This chapter examines the international and regional regime for investment protection, as well as the domestic legal framework for each EAC Partner State, including regulatory restrictions to foreign direct investment (FDI). It reviews them in light of sustainable development considerations.
Sustainable Investment Policy Perspectives of the East African Community
Abstract
Sustainability outcomes have become a primary consideration in investment policy making, and legal regimes for investment are increasingly focused on fostering sustainable development. As such, sustainability language is more frequently incorporated into investment legal frameworks – which consist of the domestic legal framework (investment and related laws), and international treaties that offer additional provisions and protections to foreign investors.
In line with this trend, EAC Partner States are progressively addressing sustainability considerations in their international and regional instruments as well as in their domestic laws. The EAC Investment Policy elaborated in November 2019 confirms EAC’s willingness to further embed sustainability commitments into its legal instruments. As it stands, EAC’s Model Investment Treaty seeks “to promote, facilitate, encourage, protect and increase investment opportunities that enhance sustainable development within the territories of the State Parties” (EAC, 2016[1]). The African Union, including the EAC Partner States, also adopted in 2023 the Investment Protocol to the Agreement establishing the African Continental Free Trade Area on Investment (AfCFTA Investment Protocol) – likely marking a pivotal moment in investment policymaking. Advancements brought by the AfCFTA Investment Protocol have prompted discussions on the alignment between regional and national initiatives, including domestic investment laws.
This section provides an analysis to compare innovations at the regional and continental levels with domestic laws and regulations and assesses coherence between action at the national and regional levels. The analysis below suggests that the EAC Model Investment Treaty extensively incorporates sustainability considerations, albeit not as much as the AfCFTA and the Draft Pan African Investment Code (PAIC). This analysis also shows the level of regulatory restrictions to FDI adopted by the EAC Partner States. It then demonstrates that the EAC Investment Code and national investment laws do not yet fully reflect innovations at a regional level, although recent legislations are seemingly more aligned with regional practices.
Historically, international investment agreements (IIAs), including regional agreements and bilateral investment treaties (BITs), were seen as tools to safeguard investors and investments and to stimulate FDI, by enhancing the predictability of the applicable legal framework and mitigating undue risks for investors. These agreements form a significant component of a state’s investment climate.
IIAs offer both substantive and procedural protections to foreign investors. Common substantive protections include safeguards against unlawful expropriation and discrimination – including through provisions such as national treatment (NT) and most favoured nation (MFN) – and guarantees of fair and equitable treatment (FET) and full protection and security (FPS). Enforcement of these obligations often includes investor-state dispute settlement (ISDS) mechanisms, allowing investors to bring claims against the host state in which they have invested before international arbitral tribunals in the event of breach of the IIAs.
Many IIAs were designed decades ago with a different global economy and concerns in mind – as such, some doubts have emerged about the design of some of these treaties, their interpretation, and the use of certain clauses (OECD, 2024[2]). One of these concerns pertains to the growing number of ISDS cases over the past decade, often regarding public policy or regulatory measures, resulting in concerns about a potential freezing effect on regulations to avoid future disputes. Governments are increasingly intent on reshaping investment treaties to revisit their role, purpose and content. While some countries, such as India, Indonesia and South Africa have terminated their investment treaties, others are working to improve their treaty system. The Future of Investment Treaties work programme hosted by the OECD examines new trends and developments in treaty design, focusing on the one hand on to what extent alignment may exist between IIAs and the 2015 Paris Agreement and on the other hand on whether and how to bring change to substantive provisions in earlier generation IIAs to better align them with current designs.1 The United Nations Commission on International Trade Law (UNCITRAL) is also working on a comprehensive reform of the ISDS system.
African States have been very active in reshaping their treaty system and have devised innovative approaches to address growing concerns with respect to IIAs (OECD, 2024[3]). These innovations can be found in the EAC Model Investment Treaty as well as in the non-binding PAIC, the AfCFTA Investment Protocol and in regional instruments such as the SADC Model BIT (OECD, 2023[4]). These instruments incorporate sustainable development considerations and contain innovative provisions on various policy issues. They demonstrate States’ readiness to enhance their investment framework in an attempt to further attract investments that foster sustainable development, to redefine the scope of substantive protections in line with recent practices (OECD, 2024[2]), to preserve the State’s right to regulate, to commit on sustainable development-related issues and to redesign the ISDS mechanisms in place.
This section reviews developments in the following regional and continental approaches, with a focus on the alignment of the EAC Model Investment Treaty with other regional and continental instruments:
The EAC Model Investment Treaty adopted by EAC Partner States adopted in February 2016;
The AfCFTA Investment Protocol, adopted by member states of the African Union (including EAC Partner States) in February 2023;2 and
The draft PAIC, discussed by member states of the African Union (including EAC Partner States) in December 2016.
2.2.1. Extensive considerations of sustainability in the preamble and general provisions of all three instruments
The EAC Model Investment Treaty, the AfCFTA Investment Protocol and the PAIC all extensively incorporate considerations of sustainability, including in their respective preambles. The EAC Model Investment Treaty generally aligns with other continental instruments in that respect, though some definitions contained therein, such as that of the term investment, could be further refined to fully mirror the practices of the African Union.
The EAC Model Investment Treaty recognises the role of investment in fostering sustainable development – including through the reduction of poverty, the increase of productive capacity and economic growth. Sustainable development is moreover enshrined in the objective provision of the EAC Model Investment Treaty. The PAIC and the AfCFTA Investment Protocol contain similar language both in their respective preamble and other general provisions including in the objective provision, but the AfCFTA Investment Protocol goes further than other instruments by exhorting investors to “endeavour to achieve the highest possible level of contribution to sustainable development” (AfCFTA, 2023[5]) of the host State. All three instruments reaffirm States’ right to regulate and seek to achieve a better balance between investors and states’ rights and obligations.
All three instruments define protected investments, though definitions provided in the AfCFTA Investment Protocol and the PAIC are more comprehensive than those of the EAC Model Investment Treaty. For instance, under Article 1 of the AfCFTA Investment Protocol, an investment “must have the following characteristics: commitment of capital or other resources, the expectation of gain or profit, a certain duration, assumption of risk, and a significant contribution to the Host State's sustainable development” (AfCFTA, 2023[5]). By contrast, the EAC Model Investment Treaty does not outline the characteristics of a protected investment in the article dedicated to definitions. It nevertheless provides, in a separate article, that an enterprise with “no substantial business activities” (EAC, 2016[1]) in the territory of the host state may be denied the benefit of protection provided therein (art. 19 EAC Model Investment Treaty). In practice, this means that efforts to establish an investment are not protected under the agreement until a substantial business activity exists in the territory of the host state; only then would the investment qualify as a protected investment. For the sake of clarity, the EAC Model Investment Treaty could incorporate clear characteristics in the definition of (protected) investments and consider defining its components. The instruments identify exclusions to protected investments, such as portfolio investment, presumably affirming the states’ desire to attract more substantial investments that may have a more positive contribution to sustainable development.
2.2.2. The instruments all contain more concise and transparent substantive provisions to advance sustainable development
Insights gained from investment arbitration and evolving societal expectations have prompted States to adjust their treaty policy, including by better delineating standards of protection provided therein. The three instruments examined, including the EAC Model Investment Treaty, are all aligned in that respect, as they all contain precisely defined substantive standards of protection, in line with more recent treaty practices (OECD, 2024[2]).
The three instruments analysed all contain detailed provisions on non-discrimination (including NT and MFN provisions) and exceptions thereto. They unanimously define the component of “like circumstances”, necessary when assessing the application of NT and MFN, and list examples of elements that should be examined for their application in line with recent treaty practices (see e.g. art. 12 AfCFTA Investment Protocol). These provisions do not extend to the pre-establishment phase of investments – as evidenced by the use of terms such as “management”, “conduct” and “disposition” in relevant provisions (see e.g. art. 4 EAC Model Investment Treaty). Exceptions to NT in the AfCFTA Investment Protocol and the PAIC include measures taken by a state to protect or enhance legitimate public policy objectives and preferential treatment to achieve national development activities. The EAC Model Investment Treaty also provides for exclusions to NT, though by reference to schedules to be included in due course; it nonetheless recognises the possibility of preferential treatment to achieve national or regional goals in a separate article dedicated to the State’s right to pursue development goals. All three instruments exclude from their respective MFN provision treatment promised under other investment treaties (see e.g. art. 5 EAC Model Investment Treaty).
In line with recent treaty practices (OECD, 2021[6]), guarantees against unlawful expropriation (including indirect expropriation) are provided in all three instruments, as well as methods to determine the value of the compensation (see e.g. art. 7 EAC Model Investment Treaty). Exclusions to this guarantee consistently include measures taken to protect or enhance legitimate public welfare objectives, usually pertaining to sustainable development goals (see e.g. art. 20 and subsequent AfCFTA Investment Protocol).
None of the three instruments include traditional FET provision. Like the AfCFTA Investment Protocol, the EAC Model Investment Treaty adopts a restrictive approach to the treatment of investors and investments, to the extent that States have the obligation to ensure that their administrative, legislative and judicial processes are not arbitrary and protect against denial of justice and due process. The AfCFTA Investment Protocol provides for a similar obligation under the term of “Administrative and Judicial treatment” and protects investors against, inter alia, denial of justice, denial of due process and discrimination based on gender (AfCFTA, 2023[5]). Both these instruments define the contours of the ‘fair’ and ‘equitable” treatment through a closed list (OECD, 2023[7]).
Similar to the AfCFTA Investment Protocol, the EAC Model Investment Treaty contains a separate provision reaffirming the State’s right to regulate, including the right to take measures ensuring that investment is consistent with goals of sustainable development and social and economic policy objectives (see e.g. art. 15 EAC Model Investment Treaty); in the case of the AfCFTA Investment Protocol this provision is included under the “Sustainable development-related issues” chapter (AfCFTA, 2023[5]). Specific exclusions to various investor protections are also contained in these instruments, including when measures seek to protect the environment (see e.g. art. 8 EAC Model Investment Treaty), or to comply with the State’s international obligations – a fortiori including those related to sustainable development (see e.g. art 24 AfCFTA Investment Protocol).
2.2.3. Considerable efforts have been made to rebalance the rights and obligations of investors on a continental scale
All three instruments examined strive to rebalance the rights and obligations provided to investors in IIAs, by including investors’ obligations, such as those that relate to sustainable development, even though investors are not parties to the agreements. Nevertheless, while the AfCFTA Investment Protocol and the PAIC dedicate a separate chapter to investors’ obligations, those under the EAC Model Investment Treaty are scattered across the text. More generally, the EAC Model Investment Treaty is often more succinct when it comes to investors’ obligations than other instruments.
In substance, all instruments require investors to comply with domestic laws and regulations (see e.g. art. 10 EAC Model Investment Treaty) and prohibit them from engaging in corruption (as the author or the accomplice) both pre and post establishment (see e.g. art. 11 EAC Model Investment Treaty).
Under all three instruments, investors are required to respect and protect the environment when carrying out their activity and to restore the environment (to the extent feasible) in the event of damage. The EAC Model Investment Treaty is relatively succinct on environmental obligations of investors. By contrast, the AfCFTA Investment Protocol is the most comprehensive in addressing investors’ obligations with respect to environmental protection and dedicates a stand-alone provision to that effect, listing different types of obligations. Both the AfCFTA Investment Protocol and the PAIC enjoin investors to carry out environmental impact assessments and the EAC Model Investment Treaty encourages the development of adequate new green technologies. The EAC Model Investment Treaty and the PAIC further allow States to impose requirements on investors through the lifecycle of the investment to enhance its benefits (e.g. enhance productive capacity, increase employment, new technologies).
All three instruments require investors to comply with labour and human rights regulations (see e.g. art. 16 EAC Model Investment Treaty). Contrary to other instruments, the EAC Model Investment Treaty does not include obligations of corporate social responsibility The AfCFTA Investment Protocol further compels investors to respect the rights and dignity of indigenous people and local communities. All instruments establish the obligation for investors to comply with international conventions and policies on labour, including those relating to child labour (see e.g. art. 16 EAC Model Investment Treaty).
Instruments studied unanimously encourage investors to adopt practices that allow the transfer and rapid diffusion of technologies and know-how (see e.g. art. 30 AfCFTA Investment Protocol).
In light of the above, strengthening investors’ obligations where necessary and compiling them in a single chapter would allow the EAC to further align its instruments with the practices of the African Union.
Like the AfCFTA Investment Protocol and the PAIC, the EAC Model Investment Treaty remains silent as to the consequences of a breach by an investor of their obligations. Various consequences can therefore be drawn based on dispute settlement provisions. Indeed, similarly to the PAIC, the EAC Model Investment Treaty allows States to bring a counterclaim against the investor in dispute settlement proceedings in the event of a breach by the latter of their obligations. The PAIC however expressly allows for the possibility of a set off if the breach is materially relevant to the issue before the competent body. Monetary liability of the investor is also recognised in the EAC Model Investment Treaty (civil action before domestic courts), similarly to the PAIC (any competent body dealing with a dispute under the code). In the specific case of corruption activities, the EAC Model Investment Treaty is also silent as to the consequences of such breach. By contrast, the AfCFTA Investment Protocol explicitly deems that a breach of the anti-corruption provision amounts to a breach of the domestic laws and regulations, therefore amounting to a breach of the protocol itself.
2.2.4. State commitments and obligations concerning key sustainable development matters in the EAC Model Investment Treaty are not fully aligned with continental practices
All instruments contain obligations and commitments for the state parties concerning key sustainable development matters, including on environment, labour, human rights and corruption. The AfCFTA Investment Protocol and the PAIC are particularly detailed and set out a broad range of commitments and obligations for members, while the EAC Model Investment Treaty is relatively succinct on the issue. All instruments explicitly require state parties not to lower certain standards in encouraging investment: the EAC Model Investment Treaty prohibits state parties from relaxing or waiving environmental and labour legislations, whereas the two other instruments go further, one by including a reference to “environment, labour and consumer protection laws and international minimum standards” (art. 25, (AfCFTA, 2023[5])) and the other by referring to the “protection of human, animal or plant life or health” (art. 14, (PAIC, 2016[8])).
All three instruments compel state parties to ensure the protection of the environment; the AfCFTA Investment Protocol further includes a provision specifically dedicated to climate change, requiring state parties to take action to promote their climate change policies.
State parties are also prompted, to varying degrees, to establish national policies to guide investors in developing human capacity of the labour force (including policies focused on the special needs of the youth, women, and other vulnerable groups). The AfCFTA also requires state parties to promote and enforce laws and policies to protect, inter alia, the rights of indigenous peoples and local communities.
The AfCFTA Investment Protocol and the PAIC touch upon health considerations and compel state parties to promote and facilitate investment in the public health sector (art. 27 AfCFTA Investment Protocol) or to take measures to protect the health, safety and economic interests of consumers (art. 40 PAIC). By contrast, while the EAC Model Investment Treaty recognises in its preamble that the objective of the treaty can be achieved without compromising, inter alia, health measures and safety measures, it does not include any commitments by the Partner States with respect to this topic.
Tellingly, only the AfCFTA Investment Protocol reaffirms state parties’ obligation to promote and enforce anti-corruption, anti-money laundering, anti-terrorism financing and anti-bribery measures.3
All three instruments include various other commitments and obligations for member parties which could also affect sustainable development, such as the obligation to facilitate investment that contributes to sustainable development (including through the assistance of existing IPAs, the obligation to support the provision of technical assistance, capacity building and co-operation or the obligation to ensure the transparency of information).
2.2.5. Innovative dispute settlement and alternatives to traditional ISDS mechanisms are incorporated in all instruments
In response to mounting scepticism of the reliability of ISDS mechanisms, all three instruments explore, to varying degrees, novel and innovative reforms to ISDS. These approaches entail either excluding an enforcement mechanism altogether, or, if retained, adding specific conditions such as prior consultations, conciliation or mediation, exhaustion of domestic remedies or cooling-off periods. The EAC Model Investment Treaty expressly discourages the inclusion of ISDS mechanisms in final versions of IIAs.
The EAC Model Investment Treaty prescribes recourse to arbitration in the event of a state-to-state dispute where (i) a state is claiming damages on behalf of an investor for a breach of the treaty (subject, inter alia, to the claim not being time-barred as per the treaty), or (ii) a dispute arose between the state parties concerning the interpretation of the application thereof (subject, inter alia, to prior recourse to amicable dispute resolution mechanisms). The EAC Model Investment Treaty stands out from other continental instruments by discouraging the inclusion of ISDS mechanisms. If included, recourse to ISDS must be conditioned upon prior amicable dispute resolution mechanisms, exhaustion of local remedies and preceded by a cooling off period of six months. Moreover, the ISDS provision included in the IIA (in its final version) is overridden if the investment contract contains a dispute resolution clause and when the underlying measure in the ISDS would be covered by such a dispute resolution clause. Recourse to arbitration is also confined to a period of three years as of the knowledge of the breach which is the object of the dispute.
The EAC Model Investment Treaty does not contain express provisions requiring state parties to facilitate the prevention of disputes and management of grievances – unlike in the AfCFTA Investment Protocol. Yet, establishing such a mechanism is often considered a key building block of a robust aftercare and retention strategy and is crucial in avoiding costs associated with ISDS.4 The inclusion of a specific provision of dispute prevention and avoidance in the EAC Model Investment Treaty, in line with the AfCFTA Investment Protocol, is therefore encouraged.
The PAIC’s approach to dispute resolution is also noteworthy: recourse to ISDS is left to the discretion of member states, which is arguably “a middle ground solution to African States that are either pro-ISDS or anti-ISDS” (Mbengue and Schacherer, 2021[9]). Should they choose to do so, parties to the dispute shall first seek to resolve the dispute, within six months at the latest, though consultation and negotiations. Recourse to ISDS is also conditioned upon the exhaustion of local remedies. The PAIC also contains a fork in the road provision, which implies that the choice of forum is final and irrevocable.
2.3.1. EAC Partner States are generally more restrictive than other developing and emerging economies
An open and non-discriminatory international investment environment can offer considerable long-term advantages, serving as a potential catalyst for economic growth and sustainable development. By raising an economy’s attractiveness to FDI, it can contribute to enhancing the economy’s productive capacity and capital allocation efficiency, and foster job creation and income growth. Despite the widespread recognition of these benefits, governments worldwide often impose legal constraints on foreign investors’ entry and operations. These restrictions can sometimes serve legitimate policy objectives: promoting domestic firms and protecting them from foreign competition, particularly SMEs or infant industries; encouraging technology transfers through joint ventures; or safeguarding national sovereignty, particularly regarding essential security interests. But such restrictions may not always be the best means to achieve these objectives, and they come at a potential cost. FDI restrictions should thus be employed judiciously after careful consideration of their potential deterrent effect on FDI inflows, which can ultimately lead to diminished competition and market contestability, forgone government revenues, and reduced opportunities for knowledge spillovers and productivity gains.
Despite substantial liberalisation worldwide over time, most governments continue to discriminate against foreign investors to a more or lesser extent. The OECD FDI Regulatory Restrictiveness Index (FDI Index) offers a means for comparing statutory FDI restrictions in over 100 nations, categorised into four main types, but it does not assess to what extent these statutory restrictions are exercised in practice (Box 2.1). Considerable diversity in FDI restrictiveness is evident among countries and regions, where OECD economies typically are less restrictive on average while some larger or resource-rich economies tend to adopt more stringent regulations. Policy stances also differ across regions, with those countries in the Middle East and North Africa and Asia-Pacific regions tending to be relatively more restrictive overall.
The OECD FDI Regulatory Restrictiveness Index (FDI Index) seeks to gauge the restrictiveness of a country’s FDI rules. The FDI Index is currently available for over 100 countries. It is not a standalone measure of a country’s investment climate since it does not cover many other aspects of the investment regulatory framework or the actual implementation of formal restrictions. But FDI rules are a critical determinant of FDI attractiveness and help to explain the varied performance across countries in attracting FDI (Mistura and Roulet, 2019[10]).
The FDI Index covers 22 sectors, including agriculture, mining, electricity, manufacturing and main services (transport, construction, distribution, communications, real estate, financial and professional services). Restrictions are evaluated on a 0 (open) to 1 (closed) scale following a standardised policy scoring framework, and common sectors weights, reflecting their average share in total value added over the years 1995, 2000, 2005, 2010 and 2015 for 64 economies included in the OECD Input-Output Tables, are applied across countries to compute sector scores (Mistura, forthcoming[11]). The overall country FDI Index score is the sum of the 22 sector sectors. Where a measure is applicable to only a sub-set of activities in a sector or sub-sector, scores are adjusted to account for its limitation in scope and thus degree of restrictiveness.
For each sector, the scoring is based on the following policy elements:
the level of foreign equity ownership permitted;
the screening/approval procedures applied to inward foreign direct investment;
restrictions on key foreign personnel; and
other restrictions, e.g. on land ownership, reciprocity requirement, discriminatory minimum capital and local content requirements and public procurement practices.
Measures considered by the FDI Index are limited to statutory restrictions on FDI. Actual enforcement and implementation procedures are not assessed. The discriminatory nature of measures, i.e. when they apply to foreign investors only, is the central criterion for scoring a measure. State ownership and state monopolies, to the extent they do not discriminate against foreigners, are not scored. Preferential treatment for special economic zones and export-oriented investors is also not factored into the score, nor is the more favourable treatment of one group of investors because of preferential treatment under international agreements.
On average, EAC countries are more restrictive than most other countries covered by the Index, with some outliers (Figure 2.1). Uganda’s foreign investment restrictions align more closely with the average level observed in OECD countries, whereas Rwanda imposes fewer restrictions than the OECD average. Conversely, Tanzania’s restrictions are nearly double the level observed in non-OECD countries, with Kenya, the DRC, and Burundi falling somewhere in between.
The top scores of the most restrictive EAC countries mainly stem from broad-based horizontal restrictions imposed on almost all foreign investors across various sectors. This trend is particularly pronounced in Tanzania, where horizontal restrictions extend to accessing local financing, favouring local firms in public procurement, and imposing barriers on unconditional profit and capital repatriation. Across the region, foreign investors are also typically confronted with horizontal discriminatory rules on access to land for business purposes and public procurement, which are evident in nearly all EAC Partner States.
The prevalence of horizontal measures such as restrictions on access to land, local preference during government procurement, and minimum capital thresholds can significantly affect the attractiveness of the manufacturing sector, a sector often prioritised in the EAC. Restrictions on land access can hinder foreign investors’ ability to secure suitable sites for manufacturing facilities, potentially delaying or deterring investment altogether. Moreover, requirements for local preference in government procurement may limit the market opportunities for foreign-owned manufacturers, reducing their competitiveness compared to locally-owned firms while minimum capital thresholds can pose financial barriers to entry for foreign investors, especially smaller or newer enterprises, limiting their ability to establish or expand manufacturing operations.
Foreign equity limits in specific economic activities and/or sectors are also widely used by EAC countries (see Annex A). This type of restriction is also common in many other regions. It has the advantage of being relatively easy to administer and is assumed to be able to fulfil several policy objectives at once, e.g. preserving to some extent local competitors, contributing to technology transfer, and allowing domestic investors to share rents with their foreign partners. Sometimes the option of a local partner is appealing for investors, where there are high fixed start-up costs or where local knowledge is an advantage, such as in the food or retail sectors. However, the empirical evidence suggests that foreign shareholding limitations tend to discourage FDI overall (Mistura and Roulet, 2019[10]). Foreign investors seem to have a clear preference for holding full or majority-ownership of their investments abroad, which allows control over their operations.5
(open=0, closed=1)
Note: See Annex A for a detailed list of discriminatory measures against FDI in EAC Partner States.
Source: OECD FDI Regulatory Restrictiveness Index, 2021.
The DRC is the only country with substantial discriminatory restrictions on foreign key personnel and with overall investment screening. Investment screening is becoming more prevalent in both OECD and non-OECD countries, driven primarily by considerations of national security rather than for economic reasons.
Where restrictions are not horizontal, the extent of regulation varies across sectors (Figure 2.2). Real estate investment emerges as the most tightly controlled activity in the region, with foreign investors being frequently subject to more stringent rules than domestic investors regarding land and real estate ownership rights (e.g., being sometimes allowed only to invest in land and real estate assets through leasing arrangements while domestic investors are entitled to fully own such as through freehold titles).6 Similarly, restrictions on foreign ownership of agricultural land are prevalent, as they are in many countries, particularly in Asia. Certain countries also reserve construction services exclusively for nationals, while others may grant foreign nationals temporary licences for specific construction projects, such as in Tanzania. In Kenya, admission of foreign construction firms hinges on the value of the construction projects, and if the threshold is met, the foreign company must either subcontract or form a joint venture with local ownership comprising at least 30%.
Note: See Annex A for a detailed list of discriminatory measures against FDI in EAC Partner States.
Source: OECD FDI Regulatory Restrictiveness Index, 2021.
Several countries in the region have actively been liberalising their investment regulations, particularly since 2021. For instance, Kenya abolished a 30% local shareholding requirement in the telecommunications sector in 2023, reversing its previous decision to raise the threshold from 20% to 30% in 2020. Kenya had also eliminated a strong barrier in 2015, when it abolished a 75% cap on foreign ownership in listed companies. Additionally, in 2022, Rwanda removed local content requirements for radio broadcasters and free-to-air licensees, facilitating increased foreign investment in the media sector. Similarly, Uganda opened its fishing sector in 2023 by removing nationality requirements for obtaining fishing licences. In contrast, Uganda has tightened restrictions in its mining sector in 2022, limiting licences for artisanal and small-scale mining activities to Ugandan citizens or companies wholly owned by Ugandan nationals. Future updates of the FDI Index would allow EAC Partner States to showcase their reforms to the international community.
2.3.2. National treatment is provided in regional instruments and domestic laws but with differing practices
The EAC Investment Policy enjoins Partner States to ensure regulations on non-discrimination, including on NT. As it stands, the EAC Investment Code contains a standalone two-fold provision on the principle of non-discrimination, allowing foreign investors to invest in any business activity (except those facing restrictions) and affording them NT. But this provision is broadly defined and does not provide guidance as to the components to be considered when applying such treatment. EAC countries have differing practices with respect to the principle of non-discrimination. The investment laws of Burundi, the DRC, Rwanda and South Sudan contain non-discrimination and NT provisions, though, similarly to the EAC Investment Code, they do not define such treatment concisely or refer to the criteria of “like circumstances”. Application of NT is restricted to certain areas or regulations in some instances, such as in Burundi and DRC. Tanzania’s investment law does not contain an explicit non-discrimination provision though it seemingly affords foreign and domestic investors the same guarantees. Kenya’s Investment Promotion Act is silent as to the treatment afforded to foreign investors, but the minimum capital required for an investment certificate is higher for foreign investors – implying that NT is not necessarily afforded to foreign investors. Similarly, Uganda’s investment law does not afford non-discriminatory treatment to foreign investors, and investors may be restricted from investing in certain activities.
While NT embodies a commitment to fairness and non-discrimination, signalling openness to foreign investment in theory, it does not guarantee the absence of discriminatory practices. Despite the intent to create a level playing field, countries may still impose restrictive regulatory measures that, in practice, hinder FDI by creating significant barriers to entry for foreign investors. Foreign investment in certain sectors may be subject to more stringent regulations and licensing requirements than applied to domestic investors, or to restrictions on foreign ownership. The FDI Index assesses the restrictiveness of such policies, considering various factors such as equity restrictions, screening mechanisms, and regulatory transparency. Even in countries with national treatment provisions, the Index may reveal instances where regulatory measures impede foreign investment, highlighting the sometimes contrasting relationship between policy intent and practical implementation.
2.3.3. Foreign ownership of land is heavily restricted in the region and leasing options vary greatly
Restrictions on foreign land ownership serve as a barrier to foreign investment by limiting access to key assets, hindering long-term planning and investment opportunities in various sectors of the economy. Land ownership regulations within the EAC commonly enforce restrictions on foreigners, often mandating leasehold tenure rather than freehold for non-citizens, with maximum lease durations varying from 25 years in the DRC to 50 years in Burundi and 99 years in Rwanda, Kenya, Uganda, and South Sudan. Leaseholds in all partner states are renewable after their expiration for up to the maximum initial lease period for both private and public agreements. In Kenya, citizens have a pre-emptive right to renew their lease unless the land is needed for public purposes, whereas non-citizens or companies with non-citizen shareholders have no pre-emptive rights. After the expiration of their land leases, it is reverted to the government and may be offered to the public competitively.
Agriculture also plays a significant role in the economy of the EAC, but foreigners often face restrictions on accessing or buying land for agricultural purposes, which may act as a barrier for attracting investments into this vital sector for economic development and food security, especially in the face of climate-related challenges. For example, the DRC’s Farming Law of 2011 limits access to land only to Congolese nationals or investors whose majority is held by Congolese. Similarly, a private limited liability company incorporated in Kenya cannot, as provided in the Land Control Act of 2012, own agricultural land unless all shareholders are Kenyan citizens. In South Sudan, leaseholds for public land may be for periods of up to 30 years for agricultural investments and 60 years for forestry investment.
2.3.4. EAC mining sectors see the highest number and types of restrictions and certain countries are witnessing a surge in state equity involvement at the discretion of the government
The EAC is rich in natural resources and mining makes up a large part of its economic landscape. At the same time, it is also the most restrictive sector in the region. States sometimes use restrictive measures in the form of local or state equity participation to promote domestic ownership, enhance resource governance, and ensure that the benefits of mining activities are shared more equitably among local communities. Ensuring broader social and economic returns from mining projects is a concern of many governments worldwide. The question is whether partial state ownership is the most appropriate means to achieve this end because some concerns could potentially be addressed via more stringent tax, environmental and labour regulations. As the experience in the mining sector in Zambia has demonstrated, state ownership does not always guarantee that workers will be treated fairly or that broader benefits will be realised (Fessehaie, 2012[12]).
While not considered a restriction under the FDI Index, as partial state ownership is not discriminatory per se, foreign investors may still perceive these restrictions as limiting their control over mining operations and reducing their potential returns on investment. All EAC Partner States, except for Rwanda, mandate government participation in mining activities through equity interests. Tanzania’s Mining (State Participation) Regulations set a precedent by mandating the government to maintain a minimum of 16% non-dilutable free carried interest shares in mining companies, with the potential to extend this to 50% based on tax expenditures. In the DRC, there is an automatic transfer of 10% of a company’s shares to the state, a Figure that has doubled since the previous mining code in 2018. South Sudan and Uganda provide the government with an optional equity stake of up to 15% in large-scale mining operations, with Uganda retaining the right to acquire an additional 20% of shares at commercial rates. Burundi mandates the reservation of 10% of a mining company’s shareholding for the state.
While some countries like Kenya, Burundi and South Sudan inaugurated compulsory state free carry shares over a decade ago, many of the region’s mining laws have only incorporated state equity participation in recent years. For example, Uganda and Tanzania passed amendments establishing mandatory state equity participation in 2022 while the DRC doubled the state’s free share in mining projects in 2018. The evolution of these regulations collectively reflects a trend towards increased government involvement and local participation in the mining sector across East Africa, potentially affecting foreign investment strategies and interests as further restrictions on freedom of investment are imposed.
Requirements for equity participation by a local investor are observed in some EAC countries and considered a restriction under the FDI Regulatory Restrictiveness Index. With respect to large scale mining operations in Kenya, licensees are required to list at least 20% of their equity on a local stock exchange within three years after commencement of production. In Burundi, companies must ensure the participation of Burundi nationals in the equity capital of a company in the mining sector, although the amount is not prescribed which can lead to further uncertainties.
2.3.5. Local content requirements in the mining sector may need further clarity to effectively contribute to sustainability
Many governments implement local content requirements to stimulate domestic industry and employment, particularly in extractive industries, and to ensure some long-term development impact that extends beyond the life of the project itself. But if the requirements are not tied to the ability of local firms to deliver in a timely manner while ensuring sufficient quality, they may turn out to be counterproductive by discouraging potential investors in the first place (Johnson, 2016[13]) (Sen, 2018[14]). Local content requirements are not necessarily restrictive for foreign investors, especially when they apply to the use and training of domestic workers, but they can be when applied to the purchase of local goods and services, whereby firms are required to use domestic suppliers over imports possibly contributing to higher production costs and ultimately higher prices to downstream industries and consumers (OECD, 2019[15]).
Local content requirements can have both trade and investment scopes. Those with a trade scope mandate that a specific percentage of inputs or goods be sourced from local (resident) suppliers instead of imported from abroad. Conversely, investment-focused local content requirements compel firms to source a certain proportion of their inputs or services from domestically-owned firms (as opposed to resident firms owned by domestic or foreign investors). As these measures discriminate against foreign-owned enterprises, they are considered a restriction under the FDI Index. In the EAC, many local content requirements policies discriminate based on nationality, constituting a barrier to FDI, whereas residency-based local content policies, heavily prevalent in Rwanda, are a barrier to trade and are not considered an FDI restriction under the OECD FDI Regulatory Restrictiveness Index. The consideration of local content has been increasingly emphasised in the region’s policies, particularly those of the DRC, Kenya, Tanzania and Uganda, which aim to promote domestic participation and economic development in their respective industries. However, the implementation of these local content regulations faces significant challenges in several countries. In Tanzania, despite efforts to enhance local content policies in the mining sector, such measures are hindered by vague regulations, a challenging business environment, and a historical trend of deindustrialisation. Similarly, Uganda struggles with weak local capacity in its manufacturing sector, limiting its ability to effectively implement local content requirements, particularly in the emerging oil industry.
2.3.6. Discriminatory minimum threshold and paid-up capital requirements for foreign investors are common in the EAC
Minimum capital requirements often pose significant barriers to business development and growth. These requirements can significantly increase the cost of entry into a market, discouraging foreign investors from establishing or expanding operations. The higher financial thresholds may also limit the pool of potential investors willing or able to meet the criteria, reducing competition and stifling innovation in the market (World Bank, 2014[16]). In the EAC, foreign investors often need to register for an investment certificate with the state (see below). In some instances, like Rwanda, Burundi, the DRC, and Tanzania, this requirement is linked to incentives eligibility, while in others, like South Sudan, it is obligatory to establish a business that ensures economic benefit to the country.
Additionally, there are cases where the criteria for obtaining an investment licence impose higher capital requirements on foreign investors compared to domestic ones. Minimum capital requirements often fail to achieve their initial objectives of protecting consumers and creditors from risky businesses. Instead, they can hinder entrepreneurial activity and company growth, as they do not account for varying business risks and act as barriers to entry, with creditors preferring objective risk assessments over legally-imposed capital requirements (World Bank, 2014[16]). Discriminatory minimum capital requirements serve as an additional barrier for foreign investors, especially smaller and medium-sized firms. These discrepancies are particularly striking in comparison to OECD countries and larger emerging economies, with minimum capital requirements in EAC countries often five to ten times greater for foreign investors than for domestic counterparts (World Bank, 2012[17]). In Uganda, for example, foreign investors must meet a USD 250 000 threshold while domestic investors need only meet USD 50 000, whereas, in Kenya, foreign investors must meet a threshold of USD 100 000 compared to USD 10 000 for domestic investors as part of the mandatory investment certificate registration process. These thresholds necessarily discourage smaller investors who might potentially be even more likely to rely on domestic suppliers than the larger capital-intensive investors.
2.3.7. Foreign equity restrictions are also prevalent in tertiary sectors, particularly in telecommunications, financial and business services
The telecommunications sectors in Uganda and Kenya showcase differing approaches to local equity participation requirements. Uganda mandates that companies securing National Telecom Operator licences must list a minimum of 20% of their shares on the Uganda Securities Exchange within two years, emphasising regulatory efforts to bolster local involvement in the industry. Conversely, Kenya initially increased local shareholding requirements in telecommunications from 20% in 2006 to 30% by 2020, before ultimately abolishing national equity restrictions altogether to attract foreign investment and ease entry barriers. The implementation of this policy shift, announced in 2020, only materialised in August 2023, underscoring the challenges of timely legislative reform and the resulting regulatory uncertainty in the investment landscape. Similarly, engineering consulting firms in Kenya must register or incorporate locally, with at least 51% of their shareholding held by Kenyan citizens and must be registered with the Engineers Board of Kenya as per the Engineers Act, 2011. Additionally, insurance brokers in Kenya must ensure at least 60% ownership by Kenyan citizens or entities wholly owned by them, with one third of the board of directors or managing board comprising Kenyan citizens. These regulatory frameworks reflect efforts to promote local participation across various sectors, albeit with challenges in implementation and regulatory consistency.
The EAC Investment Code follows the design of national investment laws driven by international standards; these were initially conceived as tools through which such standards could be integrated into domestic laws and aimed at attracting investment (IISD, 2023[18]). This trend is now facing mounting backlash, as States are increasingly aware of the risk of such instruments becoming disconnected from the wider national system, and of posing legal risks and policy concerns similar to those resulting from first-generation treaties discussed above. States are therefore showing growing interest in reshaping their investment laws to address these concerns and when doing so, States should first identify the aim they seek to achieve through such laws. The design and drafting of the law will ultimately depend on its purpose and investment laws can perform different functions, varying from governing the admission and approval of new foreign investment, to administering investment or guaranteeing legal protection (IISD, 2023[18]).
In the case of the EAC, the EAC Investment Policy identifies challenges, objectives and guiding principles of investment policies:
Challenges to inflows of FDI include lack of streamlined regulatory and legal frameworks, the non-binding nature of the EAC Investment Code and the lack of policy coherence.
Objectives include creating an enabling environment for investment to promote and market the EAC Partner States equitably, through inter alia establishing a competitive investment area by enhancing clarity and policy transparency for investors and promoting the EAC as a single investment destination.
Guiding principles include openness to both domestic and foreign investment, promotion of local content and domestic transparent and predictable regulatory framework with simplified establishment procedures, right to national, regional and international impartial arbitration, responsible and sustainable investments and maintaining the balance between the rights and obligations of investors and States in line with principles of SDGs.
When amending the EAC Investment Code, the above elements should be kept in mind. For instance, it transpires from the guiding principles of the EAC Investment Policy that any amendment to the EAC Investment Code should continue to regulate the admission of investment, the treatment afforded to investors and the dispute resolution mechanisms. The following section will analyse the EAC Investment Code of 2006 as well as national investment laws to identify sections/provisions that may be amended to better reflect the EAC Investment Policy.7
The EAC Investment Code, adopted in July 2006 when the EAC had only three Partner States, was conceived as a guiding tool for countries in developing their national investment laws – this means that this tool is not binding and merely facilitates the adoption of a transparent and predictable framework. All EAC Partner States have an investment law covering both domestic and foreign investors. Most of these laws were adopted or amended in the 2010s and 2020s, after the enactment of the EAC Investment Code. The laws described in this section are listed below:
Burundi: Law No. 1/19 of 17 June 2021 Amending Law No. 1/24 of 10 September 2008 on the Investment Code of Burundi (2021)
DRC: Code des Investissements (2002)
Kenya: Investment Promotion Act (2004, amended in 2014)
Rwanda: Law on investment promotion and facilitation (2021)
South Sudan: Investment Promotion Act (2009)
United Republic of Tanzania: Tanzania Investment Act (2022) and Zanzibar Investment Promotion and Protection Authority Act (2018)
Uganda: Investment Code Act (2019)
Amending the EAC Investment Code and local laws is only the first step in achieving a harmonised, conducive, predictable, and transparent business environment. Subsequent enforcement of such amendments will be paramount to attain this objective and, to ensure effective implementation, EAC bodies like investment promotion agencies could play a pivotal role in overseeing Partner States' adherence to these amendments. Enforcement can be incentivised through offering support mechanisms to facilitate implementation, such as capacity buildings, technical assistance, peer-review mechanisms or implementation guides.
2.4.1. Sustainable development is rarely a central objective of investment laws, but certain elements are taken into account when applying for investment approval or incentives
Contrary to the EAC Model Investment Treaty, the EAC Investment Code contains limited language of sustainable development; its preamble merely recognises the need to pursue open, liberal and transparent investment policies that contribute to economic progress, and that such model code would enhance quantitative and qualitative foreign and local investment. Additional incentives are afforded to investments in novel and high-risk ventures as well as in undeveloped regions of Partner States. The EAC Investment Code does not prescribe any further type of commitments with respect to sustainable development.
With respect to investment laws of EAC Partner States, considerations of sustainability are addressed to varying degrees and only some of them contain general language as to sustainable investment. South Sudan’s Investment Promotion Act incorporates more considerations of sustainability than other laws, to the extent that the role assigned to its investment authority is not only to encourage and promote investments that would effectively strengthen and diversify the economy, but also those that would generate employment, contribute towards the realisation of economic co-operation and integration with regional and international communities and would develop sustainable utilisation of natural resources. Notwithstanding any other provisions or rules, investments in South Sudan must observe and implement environmentally friendly corporate rules and regulations. The investment laws of the DRC and Rwanda also contain some general language of sustainable development. In the DRC, investments are defined as those designed to create or increase capacity to provide goods and services amongst others and, in order to benefit from the protection of said law, investors are required to abide by domestic regulations on the protection of environment and the conservation of nature and to train local person for technical functions. Rwanda’s investment law encourages investors to invest in priority sectors of the economy and grants additional incentives to strategic investments which contribute to certain objectives, many of which relate to sustainable development. Obtaining an investment certificate is further subject to proof of technology and knowledge transfer and raw materials being sourced locally, in addition to the requirement of an environmental assessment certificate.
In other EAC investment laws, sustainability considerations often pertain to the creation of local employment, including when obtaining approvals or incentives. For instance, the investment laws of Burundi and the DRC require investment projects to adhere to laws and regulations pertaining to environmental and labour protection and offer additional advantages to specific categories of potential investors, such as women and youth or SMEs. Under Kenya’s Investment Promotion Act, an investment certificate may only be granted if the proposed investment contributes to Kenya’s benefit, and therefore creates jobs for Kenyans, imparts new skills and technology to the local community and facilitates technology transfer. Tanzania’s Investment Act provides additional benefits to investments that generate a minimum number of local jobs or that enhance Tanzanians’ know-how. Zanzibar’s Investment Act emphasises the importance of local employment and, like the Tanzania Investment Act, grants additional incentives to investments employing a minimum number of locals. Uganda’s Investment Code Act equally provides that the role of its investment authority is to promote and encourage investment in new technologies, skill upgrading, training and research and product development.
Some of the investment laws reviewed require the investor to undertake an environmental impact assessment or demonstrate environmental compliance of the investment. This is notably the case in Burundi, Kenya, Rwanda, South Sudan and Uganda. While some considerations of sustainable development are embedded in domestic investment laws, achieving objectives set forth in the EAC Investment Policy will require further language to that end. It would therefore be advisable to include, in the preamble of the EAC Investment Code, express language encouraging sustainable investment in the region and to elevate such a consideration into an objective.
2.4.2. Better delineation of investors’ standards of protection is advisable
Except for Kenya’s Investment Promotion Act – whose purpose is to promote and facilitate investments – all investment laws in the EAC provide for investors’ guarantees and standards of protection. These are nevertheless broadly defined in all investment laws and, in some instances, outdated. The analysis below focuses on the non-discrimination principle, the protection against expropriation and the FET standard.
Protection against expropriation is embedded in the EAC’s Investment Policy, as well as in the EAC’s Model Investment Code, which protects investors against unlawful expropriation and identifies the conditions in which an expropriation may occur. No reference to indirect expropriation is made in the relevant provision. Similarly, with the exception of Kenya’s Investment Promotion Act, all investment laws protect investors against unlawful expropriation, though often only succinctly. In doing so, most laws refer to their constitution. The DRC’s investment law regulates expropriation more extensively than other laws examined and protects investors against both direct and indirect expropriation. Rwanda’s Law on Investment Promotion and Facilitation confirms that legal rights and interests are equally protected against unlawful expropriation.
Neither the EAC Investment Policy nor the EAC Investment Model Code make any reference to FET. Similarly, except for the DRC’s investment law, none of the investment laws reviewed include an FET provision. This is in line with common practice as issues of procedural fairness and government accountability are often addressed in greater details in specific domestic laws (IISD, 2023[18]). The DRC’s investment law defines the FET standard by reference to principles of international law, albeit without any express positioning vis-à-vis such a body of rules (OECD, 2023[7]).
Hence, better delineation of substantive protections afforded to both local and foreign investors would be advisable, including in the EAC Investment Model Code. This would allow the EAC to create a more enabling yet harmonised business environment, striking the right balance between the rights and obligations of investors and the EAC Partner States, as referred to in the EAC Investment Policy.
2.4.3. Limited sustainable development related obligations for investors and investments
The EAC Investment Policy emphasises the need to maintain a balance between the rights and obligations of investors and States in line with the principles of the SDGs and to promote responsible and sustainable investments in line with the respective member states’ development objectives. Most objectives outlined in the EAC Investment Policy pertain to sustainable development, to be implemented notably in the form of obligations for investors. These objectives include maximising mobilisation and utilisation of domestic capacity through encouraging its inclusion in regional and international value chains and facilitating the transfer of skills and technology.
As it presently stands, the EAC Investment Model Code does not incorporate sustainable development related obligations for investors and investments. Despite committing to pursuing investment policies that significantly contribute to the economic progress of EAC’s Partner States, the code lacks effective implementation of such commitments and merely provides that information figuring in the investment certificate as defined therein (i.e. the amount or value and the description of the assets invested, the duration of the investment) amount to an obligation for the investor.
Some domestic laws, such as in Burundi, Rwanda, and the DRC include distinct chapters or sections outlining investors' obligations and others provide more ad hoc obligations. Most investment laws of the EAC Partner States include a general obligation for investors and their investments to comply with domestic legislation and regulations, as seen in Burundi, Kenya, the DRC, Tanzania, Zanzibar and Uganda. Rwanda’s Investment Code is the exception, as it does not explicitly state the obligation of investors to comply with domestic law. The inclusion of such an obligation precludes investors from relying on the provision of the investment law to evade broader compliance with domestic law, bearing in mind that singling out certain types of obligations in investment laws rather than referring to general compliance with domestic laws can be questioned (IISD, 2023[18]) A limited number of investment laws impose pre-establishment obligations, such as requiring investors to provide studies on the environmental impact of the investment. This is notably the case in Burundi, Uganda and Rwanda.
Specific obligations concerning the environment are included in some of the investment laws reviewed. For instance, in Tanzania, investors are required to conduct activities in a manner that best contributes to environmental protection, creation of gender balance and skills development. In South Sudan, investors are enjoined to observe and implement environment friendly corporate rules and regulations. Labour obligations are included to a larger extent in the investment laws of the DRC, Zanzibar, Kenya and South Sudan (e.g. creation of local employment, contribution to skills development, contribution to technology transfer). Rwanda, Tanzania and Uganda do not impose such an obligation on investors but grant additional incentives to investors providing employment and training to locals.
Like with regional investment instruments, the degree of enforceability of these obligations is not always clear and can vary from one investment law to another. Most investment laws provide for the possibility to revoke the investment certificate, notably in the event of misrepresentation or fraudulent information when applying for the investment certificate. This is notably the case in Burundi, Kenya, Rwanda, Uganda and South Sudan. In some cases, the same penalty is also applicable for other types of breaches, such as failure to comply with the investment certificate or the relevant investment law. In Rwanda, an investor’s failure to design and implement environmentally friendly rules and regulations is also punishable by fines, financial compensation or removal of the damage where applicable.
Investment laws of EAC Partner States, including more recent ones, demonstrate EAC governments’ willingness to promote sustainable investment, including by imposing further sustainability-related obligations on investors. Continuing on this course and mandating investors to adhere to sustainability obligations will undoubtedly assist the EAC in attaining its objectives outlined in the EAC Investment Policy.
2.4.4. Scarce sustainable development related obligations and commitments for states
As the EAC Investment Policy endeavours to foster sustainable investment, this objective is more likely to be achieved with the active engagement and commitment of Partner States. The EAC Investment Model Code does not impose any obligation on adopting States beyond those relating to investors’ substantive protection described above.
In the same vein, national investment laws in the EAC almost unanimously lack states’ general obligations or commitments on key sustainable development issues. South Sudan’s investment law contains some form of state obligation, to the extent that it requires the local investment authority to ensure the protection of local communities and promote indigenous investments. Uganda’s investment law also requires the investment authority to comply with financial obligations, such as having regard to sound financial principles and complying with its Public Finance Management Act.
Several Partner States include other commitments in these laws which could positively contribute to sustainable development. For example, some undertake to protect intellectual property rights, and all include provisions regarding the establishment and operation of investment agencies to promote and facilitate investment. This reinforces the potential for attracting investment that could positively contribute to sustainable development.
In achieving the sustainability goals set forth in the EAC Investment Policy, EAC Partner States are encouraged to commit more solemnly to sustainability-related obligations in their investment laws, to guarantee efficient implementation and continuity of such policies in the long term.
2.4.5. Varying approaches to dispute settlement mechanisms and the availability of arbitration
The EAC Investment’s Policy seeks to ensure the right to national, regional and international impartial arbitration in the event of a dispute, bearing in mind that dispute settlement should take into account new developments at varying levels.
The EAC Investment Model Code does not enjoin parties to a specific dispute settlement mechanism. Rather, parties to an investment certificate have the liberty to elect their preferred dispute settlement mechanism. Disputes to be settled by way of arbitration will, in principle, be subject to the Rules of the International Centre for the Settlement of Investment Disputes (ICSID). The inclusion of an arbitration clause in the investment certificate does not preclude the parties from resorting to any remedy including the East African Court of Justice. No mention is made as to whether prior negotiations or attempts to amicably resolve the dispute are required before resorting to contentious remedies.
Except for the investment law of Kenya, all investment laws in the EAC contain dispute settlement provisions and sometimes refer to the possible recourse to arbitration in the event of a dispute, albeit through different approaches:
The investment law of Burundi is fairly similar to the EAC Investment Model Code in that respect, to the extent that it does not elect a dispute resolution mechanism but provides that in the event the dispute is referred to international arbitration, it shall comply with ICSID rules;
Investment disputes arising out of the DRC’s investment law shall invariably be submitted to international arbitration (ICSID or Arbitration Court of the International Chamber of Commerce of Paris);
Investment laws of Rwanda, Tanzania, South Sudan, Zanzibar and Uganda provide for the possibility of recourse to arbitration in the event of an investment dispute. In Rwanda and Uganda, in the absence of an arbitration clause, disputes are submitted to local courts. By contrast, in Zanzibar, specific reference must be included if parties do not wish to submit their disputes to arbitration – implying that international arbitration is the default forum for resolving investment disputes. Investment laws of Tanzania and South Sudan are not clear as to the competent forum in the absence of a specific reference to that end in the investment certificate.
Prior consent to arbitration is embedded in the DRC and Zanzibar’s investment laws, to the extent that no further agreement is needed to submit a dispute to arbitration. Dispute resolution provisions included in the investment laws of Tanzania and South Sudan are adversely equivocal as it remains unclear whether prior consent on behalf of the state is required to submit a dispute to arbitration, or merely necessary for the choice of applicable arbitration rules. Such provisions would benefit from clearer wording to avoid conflicting interpretations by arbitral tribunals, though they are likely to be interpreted as incorporating the States’ prior consent to arbitration. In any event, providing prior consent to arbitration on behalf of a state in investment laws is uncommon and could create significant legal risks for states, associated with substantial legal costs (IISD, 2023[18]). To balance such risk, a great number of investment laws require the host government to provide its consent to arbitration separately (such as in the investment certificate). This is notably the case of the investment laws of Rwanda and Uganda, which do not provide for prior consent to arbitration on behalf of the state but rather, require that such consent be given separately in the parties’ investment certificate.
Preliminary attempts at amicable settlement, before any recourse to arbitration or courts, are required in most investment laws. This is notably the case of the DRC, Rwanda, Tanzania, South Sudan, Uganda and Zanzibar. While Burundi does not include a dispute settlement provision per se and therefore does not include this requirement, it nevertheless enjoins its investment agency to contribute to the amicable resolution of disputes between investors and the State.
Elected arbitral institutions vary from one investment law to another, though most refer to ICSID. In addition to the possibility of arbitration under the auspices of ICSID, most investment laws allow for recourse in accordance with bilateral or multilateral agreements with the investor's home country or other agreed-upon mechanisms (e.g. South Sudan) or national arbitration laws (e.g. Uganda, Tanzania, Zanzibar).
References
[5] AfCFTA (2023), AfCFTA Protocol to the Agreement establishing the African Continental Free Trade Area on Investment.
[1] EAC (2016), EAC Model Investment Treaty, https://edit.wti.org/document/show/pdf/062e9278-4383-4ff9-97b4-a8bbff3eb21c.
[12] Fessehaie, J. (2012), What determines the breadth and depth of Zambia’s backward linkages to copper mining? The role of public policy and value chain dynamics, University of Cape Town PRISM, School of Economics, https://doi.org/10.1016/j.resourpol.2012.06.003.
[18] IISD (2023), Rethinking National Investment Laws: A study of past and present laws to inform future policy-making, https://www.iisd.org/system/files/2023-07/rethinking-national-investment-laws-en.pdf.
[13] Johnson, L. (2016), Space for Local Content Policies and Strategies, Columbia Law School, https://scholarship.law.columbia.edu/sustainable_investment_staffpubs/16?utm_source=scholarship.law.columbia.edu%2Fsustainable_investment_staffpubs%2F16&utm_medium=PDF&utm_campaign=PDFCoverPages.
[9] 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.
[11] Mistura, F. (forthcoming), OECD FDI Regulatory Restrictiveness Index: Methodological update.
[10] Mistura, F. and C. Roulet (2019), “The determinants of Foreign Direct Investment: Do statutory restrictions matter?”, OECD Working Papers on International Investment, No. 2019/01, OECD Publishing, Paris, https://doi.org/10.1787/641507ce-en.
[3] OECD (2024), Sustainable Investment Policy Perspectives in the Economic Community of West African States (ECOWAS), OECD Publishing, Paris, https://doi.org/10.1787/654e2de5-en.
[2] OECD (2024), The Future of Investment Treaties (Track 2) - About work on the Future of Investment Treaties in the Track 2 Project, OECD, Paris, https://www.oecd.org/investment/investment-policy/oecd-future-investment-treaties-track2-faq.pdf.
[7] OECD (2023), ’Fair“ and ’equitable’ treatment provisions in investment treaties A large-sample survey of treaty provisions, OECD, Paris, https://one.oecd.org/document/DAF/INV/TR1/WD(2023)1/en/pdf.
[4] OECD (2023), Sustainable Investment Policy Perspectives in the Southern African Development Community, OECD Publishing, Paris, https://doi.org/10.1787/02c9ef1d-en.
[6] OECD (2021), The Future of Investment Treaties (Track 2) - The notion of ’indirect expropriation in investment treaties concluded by 88 jurisdictions: A large sample survey of treaty provisions, OECD, Paris, https://www.oecd.org/investment/investment-policy/oecd-future-investment-treaties-indirect-expropriation-meeting-background.pdf.
[15] OECD (2019), Local content requirements, OECD Trade Policy Brief, February, https://issuu.com/oecd.publishing/docs/local_content_requirements.
[8] PAIC (2016), Draft Pan-African Investment Code.
[14] Sen, R. (2018), Enhancing local content in Uganda’s oil and gas industry., UNU-WIDER, https://doi.org/10.35188/UNU-WIDER/2018/552-7.
[19] U.S. Bureau of Economic Analysis (2021), Activities of U.S. Multinational Enterprises, 2021, https://www.bea.gov/international/di1usdop.
[16] World Bank (2014), Why are minimum capital requirements a concern for entrepreneurs?, World Bank Doing Busienss 2014.
[17] World Bank (2012), Investing Across Borders database, World Bank.
← 1. More information can be found at: https://www.oecd.org/en/topics/the-future-of-investment-treaties.html.
← 2. The official and/or executed version of the AfCFTA Investment Protocol is not accessible online; the present analysis has therefore been conducted on the basis of the draft presented at the Seventh Extraordinary Session of the Specialized Technical Committee on Justice and Legal Affairs in Accra, Ghana, in January 2023.
← 3. Note should be taken that most the EAC Partners have enacted national laws related to these topics.
← 4. Pursuant to art. 46 of the AfCFTA Investment Protocol, the applicable dispute resolution is to be addressed in a separate Annex that is yet to be negotiated and published (expected within 12 months of the adoption of the protocol).
← 5. Of the almost 41 000 foreign affiliates of US investors, for example, fully 92% are majority-owned and the same proportion holds for US-owned affiliates in Africa (U.S. Bureau of Economic Analysis, 2021[19]). One element which might explain this preference is the perceived need to protect intangible assets and intellectual property rights from potentially leaking to local partners and competitors.
← 6. Only measures that discriminate against foreign investment in real estate for purely financial reasons — i.e. investments that are intended for leasing and capital gains, rather than support an investor's business operations — are considered restrictions under the 'real estate investment' sector. As per the OECD FDI Regulatory Restrictiveness Index methodology, even if foreign investors are allowed to lease and sub-lease real estate property, where they face discrimination in the types of land and real estate titles they can hold compared to domestic investors, a restriction on ‘real estate investment’ is considered to apply. Such discriminatory measures put foreign investors at a disadvantage, preventing them from equitably benefiting from all profitable investment opportunities in the market.
← 7. This section looks at domestic investment laws of EAC state parties. This section does not however cover local investment legislations that go beyond investment laws, such as general tax laws, enterprise laws or commercial codes 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.