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PressAfrik | 20 November 2014
Freely translated by Anoosha Boralessa (July 2015). Not reviewed by bilaterals.org or any other organization or person.
Analysis of foreign investment protection in Senegal’s bilateral investment treaties
by Ndyée Marame Kane Diallo
Intern with UNCTAD Virtual Institute, Geneva, through Think Tank Ipode
In order to encourage investment, Senegal has signed Bilateral Investment Treaties (BITs) with different countries.
The purpose of these agreements is to protect and promote investments. In practice, investors enjoy advantages and benefit from protection that could impinge on Senegal’s sovereignty. It follows that it is legitimate to raise the following question: is Senegal providing a disproportionate level of protection to foreign investors through BITs?
These agreements, established between two States are, theoretically, reciprocal. They aim at promoting and protecting investments of nationals of one contracting state in the territory of the other state party to the agreement. This tends to secure the business environment of our country, increase the confidence of nationals of countries, partners to these BITs, and also protect our investors in these countries.
Senegal has signed 26* BITs. Ten of them are in force (see the table below) and they can be found under the headings of “Agreements to Encourage and Protect Investments” or else, “Investment Promotion and Protection Agreements”. These different BITs are essentially focal points to protect investments but their effect on promotion is negligible.
The BITs that are currently in force to which Senegal is party
|SIGNATORY COUNTRY||YEAR OF SIGNATURE|
|8||Republic of Korea||1984|
* While conducting this research, we became aware that Senegal has concluded BITs with the United Arab Emirates and with France. However, these agreements have not been published and are not in the UNCTAD directory. Because we are not able to access these BITs, our analysis is restricted to the BITs currently in the UNCTAD database.
Thus, all of Senegal’s BITs recognize the principle that investors should be accorded fair and equitable treatment. This principle continues to be abstract and attempts to clarify its contents are relatively rare. However, what can be said is “that it is a standard rather than a substantive rule of law. ” Indeed, a literal interpretation of the term requires treating an investor according to domestic law and to international law. The State will have to guarantee an investor a standard of treatment that is the same as the “minimum standard” guaranteed by the law. Because this concept is vague, it is difficult to assess its effects.
Also, Senegal’s obligations relating to the standard of treatment mean that Senegal is not permitted to treat an investor less favourably than it would treat other foreign investors. Similarly, an investor must benefit from the same advantages granted to nationals. These obligations arise from the transcription of the principles of the Most Favoured Nation and National Treatment respectively.
Continuing with the same logic, expropriation is tightly regulated. In the event of an expropriation for a public purpose, an investor is guaranteed immediate and effective compensation. The same goes for other guarantees given to investors such as the rule on free transfer of funds and the rule prohibiting performance requirements.
|Fair and Equitable Treatment||This refers to equity and to the standard of the minimum level of protection.|
|Most Favoured Nation Treatment||An investor benefits from a standard of treatment that is no less favourable than the standard the State applies to any investor of a third state.|
|National Treatment||An investor enjoys the same advantages as those granted to nationals.|
|Expropriation and Nationalization*||Subject to the following conditions: it must be in the public interest; non-discriminatory; in accordance with due process; give the investor the right to immediate and effective compensation.|
|Performance Requirements||The investor benefits from managerial autonomy.|
|Capital transfers||No obstacle to repatriation of profits or capital in the case of liquidation of the investment.|
* There is some dispute on the effects of an expropriation or nationalization. Some consider that the two terms are synonymous; others state that an expropriation gives rise to a direct relationship between an investor and a State whereas a nationalization gives rise to a relationship between the Home State and the Host State.
So, it appears that a foreign investor is guaranteed security both in respect of its assets and the standard according to which he is treated.
This raises the following question: in light of the protection the Host State grants an investor, can we really say a Host State has a discretionary zone?
As a matter of fact, there is little flexibility in the terms of these agreements. Thus the Host State is left with little discretion when it comes to taking certain decisions that could affect the status of investors. The position that a State finds itself in is when it takes some public policy decisions, it opens itself up to having an arbitral proceedings brought against it. Indeed, even when it does not take any decision, the risk of arbitration still remains.
Indeed, in the event of a dispute with the Host State, foreign investors may initiate a claim before the International Centre for the Settlement of Investment Disputes (ICSID). The Host State may be forced to pay compensation even if the measures it adopted were entirely legitimate. There have been several occasions where Senegal has been hauled before ICSID, notably, the following:
The Société Ouest Africaine des Bétons Industriels (SOABI) matter – here SOABI claimed compensation for the loss it allegedly suffered following the termination of its construction contract for social housing with the Senegalese Government;
The Millicom matter – where the Senegalese State challenged Millicom’s licence to operate its mobile network. The Senegalese State claimed that the sum (50 million FCFA) that MILLICOM paid did not represent the actual value of the licence.
So, it is ICSID that interprets the rules that a State must comply with, and ICSID rulings can significantly impair a State’s legislative sovereignty. The conclusion that follows is this: through BITs, a Contracting State undertakes commitments that could be highly detrimental to its sovereignty and for this reason, it is forced to act in a way so as not to engage its international responsibility.
In order to enhance the support for States that are negotiating and revising their BITs, the United Nations Conference on Trade and Development (UNCTAD) is developing a model BIT that countries such as Senegal could use. This type of agreement would allow greater flexibility in decision-making, notably in areas relating to the environment and pubic health.
In the first instance, the model agreement proposes a definition of investment that is far more restrictive. Indeed, under the different BITs Senegal [has signed up to], investments are defined as being “any category of asset, including all categories of rights and interests.” This definition is too broad and includes “Portfolio Investment”. So for example, under the definition of investment adopted, a tourist that has villas in Senegal is considered to be an investor. Therefore, if its Home State has signed a BIT with Senegal, it could benefit from protection. Revising this definition of investment would permit taking no further account of this type of investor and would limiting the possibilities of proceedings being brought against the State.
This model agreement tries also to review and to better regulate “fair and equitable treatment.” This is because this notion still needs to be clarified. The concept is vague and very popular among developed countries that tend to use it to protect themselves against all types of measures.
Consequently, the new type of BIT should contain some provisions relating to environmental protection and public health. Similarly, obligations should not be imposed exclusively on the Host State. Obligations should also be imposed on the Home State. The latter will have to encourage its investors to invest in signatory countries so that the agreement may impact investment flow.
Ultimately, signing a BIT does not necessarily have the effect of attracting investments. What is certain, is that it gives rise to protection for foreign investment that will not necessarily have a genuine, positive impact on the Sengalaese economy.
Furthermore, countries that are party to these investment agreements are at different stages in their economic development. If the objective for developed countries is to provide maximum protection for their nationals, the aim for under-developed countries such as Senegal should be to ensure that the agreements are sufficiently flexible. This would permit a State to acquire a discretionary zone, permitting it not only to encourage investment but also its development and economic growth. Similarly, the concept of sustainable development should be given greater weight in BITs so that a socially responsible investment policy can be put in place.