The current administration of Bola Ahmed Tinubu, has made promises to bring more foreign investments into Nigeria. The president has been travelling the world to attract foreign direct investment and to inject much-needed forex into the country’s struggling economy. In addition to this, the government has designed significant reforms to put the country on a path to economic recovery, to attract foreign investors. These include removing state control of the naira to harmonise the exchange rates between the official and parallel markets, addressing dollar shortages and black-market trading, reducing the number of taxes from 60 to around 10, and eliminating fuel subsidies.
It appears that the president’s actions are yielding positive results, as several countries, such as Germany, India, Saudi Arabia and France, have expressed interest in investing in Nigeria although only time will tell if these investments will materialise. If they do, it would be a cause for celebration for Nigerians, as it would stimulate our struggling economy and provide much-needed job opportunities for the large number of unemployed young people.
That being said, it must be borne in mind that although foreign investments are beneficial, they also have their downsides, the P&ID case is an eye-opener for Nigeria. While there are several painful takeaways from that case, one that particularly strikes a chord with me is the urgent need to reassess Nigeria’s protections to foreign investors including the investor-state arbitration system. For this reason, the government must take steps to review the protections it gives to investors and the investor-state arbitration in its investment laws and treaties it concludes with other countries, as this is a long overdue and neglected reform that carries significant consequences and impact.
There is a widespread belief that to attract foreign investments, countries must offer investors some protection based on international standards. This protection is mainly to ensure the safety of investments from the host state’s economic and political volatility, as well as protectionist tendencies.
While there is still a debate on whether these protections increase the flow of foreign investments, it is crucial to ensure that Nigerians are protected as much as the investors. These protections are contained in investment treaties, which can be bilateral (between two nations) or multilateral (between several nations).
Currently, Nigeria has concluded 31 treaties, according to the United Nations Conference on Trade and Development (UNCTAD), including with recent countries that have expressed an interest in investing in Nigeria. The Nigerian Investment Promotion Commission Act of 1995, amended in 2004 is Nigeria’s major investment legislation, which provides guarantees for foreign investors. Any investor that comes into Nigeria will be able to rely on protections in the NIPC Act, as well as any treaty concluded between its home country and Nigeria, as the host country.
Therefore, it is necessary to reconsider the contents of the treaties and the NIPC Act, particularly now that the government promises a deluge of investment.
Nigeria’s treaties and the NIPC Act provide certain guarantees to investors. These include fair and equitable treatment, most-favoured nation status, full protection and security, and national standard of treatment. The most-favoured-nation status allows investors to benefit from favourable treatment given to nationals of a third state under a different treaty it concluded with Nigeria.
The BIT terms also cover repatriation, nationalization, compensation, and dispute settlement. Disputes arising from the investment are mostly settled by a delocalised international investment arbitration tribunal, usually the International Centre for the Settlement of Investment Disputes (ICSID) or an ad hoc tribunal. This is known as the Investor-State Dispute Settlement (ISDS) mechanism. It allows investors to sue states, which derogates the sovereignty of states but preserves the relationship between the host state and the home state of the investor. Also, the delocalised nature of the forum ensures fairness and protection of investment.
The provisions in many Bilateral Investment Treaties (BITs) and investment legislations may seem harmless to those who are not familiar with them. However, they are actually very sensitive because of the potential negative impact they can have on a country and its people when disputes arise and international investment arbitration is sought.
In such cases, these protections are interpreted by arbitrators, and the open-ended nature of many BITs and investment legislations allows for conflicting interpretations. This is because each tribunal can interpret the protections according to their own beliefs and ideologies, leading to inconsistent decisions. This is a major challenge for African countries, as the arbitrators are mostly Caucasian males with Euro-centric views on investment, which may not align with the perspectives of developing or African countries.
This lack of diversity among arbitrators, combined with incongruous interpretations, is a significant concern for African states.
Furthermore, Nigeria’s BITs and Investment Act, as with other BITs generally, often impose one-sided obligations, with Nigeria providing assurances to investors from developed nations without corresponding obligations from potential investors. This puts Nigeria, as the host state, in a difficult position, as its regulatory power is often limited.
The root cause of this imbalance is that developing nations were excluded from the design of the international investment system due to colonialism, which led to the dominance of the interests of capital-exporting states and a Euro-centric international investment system. As a result, if Nigeria accuses a foreign investor of misconduct, it cannot use the bilateral agreement as a basis for the claim because Nigeria has no claim under it.
These problems of the international investment system are not limited to Nigeria or other developing nations. Even developed nations are affected due to role reversal where the capital-exporting states have become capital-importing states due to the rapid industrialisation of countries like China and India.
The dissatisfaction expressed by both developed and developing nations has created a legitimacy crisis in the international investment system.
Different states have responded to the crisis in different ways, with some choosing to decrease treaty-making or even terminate treaties altogether. Some states have opted for domestic legislation to protect foreign investment, such as South Africa, while others have developed model treaties or excluded themselves from investment arbitration.
These changes aim to create a more equitable and mutually beneficial relationship between states and foreign investors. Instead of focusing solely on investment protection, modern treaties now take into account sustainable development goals, including environmental protection, climate change, human rights, labour laws and promoting social welfare. The ultimate objective is to balance the competing interests of states and foreign investors.
The Nigeria-Morocco Treaty signed in 2016 was Nigeria’s response to the above legitimacy crisis. The treaty has some notable provisions that attempt to impose obligations on investors by requiring them to uphold human rights, labour rights, corporate social responsibility, corruption, and environmental protection. Furthermore, the treaty affirms Nigeria’s regulatory right to ensure that investment aligns with sustainable development, social, and economic policies.
The above innovative provisions are by no means a move in the right direction. However, the treaty still falls short of the radical reform needed. Firstly, it only applies to Morocco and Nigeria, although it could serve as a benchmark for Nigeria’s future treaties. Secondly, and most importantly, the dispute settlement provision, though an improvement on previous provisions, is not sufficient to bring about the necessary reform.
The dispute settlement process involves consultation and negotiation overseen by a Joint Committee, followed by the exhaustion of local remedies and, finally, resorting to international arbitration. The use of the Nigerian judiciary, an arm of the government, with a poor reputation and dilatory, is unfair to investors. This brings to mind the dictum that ‘Justice must not only be done it must be seen to have been done’.
Additionally, the international investment arbitration system has been detrimental to developing nations like Nigeria, as seen in the P&ID case. Therefore, a balanced approach is necessary, possibly through an African/decentralised investment arbitration forum that allows investors to avoid government interference and ensures arbitration from an African/developing country perspective.
Hopefully, the newly approved 2023 Investment Policy will better balance the interests of potential investors and the Nigerian people. As the government seeks more foreign investment to revive our ailing economy.
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