning labour, the ECOWIC uses less stringent language and provides that member states recognise that “it is inappropriate to encourage investment by relaxing domestic labour legislation” (art. 30). As a consequence, states parties commit not to waive or derogate from these measures and laws as an encouragement for investment. The original and revised versions of Annex 1 of the SADC PFI add that member states “agree not to waive or other derogate from international treaties they have ratified” as an encouragement for investment (art. 13 and 11). It is worth noting that the SADC Model BIT and ECOWIC provide for a consultation mechanism in case a member state breaches this obligation (art. 22(2) and. 21(4) respectively).

Many instruments include declarations and commitments by the state parties concerning their environmental, labour and human rights rules and standards. In certain instruments, the states, for instance, recognise the importance of multilateral agreements to which they are a party (ECOWIC, art. 23 for environmental agreements) or commit to implement them (ECOWIC, art. 23). Concerning domestic laws and regulations, most instruments provide that state parties shall (or “shall strive to”) ensure that they provide for high levels of environmental, labour and/or human rights protection (in some cases adding that international standards or treaties shall be taken into account (ECOWAS SA, art. 21(2)) and shall strive to continue to improve those laws and regulations. Certain instruments add that they shall also ensure their laws and regulation are consistent with international labour standards and/or international human rights agreements (ECOWAS SA, art. 21).

Many of the instruments also impose obligations on the states concerning the fight against corruption (ECOWIC, Chapter 9, SADC Model BIT, art. 10 and ECOWAS SA, art. 30). Noticeably, the ECOWIC contains an obligation to ratify or adhere to the UN Convention against Corruption (art. 35(4)). Certain instruments, particularly the PAIC but more importantly the ECOWIC, impose other obligations on the states e.g. concerning the protection of the environment. The PAIC provides that the states shall undertake environmental impact assessments and that, with the investors, they should take all practical steps to promote, facilitate and finance the transfer of or access to environmentally sound technology and know-how (art. 30 and 37). In the ECOWIC, the member states also recognise the importance of public participation and regional co‑operation on this important issue (art. 26(1)).

The instruments include various other commitments and obligations for the states which could also affect sustainable development, concerning, for instance, investment promotion and facilitation (including through investment promotion agencies and through the home state’s assistance), the transparency and accessibility of investment legal framework, the co‑operation on investment related issues or the protection of fair competition or intellectual property rights.

Alternatives and additions to the traditional ISDS mechanism

Faced with growing criticism of the ISDS mechanism, the instruments adopt different innovative approaches: ISDS is either excluded or, if included, is subject to various conditions, such as prior consultations and negotiations, exhaustion of domestic remedies or respect of certain time limits. Many instruments also encourage the use of alternative dispute resolution mechanisms such as mediation before initiating arbitration proceedings. These modifications reduce the risk of potential challenges to non-discriminatory regulatory measures, such as those adopted to achieve sustainable development objectives.

The original version of Annex 1 of the SADC PFI contains an ISDS provision. Under this instrument, investor-state disputes which have not been amicably settled, can be submitted to arbitration but only after exhaustion of local remedies (art. 28). The SADC Model BIT’s preferred option is a state‑state dispute settlement mechanism, which allows the state parties to bring claims on behalf of the investor subject to the fulfilment of several conditions (exhaustion of local remedies and respect of certain time limits to bring the claim) (art. 28). It sets out an example of an ISDS provision, in case the states decide to negotiate and include such a mechanism in their agreement but sets out numerous conditions (including those mentioned above) (art. 29). The 2016 version of Annex 1 of the SADC PFI deleted the ISDS provision but guarantees investors access to the domestic courts “for redress of their grievance in relation to any matter concerning their investment” (art. 25).

The language used in the ECOWAS SA is not fully clear on whether investor-state arbitration is possible. The ECOWIC provides that disputes between an investor and a member state may be resolved through various means including arbitration. The latter may be conducted at “any established public or private alternative dispute resolution centres or the arbitration division of the ECOWAS Court of Justice” but encourages use of regional and local alternative dispute settlement institutions. The Code adds that when investment contracts between a member state and an investor provide for the use of international mechanisms such as ICSID or UNCITRAL, the parties to such contracts “shall exhaust all local remedies including the ECOWAS Court of Justice or national dispute settlement systems” before resorting to these mechanisms (art. 54).

Mbengue and Schacherer (2021[2]) (OECD, 2022[1]) argue that the PAIC “offers a middle ground solution to African States that are either pro-ISDS or anti-ISDS” as it leaves the use of ISDS to the discretion of member states. The PAIC provides that “member states may, in line with their domestic policies, agree to utilise the [ISDS] mechanism” (art. 42(1)). Disputing parties must first seek resolution through consultations and negotiations, if they fail, the dispute may be resolved through arbitration, subject to the applicable laws of the host state and/or the mutual agreement of the parties and subject to exhaustion of local remedies (art. 43(1(d)). The PAIC also contains a fork-in-the‑road provision preventing multiple proceedings (art. 43(2)).

Investment laws of the SADC Member States

The introduction of innovative provisions at the regional and continental levels seems to have had some spill-over benefits at domestic regulatory level. While domestic investment laws have a wider scope than IIAs – covering, for instance, the regulation of the admission of investments or the provision of incentives – they may also contain similar features, such as rights and guarantees for investors and investments.

While investment legislation involves many layers of rules and regulations covering different areas, this analysis is limited only to investment laws (and, when easily identifiable, to the accompanying regulations). It does not cover, for instance, general tax laws which may offer additional incentives, nor enterprise laws or commercial codes acts which may impose separate obligations on investors, as well as arbitration laws. This analysis also does not cover sectoral legislation which may regulate investment in specific sectors, nor wider legislation and constitutions which may provide further details on, for instance, the rules for nationalisation and expropriation. Consequently, it is not because a specific element aimed at enhancing sustainable development is absent from the investment law, such as an investor’s obligation to protect the environment, that it is not provided for in separate legislation. Investment laws nevertheless often encapsulate a government’s overall approach to investment policy and to the potential role of investment in attaining sustainable development objectives.

All SADC member states except Botswana and Lesotho have some form of an investment law, which, in most cases, covers both domestic and foreign investments. A third of these laws were adopted in the 1990s and 2000s and the rest in the 2010s and 2020s. The most recent laws are in South Africa, Namibia, Mauritius, Comoros, Angola and Zimbabwe. The laws described in this section are listed below:

• Angola: Private Investment Law (2018 – the 2021 amendment not included in the analysis)

• Botswana: none

• Comoros: Investment Code (2020)

• Democratic Republic of Congo: Law on the Investment Code (2002)

• Eswatini: Investment Promotion Act (1998)

• Lesotho: none

• Madagascar: Law 2007‑036 relating to Investment Law (2008)

• Malawi: Investment and Exportation Promotion Act (2012)

• Mauritius: Economic Development Board Act (2017, amended 2018, 2019, 2020)

• Mozambique: Law on Investment (1993); Investment Regulations Decree (2009)

• Namibia: Investment Promotion Act (2016, not yet in force);

• Foreign Investment Act (1990, amended 1993)

• Seychelles: Investment Act (2010); Investment Regulations SI 76 (2022)

• South Africa: Protection of Investment Act (2015)

• Tanzania: Investment Act (1997)

• Zambia: Zambia Development Agency Act (2006, amended 2021)

• Zimbabwe: Zimbabwe Investment and Development Agency Act (2020)

The length and scope of the investment laws vary from one country to another. Some laws, such as in Mauritius and Malawi, focus primarily on the trade and investment promotion agency and do not provide any rights or guarantees for investors. Others are more general and cover a wide range of topics, such as: the rights, guarantees and, in some instances, obligations of investors and investments; the conditions for market access; the different advantages and incentives and their eligibility conditions; the rules on investment in special economic zones; and the establishment and role of the trade and investment agency.

South Africa’s 2015 law was adopted following the country’s decision to terminate many of its BITs and aims to replace existing BITs. Its content is therefore relatively close to an IIA (i.e. it focuses on the investor’s guarantees and on the state’s rights and does not cover other topics such as incentives or conditions for market access). It is also important to note that, in 2016, Namibia adopted a new investment law which does not seem to be enforced yet. In 2021, the United States State Department noted that “the country ha(d) not yet enforced this Act due to substantive legal concerns raised by the private sector” concerns (for instance, it requires prior approval before investing in the country), and that the Foreign Investment Act of 1990 “remain(ed) the guiding legislation on investment in Namibia” (US DoS, 2021[3]). Both laws have thus been reviewed for the purpose of this study.

The introduction of innovative provisions at the regional and continental level seems to have had some spill over benefits at domestic regulatory level. Some of the most recent laws reveal the states’ desire to (i) attract and protect investments that could positively contribute to sustainable development; (ii) better delineate the scope of protection clauses in order to avoid any ambiguity and to reinforce the State’s right to regulate on public policy issues; (iii) provide not only rights but also obligations for investors in investment laws, including on sustainable development related issues (albeit limited); and (iv) rethink the investor-state dispute mechanisms. In contrast with the regional/continental investment instruments analysed above, the SADC investment laws impose limited commitments and obligations on the state concerning sustainable development related issues.

Sustainable development is rarely a central objective of the investment laws but certain elements are taken into account when applying for investment approval or incentives

Unlike the SADC regional investment instruments, half of SADC members with an investment law make no reference to sustainable development either in a preamble or in related articles. Only three include a reference to sustainable development or some aspects in the preamble. Namibia’s 2016 law states in its preamble that this Act “provide(s) for the promotion of sustainable economic development and growth through the mobilisation and attraction of foreign and domestic investment”. The Act repeats this objective in a separate provision. The preamble of South Africa’s 2015 law also recognises “the importance that investment plays in job creation, economic growth, sustainable development, and the well-being of the people of South Africa”. The objectives of this Act focus on achieving a better balance between the rights and obligations of investors and states and at affirming the state’s sovereign right to regulate investments in the public interest (see preamble and Section 4) – which, as explained above, could support sustainable development if the investors’ obligations and the state’s right to regulate were directed towards the achievement of sustainable development objectives. Angola’s 2018 law lists the “goals regarding (the) granting of benefits and concessions”, which include sustainable development related objectives such as stimulating the creation of new jobs for national workers, increasing the Angolan workforce’s professional qualifications, promoting the transfer of knowledge and technology and increasing productive efficiency and competitiveness (art. 22). Zambia refers to economic growth and promotion and encouragement of education and skills training to increase productivity.

Other investment laws include a reference to sustainable investment in related articles. Mozambique’s law provides that the investment covered by this law “should contribute to the sustainable economic and social development of the country” (art. 6). The law also lists a series of more precise objectives for investment, some of which relate to sustainable development objectives, notably concerning productivity and labour. Angola’s 2018 law provides that private investment carried out according to this law “must contribute to economic and social development” (art. 3).

Other laws condition the granting of investment approval or incentives on certain sustainable development related elements. The DRC sets out various eligibility conditions to benefit from the general regime of incentives which include an undertaking to comply with legislation and regulations concerning the protection of the environment and to train local workers for technical and managerial positions (art. 8). The investment laws of Namibia (1993 and 2016), Zambia and Zimbabwe also list various sustainable development elements among the elements that the competent authority should take into account when considering an application for a licence, certificate for registration or approval of investment (to benefit from certain advantages or to be able to invest in a business or, more broadly, in the country). Namibia’s 2016 law, for instance, provides that “(I)n considering the application for approval of investment […], the minister must consider the net benefit for Namibia, taking into account” various elements, including “the contribution of the investment to the advancement of persons who have been socially, economically or educationally disadvantaged by past discriminatory laws and practices” or “to the transfer of technological and managerial skills, knowledge and innovation” and “the impact on the environment and contribution to environmental benefits” (sec. 14).

Better delineation of the investors’ standards of protection in some more recent laws

Like the SADC investment instruments, some of the most recent investment laws tend to better delineate the standards of protection for investors and to set out limitations and exceptions to these standards, including, in some limited cases, to protect the states’ right to regulate on sustainable development related matters. The analysis below focuses on the non-discrimination principle, the protection against expropriation and the FET standard.

Most investment laws have a separate provision on the principle of non-discrimination post-establishment, although some of the most recent ones contain more detailed provisions. Like many SADC investment instruments, Namibia, South Africa, and Zimbabwe’s investment laws provide guidance on how to interpret ‘like circumstances’ with respect to NT or MFN treatment (and some of them list the same circumstances, i.e. the effect on third persons and the local community and on the environment). While several laws set out exceptions to these standards, a limited number directly relate to the state’s right to regulate on key sustainable development matters. The most relevant examples of exclusions concern the benefit of any treatment, preference or privilege resulting from “any law or measure the purpose of which is to promote the achievement of equality in South Africa or designed to protect or advance persons or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability in the Republic” (South Africa, sec. 8), or the procedures for the resolution of investment disputes between foreign investors and the state provided for in international investment treaties and trade agreements (Zimbabwe, sec. 14).

All investment laws (except those of Malawi and Mauritius) contain a provision on the protection against expropriation, with the most recent laws often more precise on this standard than the older ones, including guidance on how to determine whether a specific measure or act constitutes an indirect expropriation (e.g. Comoros, art. 9), or on how to assess the compensation for expropriation (e.g. Namibia, 2016, sec. 22). Only Comoros and Zimbabwe set out express exceptions to this standard that would support the state’s right to regulate on sustainable development matters. Like some SADC investment instruments, these laws provide that non-discriminatory measures designed and applied to protect legitimate public welfare objectives, such as public health, security and the environment do not constitute an indirect expropriation. Zimbabwe sets out a limit to this exception, i.e. “except in the rare circumstance when the impact of a measure or a series of measures is so severe in light of its purpose that it appears manifestly excessive” (sec. 17(7)).

The FET standard is rarely included in investment laws. Four SADC member states have decided to include this standard, or an alternative standard, in their investment laws. Seychelles (sec. 4) has opted for an unqualified FET, undertaking to provide FET, in accordance with the principles of international law, to investors and investments (art. 25). Zimbabwe defines this standard in a more precise way and lists the type of acts which could lead to a breach of FET (sec. 16). Lastly, South Africa’s 2015 law contains an alternative standard proposed in the SADC Model BIT, i.e. the fair and administrative treatment (although its content is slightly different).

South Africa’s law not only clarifies some of the substantive standards of protection but also provides guidance on how to interpret and apply the Act. Section 3 provides that the “Act must be interpreted and applied in a manner that is consistent with”: (a) its purposes as contemplated by section 4; (b) the Constitution, including (i) the interpretation of the Bill of Rights, customary international law and international law as contemplated in various sections of the Constitution, and (c) any relevant convention or international agreement to which the Republic is or becomes a party. It is also the only SADC investment law to contain a separate provision reaffirming the state’s right to regulate, including on issues such as the protection of the environment and the conservation and sustainable use of natural resources (sec. 12) (in contrast with the SADC instruments which all contain a separate provision).

Namibia’s 2016 law is also the only one to contain a general exception provision, including for concessions, advantages, exemptions in favour of a foreign or domestic investor or investment that may result from any bilateral or multilateral treaty relating to investment or free trade or economic agreement to which it is a party (sec. 20).

Relatively limited sustainable development-related obligations for investors and investments and enforcement mechanisms

While most SADC investment instruments impose a broad range of sustainable development related obligations on investors and their investments, relatively few national investment laws do so (the original and revised versions of Annex 1 of the SADC PFI similarly contain few of these obligations). Noticeably, South Africa’s law does not set out any obligations for investors, even though one of its purposes is to “protect investment in accordance with and subject to the Constitution, in a manner which balances the public interest and the rights and obligations of investors” (sec. 4).

Like in the SADC investment instruments, the most common feature found in the SADC investment laws is the inclusion of a general obligation for investors or their investment to comply with domestic legislation. Investment laws in Namibia (2016), Angola and Zimbabwe, for instance, contain a separate positive obligation for investors requiring them to “respect”, “comply with” or “abide by” the domestic laws and regulations in force in their country.

A limited number of investment laws impose pre‑establishment obligations. The most relevant example from a sustainable development perspective is Mozambique’s law which requires investors to submit “the relevant studies and evaluations of the environmental impact and of any pollution and sanitation concerns that may result from their activities, and the damages and/or wastes of their undertakings” (Article 26). Zimbabwe’s law contains a more limited obligation concerning public-private partnership projects, requiring a feasibility study for these projects, which shall, inter alia, demonstrate that the project will “not adversely impact the environment or mitigate or address any such adverse impacts” (4 Schedule, Part II, sec, 4(2)(c)). Several laws also sanction the provision of false or misleading statements, in various aspects, including when applying for a licence, permit or certificate in relation to the investment, which could be interpreted as a “pre‑establishment obligation”. While such an obligation does not directly relate to key sustainable development related matters, it could help governments to fully understand and assess the potential impact of a proposed investment projects on sustainable development.

The investment laws more frequently impose post-establishment obligations which either apply to all investors or only to those benefiting from specific advantages or incentives. While some of these obligations concern sustainable development related matters, they are more limited in scope and content than those contained in the investment instruments analysed above.

Some of the oldest laws were quite advanced on this topic and impose obligations in relation to the protection of the environment or to labour. Mozambique requires investors and their companies to undertake “appropriate measures for the prevention and minimisation of any negative environmental effects” and provides that activities “with levels of pollution and contamination likely to alter and negatively affect the environment or public health shall comply with restrictions established by law and/or issued by competent authorities, as well as any rules or international agreements on such issues” to which the country is a signatory (art. 26). DRC imposes various obligations on companies that benefit from incentive regimes including in relation to the environment (obligation to comply with the regulations on the environment and conservation of biodiversity) and labour standards and practices (compliance with labour legislation and provision of professional training) (art. 31).

The most recent laws set out various post-establishment obligations, including in relation to sustainable development. Namibia’s 2016 law incorporates several investor obligations in relation to labour standards. For instance, it requires investors to “absorb available skills in the Namibian labour market”, to “invest in human capacity in the Namibian labour market” and “ensure the transfer of skills to the Namibian” “so as to enhance the sustainability of the investment and its linkage with the Namibian economy and achieving the developmental objectives of Namibia” (sec. 24). Angola’s law has a separate provision setting out the “specific duties” of private investors, which include obligations related to the environment (respecting the norms regarding the defence of the environment) and labour standards (respecting the norms regarding hygiene, protection and safety at work against occupational diseases or work accidents contained in the labour legislation) (art. 18). It also contains an article which imposes obligations concerning the employment and training of local workers (art. 46). Comoros sets out various obligations for investors and enterprises which benefit from an incentive regime concerning labour practices (priority employment of local workers when equal qualification, providing them training and developing their skills) (art. 17). Lastly, Zimbabwe’s law contains a separate article on the “responsibility of investors” which set out “common obligations”, including the obligation to preserve the environment (art. 21).

The enforceability for such obligations can vary and is not always clear. SADC investment instruments contain a broad range of mechanisms to sanction the potential breach of investor obligations, but this approach has generally not yet been incorporated in national investment laws. Most of these laws address the consequences of the provision of false or misleading information mainly in connection with an application for a licence or certificate. Such conduct can lead to the suspension or revocation of the licence and certificate and, in the most serious cases, to fines and imprisonment. A limited number of laws provide that the same sanctions may apply for other breaches, such as the “lack of execution of training actions” (Angola, art. 47), the company’s failure to comply with its commitments or if it breaches legal provisions (DRC, art. 34) or more broadly, the breach of any domestic laws (Mauritius, sec. 14).

Limited sustainable development related obligations and commitments for states

Unlike in SADC investment instruments, national investment laws barely contain any states’ obligations or commitments on key sustainable development issues such as the protection of the environment, the respect of labour standards and human rights, or the fight against corruption. None contain a provision precluding the state from lowering environmental, labour or other standards. Eswatini has the only law to contain an obligation concerning the fight against corruption (art. 23). Mozambique includes a very specific obligation concerning the protection of the environment (art. 23 requires the competent authorities to undertake an environmental impact assessment for special economic zones). Lastly South Africa’s law sets out obligations and commitments concerning the fight against discrimination and the protection of human rights in its preamble.

Several SADC member states do however make other commitments in these laws which could positively contribute to sustainable development. For instance, certain members undertake to improve the transparency of the investment framework (Seychelles, sec. 7; Zimbabwe, sec. 18; and South Africa, preamble), or to protect intellectual property rights (see, Madagascar, art. 4 and Angola, art. 16). Most of these laws also contain provisions on the establishment and role of a specialised agency, whose main function is to promote and facilitate investment, which thus reinforces the possibility of attracting investment that could positively contribute to sustainable development.

Alternative and innovative approaches concerning ISDS in the most recent laws

Most of the older investment laws authorise recourse to arbitration for disputes between foreign investors (and sometimes domestic ones) and the state subject to relatively classic conditions, such as preliminary attempts at settling the dispute amicably (see e.g. Mozambique, sec. 25; Eswatini, art. 21; Tanzania, sec. 23; or DRC, Titre XI). In contrast, some of the most recent laws adopt new approaches concerning the resolution of such disputes, which reflect, to some extent, the approaches adopted in the SADC investment instruments, including the most recent ones. South Africa has decided to exclude ISDS completely, setting out various dispute resolution options for foreign investors, including recourse to mediation, to domestic courts or independent tribunals and to state‑state arbitration but only with consent of the government and after exhaustion of domestic remedies (sec. 13).

Other recent laws provide for ISDS but incorporate various limitations in its use. Namibia’s 2016 law provides that foreign investors may request the minister responsible for investment to designate a mediator or mediation panel to resolve the dispute but authorises them to directly approach the domestic courts instead of using mediation. It further provides that the jurisdiction over disputes relating to this Act “lies exclusively with the courts of Namibia” but authorises to submit such disputes to arbitration under the Arbitration Act of 1965, subject to written agreement between the minister and the investor or investment (sec. 28). Zimbabwe authorises investors to resort to (i) domestic arbitration in accordance with the Arbitration Act 1996 or (ii) any other international arbitration referred by mutual agreement of the parties. It also authorises foreign investors to submit the dispute to the mechanisms set out in the IIAs signed between Zimbabwe and their home state. The Act however requires them to register their investment with the Investment and Development Agency within specific time limits. Failing this, they “shall be deemed to have waived the protection” of these agreements, “with the result that any dispute in relation thereto can only be settled by a domestic court or domestic arbitration” (sec. 38).

In contrast, Comoros’s law authorises domestic and foreign investors to resort to ISDS (with different arbitration rules) with relatively few limitations (parties can also agree to submit the dispute to domestic courts but subject to the fork-in-the road provision) (art. 12). Angola’s law is very succinct on this point; it guarantees the investors’ access to the domestic courts but also provides that conflicts that may eventually arise regarding available rights might be resolved through alternative methods of resolving conflicts, namely negotiation, mediation, conciliation and arbitration, as long as that by special law there are not subjected to judicial court or necessary arbitration (art. 15).

Table 2.1 compares the provisions at the regional level with those of national investment laws in SADC member states as they relate to sustainable development. This summary of provisions in a binary fashion does not do full justice to the possible qualifications that might be included in any given provision, but overall it does provide a quick overview of the extent to which national investment laws fully reflect the innovations at regional level and which are most likely to be found in the forthcoming AfCFTA Investment Protocol. The regional and country-level approaches are described in more detail below.

Table 2.1. National investment laws in SADC do not fully reflect broader regional approaches

	SADC Model BIT	SADC IPF 2016	National investment laws
References to sustainable development, state’s right to regulate or investor obligations in preamble or other general provisions	Yes	Yes	Yes = 7 No = 8
Limitations on the protection against expropriation (e.g. public health, security and the environment)	Yes	Yes	Yes = 2 No = 13
National treatment	Yes	Yes	Yes = 11 No = 4
Limitations on NT, e.g. when assessing “like circumstances”	Yes	Yes	Yes = 9 No = 2
Fair and equitable treatment (FET)	Either yes but qualified by customary international law or Fair Administrative Treatment	No	Yes (qualified) = 1 Yes (unqualified) = 1 No = 13
General exceptions for measures relating to sustainable development	Yes	No, except compliance with other treaties
Compliance with domestic laws	Yes	Yes	Yes = 9 No = 6
Pre‑establishment obligations (environment, labour, human rights, CSR, corruption)	Yes	No	Yes = 5 No = 10
Post-establishment obligations (environment, labour, human rights, CSR, corruption)	Yes	No	Yes = 12 No = 3

Source: OECD compilation

References

[4] African Union (2019), African Continental Free Trade Area Agreement, https://au-afcfta.org/afcfta-legal-texts/.

[2] Mbengue, M. and S. Schacherer (2021), “Evolution of International Investment Agreements in Africa: Features and Challenges of Investment Law “Africanization””, in Handbook of International Investment Law and Policy, Springer Singapore, Singapore, https://doi.org/10.1007/978-981-13-5744-2_77-2.

[1] OECD (2022), FDI Qualities Policy Toolkit, OECD Publishing, Paris, https://doi.org/10.1787/7ba74100-en.

[5] SADC (2018), SADC Model BIT, http://www.sadc.int/.

[6] SADC (2016), SADC Investment Policy Framework, https://www.sadc.int/pillars/investment.

[3] US DoS (2021), 2021 Investment Climate Statements: Namibia, https://www.state.gov/reports/2021-investment-climate-statements/namibia/.