By: Aisha Garba Yakasai, LL.B, BL, ACArb.
INTRODUCTION
Foreign Direct Investment (FDI) is one of the most important factors driving economic growth and development globally. FDI contributes largely to economic resources ranging from the importation of capital, technology, access to world markets, development of infrastructures, amongst others. Most foreign investments begin with investment contracts between foreign investors and host state or state entities. Investors crave stability in investments contracts while states cherish the freedom to modify or even terminate investment contracts in accordance with their prevailing economic policy, thus as states tend to initiate contractual modifications or termination, which are often detrimental to investors, the quest for investment protection is necessary to shield investments from state interference.
SIGNIFICANCE OF FOREIGN DIRECT INVESTMENT (FDI)
FDI contributes to the development and improvement of infrastructure in Developing countries like telecommunications, roads, airports, training local workforce and development of indigenous industries.
Thus, Africa has become the world’s fastest-growing region for Foreign Direct Investment for the wealth of its natural resources. The number of FDI rose by 6%, with the majority of investment going into oil and gas followed by real estate and communications. Although from the above analysis of the study/data collections that increased investments have improved in Africa, the perception that Africa is a “risky” investment destination is still deeply ingrained among some foreign investors.
Thus, African countries and leaders, in order to gain the trust of more FDI, are faced with signing numerous investment treaties and agreements to attract foreign investors. These agreements are mostly bilateral treaties signed between parties to submit disputes to investment arbitration as the most preferred option of settlement, with the hope that investors can put their money in countries perceived as representing political risks in order to harness investments for economic and social transformation.
THE ROLE OF INVESTMENT ARBITRATION
Investment Arbitration is a dispute resolution mechanism between foreign investors and host states. Thus, within the context of regulation and protection of investment activities, a dispute might arise between parties to the treaty or agreement. The investment arbitration usually relies on the provisions of the Vienna Convention on the Law of treaties 1969, which provides: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and purpose”.
The quorum of Investment Arbitration is three arbitrators; the presiding arbitrator is usually selected by agreement of parties or by an arbitral institution, while the other two are appointed by each disputing party. The final award of an Investment Arbitration is final and binding upon parties to the agreement.
ADVANTAGES OF INVESTMENT ARBITRATION
The main objective of Investment Arbitration is to avoid the hazard of litigation in the host state’s domestic courts. The loophole associated with litigation is the reason arbitration as a whole gained more recognition.
1- PROTECTION OF RIGHTS:
Investment Arbitration ensures every party to a treaty performs his own side of the bargain. This promotes accountability, good and orderly state administration, protection of rights and other deserving interests.
2- QUICK DISPENSATION OF JUSTICE:
Generally, domestic courts are often slow and seen as inefficient, this is due to technicalities, formalities, unnecessary adjournments, the rigidity of court proceedings, and thus this brings delay in the
administration of justice. It is trite that justice delayed is justice denied.
3- LEGAL STABILITY:
Investment arbitration brings about predictability and certainty that justice will be done. The certainty of access to a properly functioning effective adjudication system is an important element that gives legal security to investors before planning to invest in the first place, thereby making the investment climate more favourable.
4- AUTONOMY OF PARTIES TO THE DISPUTE:
Parties to the dispute are free to make a choice of arbitrator. Regular courts often lack the technical expertise to resolve complex international investment disputes. For instance, in domestic courts, if the subject matter in dispute pertains to engineering, the judge (who has to be a lawyer) may not have knowledge of engineering. However, he has no choice but to adjudicate and decide on the matter at hand. On the other hand, an arbitrator does not have to be a lawyer; disputing parties can select an expert in the field of the subject matter in dispute.
5- TRANSPARENCY, IMPARTIALITY, AND INDEPENDENCE:
The courts of the host state (domestic courts) are not seen as sufficiently impartial to adjudicate on matters of the host state; these domestic courts are usually bound to apply domestic laws even if that Law fails to protect investor’s rights under International Law. However, under arbitration, and to ensure transparency of arbitrators, most arbitral proceedings are placed under ICSID rules, and there’s also a new UNCITRAL TRANSPARENCY rule that provides some level of transparency under UNCITRAL proceedings.
CONCLUSION
Today, Foreign Direct Investment (FDI) is an essential factor in economic development. It provides access to financial resources vital for economic growth and development. In the era of globalization, Investment Arbitration is the most preferred method of dispute settlement to assure investors feel safe regarding their investments by ensuring legal stability, accountability, transparency, protection of rights and other deserving interests are guaranteed to maximize economic growth and development.
REFERENCES:
- Christoph Schreuer, “The Future of Investment Arbitration” (Brill & Nijhoff
Publishers 2011) - Chin Leng Lim, Jean Ho and Martins Paparinskis, “International Investment Law and
Arbitration: Commentary Awards and other Materials” (Published by Cambridge
University Press,2018) 37 - United Nations Economic Commission for Africa, Investment Policies and Bilateral
Investment Treaties in Africa- Implications of Regional Integration (United Nations
Economic Commission for Africa 2016) - Sandra L Caruba, ‘Resolving International Investment Dispute in a globalized world’
(June 2007) New Zealand Business Law Quarterly. - Article 31 (General Rule of Interpretation) Vienna Convention on the Law of Treaties
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