Investors in West Africa face increased uncertainty

The three countries announced their withdrawal from ECOWAS - a regional group of 15 nations focused on economic integration and collaboration among its members - in January. Before the announcement, all three countries were subject to political and economic sanctions by ECOWAS following military coups. The intention to withdraw from ECOWAS - which requires a one-year notice period - has drawn criticism, as the withdrawal could lead to citizens of Burkina Faso, Mali and Niger losing their right to approach the ECOWAS Community Court of Justice for human rights violations. It is also likely to affect investor confidence in the region going forward.

The ECOWAS Community Court of Justice is a crucial component of ECOWAS and has been essential to maintaining the rule of law in the region. The court was established to interpret and enforce the ECOWAS Treaty and other legal documents, as well as to adjudicate cases involving human rights violations by member states. It is unique in that it permits any private individual or entity to file a claim directly with the court, without the need to first use existing domestic legal remedies.

The court has come to the aid of investors through the enforcement and interpretation of bilateral investment treaties (BITs) within the region. In addition, the introduction of the 2008 ECOWAS Supplementary Act on Investment created an investment framework, with a focus on investor protection and dispute resolution. The Supplementary Act provided mechanisms for resolving disputes between investors and host states, including access to the court and other arbitration tribunals. Under the Supplementary Act, ECOWAS member states are required to ensure procedural fairness and avoid arbitrary actions which could harm investors.

Given the crucial role of the court in resolving disputes between investors and member states within the region, the upcoming withdrawal brings into question whether investors in the region will retain access to these mechanisms for the adjudication of future conflicts. There are limited precedents for the ramifications of exiting the regional bloc, with Mauritania being the only nation to have done so in 2000. The withdrawal intensifies uncertainty in the legal and regulatory landscape and is likely to make the enforcement of investor rights more complicated.

Potential implications for investors

While it remains to be seen how disputes will be dealt with moving forward, investors who find themselves involved in future disputes could argue that their investment took place when the relevant country was still under the umbrella of ECOWAS and that the court should therefore maintain jurisdiction over the dispute. An interesting question remains as to whether investors can contend that the withdrawal from the Supplementary Act itself violates another bilateral or multilateral investment treaty.

A withdrawal from ECOWAS and the Supplementary Act alone might not breach another investment treaty unless the investor can show, among other things, that the investor’s decision to invest was based on the state's ECOWAS membership and depended on the state’s ongoing adherence to the Supplementary Act.

Ultimately, states are masters of their treaties and can therefore withdraw from treaties or terminate them so long as they do so in accordance with the terms of the treaty and international law. If the ECOWAS Treaty or the Supplementary Act had included sunset clauses which ordinarily extend the treaty protections for investors with pre-existing investments after the termination of a treaty - which does not appear to be the case - states may be unable to unilaterally revoke the investors’ rights under the sunset clause.

The withdrawal is likely to affect all investors in the region, with the mining industry likely to be the hardest hit as all three countries have significant mining sectors. Mali and Burkina Faso are the third and fourth largest gold producers in Africa respectively and Niger is one of the world’s top producers of uranium. The mining sector is vital for the economies of these countries, providing significant revenue and employment opportunities.

Member states must follow the rule of law relating to human rights and commercial relationships. Failing to do so could jeopardise crucial investments and seriously affect local economies. In turn, investors need to maintain awareness of the political realities in host states and adequately prepare to navigate complex environments. In doing so, it is equally important that investors maintain robust governance and compliance structures.

Co-written by Vishana Mangalparsad of Pinsent Masons.