Over the past three decades, Africa has attracted a significant amount of Asian outbound  investment. As States such as Japan and China race to engage with Africa, it is prudent for  investors to consider whether protection of their investments under international law is available  and how they may structure their investments to reduce the risks involved.  However, investors may  also be able to restructure existing investments to take advantage of investment treaties.


Investment treaties provide a way for investors to mitigate sovereign risk problems, including  those arising from changing regulatory frameworks. Companies investing in Africa may be able to  structure their investments, or restructure existing investments, to take advantage of the  protections provided by over 400 bilateral investment treaties ("BITs") which African countries  have entered into. For example, Egypt has entered into over 100 investment treaties, 14 of which  are with Asian States. Further, Ethiopia has entered into more than 20 such treaties, including  with China and Malaysia. Asian and African States have entered into close to 100 BITs.

Investment treaties typically provide investors with a means of obtaining compensation where their  investments have been expropriated, or where a State has failed to accord an investment "fair and  equitable treatment". Key to this latter standard is the requirement for a State to respect the  legitimate expectations that an investor might have when making its investments. Such expectations  might arise from explicit or implicit government assurances. Investors also have a legitimate  expectation in a stable and predictable legal and administrative framework that meets certain  minimum standards.

Investment treaties typically contain an offer by a State to arbitrate investment disputes with  investors of the other contracting party to the investment treaty. By commencing arbitration, a  foreign investor can accept this offer, without the need for further agreement. This is a powerful  remedy, as it allows an investor to bring a claim before an international forum. This may be  particularly important where there are concerns as to the functioning and independence of the  domestic legal system where an investment is made.


The protections provided by the network of investment treaties vary from country to country, and  from treaty to treaty. It may be that an investment is already covered by an investment treaty.  However, if investments are not covered by such treaties, an investor will be left only with  remedies before local courts, or perhaps a contractual arbitral mechanism, if this has been  negotiated. Existing investments may be restructured to take advantage of investment treaties where  investors are concerned about sovereign risk. If investors wait until a dispute has arisen, it will  be too late to take advantage of the protections offered by such treaties. When making investments  in countries where sovereign risk is an issue it is prudent to take into account the protections  afforded by investment treaties.


A Japanese company considering investing in Africa needs to be aware that, currently, Japan only  has one BIT in place with an African State; the Japan-Egypt BIT. A Japan-Mozambique BIT was signed  in September last year; however, it has not yet entered into force.

Depending on other issues such as tax, it may therefore be beneficial for a Japanese company to  structure its investment through companies incorporated in a jurisdiction which has a BIT in place  with the recipient State. For example, if a foreign investor based in Japan wanted to invest in  Sierra Leone, it may be able to take advantag 

The scope of investment protection in the UK-Sierra Leone BIT is broad. It includes the core  international standards such as "fair and equitable treatment" and prohibits expropriation, except where accompanied by prompt, adequate and  effective compensation. Further, the coverage extends to investments made directly and indirectly  in Sierra Leone and contains an offer by Sierra Leone to arbitrate disputes with UK investors.


China has already entered into BITs with 14 African States. Assuming that there is a BIT in force  with the recipient State, the challenge for foreign investors in China is to ensure that the  protection provided by the relevant BIT is adequate. For example, a number of China's early BITs  such as the China-Ghana BIT only provide for arbitration of disputes involving the amount of  compensation for expropriation. In practice, this significantly limits the investment protection  available.

As explained in relation to Japan above, foreign investors based in China may also be able to  access a greater level of investment protection by structuring their investments through a third  State.


As Asian investment in Africa increases, an important consideration for the investors will be how  to reduce sovereign risk. In order to help foreign investors navigate the route to investment  protection, we have compiled a checklist which can be used to analyse both future and existing  foreign investments. The checklist should be an integral part of your corporate due diligence  process – no different than analysis of tax treatment – when a merger, acquisition, restructuring, or new venture involves  foreign investment.