ICLG | 19 November 2021
Angola ratifies the ICSID Convention : good news for inbound foreign investment
By Greg Falkof
The latest step in attracting foreign investment to Angola should pay off, but will take time to come to fruition, explain Greg Falkof, João Robles and Ahmed Abdel-Hakam of Eversheds Sutherland.
On 1 September 2021, Angola’s National Assembly ratified the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The only remaining step is the ratification of the ICSID Convention by the President.
ANGOLA AND THE ICSID CONVENTION
The International Centre for Settlement of Investment Disputes (ICSID), a World Bank organisation, is an international arbitration institution devoted to the settlement of cross-border foreign investment disputes. Angola had been one of a few states on the African continent which had not signed the ICSID Convention, along with Djibouti, Cape Verde, Eritrea, Equatorial Guinea and Libya. Historically, Angola had signed fewer investment-related international treaties than its neighbours, as it pursued a policy of safeguarding its internal market from international competition. Following the oil crisis in 2014, however, the Angolan government acknowledged the importance of attracting foreign investment, particularly in the energy and mining sectors, and the state’s absence from the New York Convention and the ICSID Convention started to be perceived as an obstacle to foreign investment.
By ratifying the ICSID Convention, Angola now accepts that, in certain situations, inbound foreign investors may have a right to bring an international investment arbitration against the government, which is conducted under the auspices of the World Bank. This right is often seen as being attractive to foreign investors – in the event of local political interference, foreign investors value the ability to access neutral, independent, enforceable arbitration.
Benefiting from its position as the second largest oil producer and the third largest diamond producer in Africa, Angola is an important market for international investment in the oil and gas, and mining sectors. The ratification of the ICSID Convention is a milestone in the Angolan government’s wider plan to create an attractive legal environment for foreign investment, to boost and diversify the economy. This follows from the recent August 2019 approval of a privatisation programme providing for the full or partial privatisation of over 190 companies that are either public companies or companies where the state holds a shareholding interest. This offers foreign investors a number of promising opportunities.
The ICSID Convention is designed to sit alongside each member state’s existing matrix of bilateral investment treaties (BITs), and offers a forum where investors may commence an investment arbitration which would arise as a result of an alleged breach of a bilateral investment treaty. Angola’s bilateral investment treaties with, among others, Russia (home to some of the world’s largest oil and gas, and mining companies), Portugal (one of the top sources of foreign direct investment into Angola), Germany and Italy contain references permitting an investor to commence an ICSID arbitration in the event of a dispute with the government. As the ICSID convention is now in force between these capital exporting countries and Angola, foreign investors from these jurisdictions may now refer any investment dispute with the Angolan government to a neutral, independent ICSID arbitration tribunal.
WELCOME NEWS FOR FOREIGN INVESTORS
Although the impact of the ratification on the investment environment in Angola is unlikely to be substantial in the short term given the relatively small number of investment treaties currently in force with Angola (Brazil, Russia, Italy, Germany, Cape Verde, Portugal, Spain and United Arab Emirates), the ratification confirms that the government is establishing an investor-friendly legal environment. The Private Investment Law adopted in 2018 has reshaped the Angolan legal framework applicable to private investments (including foreign investment) by reducing bureaucracy and offering protections to investor’s projects.
Foreign political developments also signal that a more attractive investment climate may be on the horizon. For example, although the United Kingdom is one of the largest investors in Angola, there is no BIT in force between Angola and the UK (a BIT was signed in the early 2000s but has not entered into force). However, this may change as the UK has recently identified Angola as one of its key trading partners in the Southern African region.
Angola’s investor-friendly stance is reinforced by its ratification in 2016 of the New York Convention, an international treaty obliging member States’ national courts to recognise arbitration awards as binding and to enforce them in the same manner as enforcing a local court judgment. Ratification of the New York Convention is a clear signal to foreign investors and international business community that international commercial arbitral awards will be honoured and enforced in Angola in a similar manner to how arbitral awards are enforced around the globe.
Angola’s ratification of the ICSID and New York Conventions will be welcome news to foreign investors into the jurisdiction, but investors should nevertheless proceed with some caution because not all foreign investments will automatically benefit from these developments. Careful pre-investment planning, structuring and contract drafting for each individual investor and investment is still required in order for inbound investors to benefit from the additional protections that may now be available to them following the ratifications.