During the past two decades, shifting economic paradigms and conditions for investment and capital flows—globalization—have underlined the importance of African countries’ steps to widen and deepen regional integration. They have, in particular, removed open impediments to capital flows, enabling investors to freely select among alternative destinations on the basis of comparative advantage. In the destination countries, the recent financial crisis and the consequent reduction in official development assistance have also prompted governments to increase their efforts to mobilize private financial resources for public projects, especially for infrastructure.
African countries’ wish to attract external resources provides an incentive for them to tighten economic links among themselves and to take steps to boost intra-regional financial flows. Economic policies nationally have also enhanced countries’ attractiveness. These moves, coupled with abundant global liquidity, have led to a surge in all types of private capital flows into the continent.
Sub-Saharan Africa is set to enjoy a modest growth uptick, and decisive policies are needed to both reduce vulnerabilities and raise medium-term growth prospects. Average growth in the region is projected to rise from 2.8 percent in 2017 to 3.4 percent in 2018, with growth accelerating in about two-thirds of the countries in the region aided by stronger global growth, higher commodity prices, and improved capital market access.
On current policies, average growth in the region is expected to plateau below 4 percent—barely 1 percent in per capita terms—over the medium term. Turning the current recovery into sustained strong growth consistent with the achievement of the SDGs would require policies to both reduce vulnerabilities and raise medium-term growth prospects. Prudent fiscal policy is needed to rein in public debt, while monetary policy must be geared toward ensuring low inflation. Countries should also strengthen revenue mobilization and continue to advance structural reforms to reduce market distortions, shaping an environment that fosters private investment.
In addition to regional agreements, African countries have signed Business Integration Treaties (BITs) with each other and with developed countries. Many African states have also signed double taxation treaties (DTTs). Over 70 per cent of the treaties are signed with developed countries, particularly in Europe, where the United Kingdom, France, Germany and Italy have the greatest number.
African countries are signatories to multilateral instruments and are members of related bodies that have provisions for the treatment of foreign investors. The most important are the WTO, with 44 African members; the International Centre for Settlement of Investment Disputes, which provides facilities for conciliation and arbitration of international investment disputes, with 46 African signatories; and the Multilateral Investment Guarantee Agency, which provides political risk insurance, technical assistance and dispute mediation facilities, with 50 countries from the continent.
International investment agreements (IIAs)—RIAs and BITs—are also designed to provide comfort to foreign investors, in particular by clarifying security provisions, fairness, protection, transparency and predictability of the policy and regulatory framework that will govern investment activities.
In the investing sphere, African regional agreements follow the basic pattern of international agreements, and include the following items.
Admission and establishment of investment:
- Fair and equitable treatment
- MFN and national treatment
- Protection against expropriation
- Transfer of funds
- Performance requirements
- Investor–state dispute resolution