On 19 February 2023, African Union Heads of State adopted the Protocol on Investment to the African Continental Free Trade Area Agreement (AfCFTA), a landmark instrument designed to transform the continent's fragmented, bilateral treaty-governed investment landscape into an Africa-centred legal framework for trade and investment.
The Protocol's ambition is considerable, as it sets investor protection standards, imposes obligations on investors, including human rights, anti-corruption and ESG commitments, preserves member states' right to regulate in the public interest and proposes a tiered dispute prevention architecture.
Yet the Protocol's architects left its most contentious element, the Dispute Resolution Annex, to be negotiated separately. Under article 46 of the Protocol, the Annex was to be finalised and adopted within 12 months of the date on which the Protocol was adopted, being February 2024.
That deadline has long passed, with negotiations among AfCFTA member states still ongoing. In July 2025, the Secretary General of the AfCFTA Secretariat reported that, although significant progress had been made, a request by five member states regarding the inclusion of investor-state dispute settlement (ISDS) in the Annex remained an area of ongoing negotiation. The cost of the delay in finalising the Annex is not merely procedural. Unlocking the AfCFTA's transformative potential requires sustained private investment, and investment requires legal certainty. Without a credible dispute resolution framework to provide that legal certainty, the Protocol risks becoming an aspirational document rather than a functional investment guarantee.
The reason for the impasse is not bureaucratic inertia. There are genuinely contested questions about the legitimacy, design and ownership of ISDS in Africa. According to UNCTAD, 92% of the 192 investment arbitration claims filed against African countries were initiated by investors from outside the continent and the financial consequences are often severe.
- In Funnekotter v Zimbabwe, Zimbabwe was ordered to pay substantial damages during an acute economic crisis for what the tribunal found was the unlawful expropriation of rural land under the country's Land Acquisition Act.
- In Unión Fenosa Gas v Egypt, Egypt was ordered to pay USD 2 billion in damages for failing to supply natural gas to a liquefaction plant following Egypt's 2011 uprising, exacerbating its fiscal challenges.
Moreover, beyond the direct financial burden lies a subtler, more structural injury: regulatory chill. Governments that fear billion-dollar arbitral awards become reluctant to pursue legitimate public interest regulation in key developmental policy areas, such as environmental protection, public health, land reform or transformative social policy, for fear of triggering costly claims.
Then there is the transparency deficit inherent in the traditional ISDS system, which has undermined its legitimacy. Traditional ISDS arbitrations have historically been conducted behind closed doors, with limited public access to pleadings, hearings or awards. Civil society organisations have consistently argued that the opacity of ISDS proceedings is a serious democratic accountability concern in African states, where third-party communities most affected by investment disputes have no insight into the proceedings and no guaranteed right to participate.
African states have responded to these ISDS shortcomings with a mixture of withdrawal and reform. South Africa terminated several bilateral investment treaties (BITs) with numerous countries, including EU member states, and enacted the Protection of Investment Act 2015, which emphasised resolving disputes within domestic courts while allowing international arbitration in limited circumstances. Tanzania, through its Natural Wealth and Resources (Permanent Sovereignty) Act 2017, explicitly prohibited international arbitration for disputes related to natural resources, mandating resolution under Tanzanian law within its own judicial bodies. Both approaches reflect a conviction that the traditional ISDS architecture is structurally misaligned with African developmental priorities.
In light of the shortcomings of traditional ISDS, it is unsurprising that these concerns have made the Annex negotiations politically charged. However, the path forward need not be a binary choice between unconstrained ISDS and its wholesale abolition. Several options for ISDS reform through the Annex have been identified. On balance, the more practically sustainable approach appears to be re-domesticating investment law by deliberately recalibrating the traditional ISDS system to place African institutions at the centre while preserving a credible backstop for investors. This may entail the genuine exhaustion of local remedies before any international forum becomes accessible; systematic investment in the capacity of domestic courts and arbitral institutions to handle investment disputes with rigour and independence; restricting international arbitration to a narrow category of egregious breaches of the rule of law rather than expansive fair and equitable treatment (FET) claims, which are pervasive in investment arbitration against African states; and affording affected communities and civil society standing in investment dispute proceedings.
The regional economic communities (RECs) offer hard-won lessons in exactly this space:
- ECOWAS does not grant direct ISDS under its Supplementary Investment Act but provides for investors to use local remedies. COMESA, by contrast, adopted a more permissive model under its Common Investment Agreement, which incorporates ISDS through the COMESA Court of Justice alongside African arbitration institutions and established international fora, but subject to host state consent and the exhaustion of local remedies. This hybrid model reflects a pragmatic middle ground in which international recourse remains available but anchored in African institutional architecture.
- The COMESA Investment Agreement promotes transparency in ISDS by mandating that case documents be made publicly available and that hearings be open to the public. Complementing these disclosure obligations is a structured amicus curiae mechanism, which enables non-disputing third parties to file written submissions on matters of fact or law falling within the scope of a dispute.
That said, the REC experience reveals fragmentation that has the potential to undermine the credibility of ISDS in Africa. A patchwork of overlapping ISDS regimes across SADC, COMESA, ECOWAS and now potentially AfCFTA creates forum-shopping opportunities and legal uncertainty for the very investors the Protocol seeks to attract. The Annex must therefore do what the RECs could not: establish a unified, continent-wide framework with clear jurisdictional rules, a defined standard of review and meaningful transparency obligations.
The ISDS deadlock in AfCFTA is not simply a technical negotiating impasse. It is a defining moment for how Africa chooses to inscribe its developmental priorities into international investment law. Re-domesticating investment law by calibrating the system so that African institutions, African rules and African policy imperatives occupy the centre offers a viable path through the current deadlock.
