Africa’s Investment Growth Framework
By Beru Lilako
The role of Investment Facilitation Agencies
Investment facilitation agencies as envisioned by the AfCFTA protocol on investment encompass all policies and measures aimed at making it easier for investors to establish and expand their investments, as well as to conduct their day-to-day business in host countries. It involves the provision of relevant information and assistance to potential investors at the decision-making phase and throughout the course of the investment processes. This includes location benchmarking, due diligence, navigating government regulations and procedures, starting up and anticipating and dealing with ongoing business challenges.
Measures can include improvements in the transparency and availability of information to investors; streamlining of administrative procedures for investment enhancing the predictability of the investment policy environment through consultation procedures; and increasing the accountability and effectiveness of government authorities dealing with investment. Also, the inclusion of cross-border coordination and collaboration initiatives that can facilitate the exchange of best practices, capacity building initiatives and technical assistance in investment. Investment facilitation is critical for Africa’s economic growth and development under the AfCFTA
Special economic zones (SEZs) will also continue to grow in number across all regions and provide specific investment facilitation measures to investors. A recent study of the SEZs in Africa confirms that their use is on a steep upward trend and projected to proliferate in many countries across the continent. African governments should actively integrate the sustainability imperative into their strategies and operations. Special economic zones can serve as important catalysts and test beds for innovative investment facilitation in the continent which would propel the AfCFTA mandate through promoting sustainable development
The AfCFTA Protocol on Investment
The AfCFTA investment protocol, building on existing regional integration initiatives, will be a new milestone for regional integration on the continent. The protocol ought to build a robust and forward-looking regulatory regime that attracts sustainable investments and creates synergies between private and societal benefits. To simplify the current tangle of investment rules, it must clarify linkages with the other AfCFTA protocols, existing international investment agreements and other types of international law and domestic legislation.
The AfCFTA protocol on investment represents a significant step towards fostering an environment conducive for investment within the African continent. The protocol aims to foster investment opportunities by reducing transaction costs for investors and preventing conflicts between investors and host states. In addition, it is equally centred on investment protection by instituting legal safeguards against political risks in a bid to enhance investors’ confidence. It also aims to strike a balance between the obligations imposed upon investors and the commitments made by member states.
This is further amplified by the expansive market opportunities created by the AfCFTA, enhancing the appeal of the market to foreign investments. Consequently, it is imperative that the AfCFTA framework capitalizes on this opportunity and actively promotes not only intra-continental investments but also foreign investments. In addition, it is also imperative that the AfCFTA investment protocol incorporate mechanisms to address the investment gap in Africa and most importantly to involve promoting investments in sectors that contribute to environmental sustainability, social-wellbeing and economic transformation of African economies.
The international legal and policy landscape surrounding the continental integration must be kept in view.
This is through the following ways:
● Improving the transparency and predictability of investment measures
● Simplifying and speeding up investment-related administrative procedures
● Strengthening the dialogue between governments and investors, and promoting the uptake by companies of responsible business conduct practices, as well as preventing and fighting corruption
● Ensuring special and differential treatment, technical assistance and capacity building for developing and least-developed countries.
● Revisiting existing both regional and international trade agreements to create policy space for African countries to redesign their production, consumption and trading profiles to face contemporary global challenges.
● Establishing effective mechanisms for debt restructuring and relief based on the participation of all developing countries with agreed procedures, incentives and deterrents.
Credit: 1st Fiduciary
The African investment landscape is characterized by distinctive challenges that require particular attention, including the high cost of capital and the elevated risk associated with doing business on the continent.
The increasing cost of capital in Africa, exceeding levels observed in other regions, the lack of reliable information and data which is essential for investors to make informed decisions, collectively represent major impediments to new investments in Africa. In this context, data also indicates a significant decline in Africa’s share of greenfield foreign direct investment, underscoring concerns about the continent’s appeal to foreign investors.
A healthy trading system is crucial for meeting the 2030 Agenda. For Africa’s future outcome to be positive, policymakers will need a bold pro-developmental and cooperative approach to address the fault lines in the regional and international trading system both old and new. The ideal response is neither to double down on free trade nor to return to the situations in place prior to the COVID-19 shock.
Building such an adequate answer requires revisiting existing agreements at the bilateral, regional and multilateral levels to create policy space for all countries to redesign their production, consumption and trading profiles to face contemporary global challenges.
Beru Lilako is a policy analyst specializing in Regional Integration, Investment and Trade