How Investment Treaties Can Serve as Development Tools

    The U.S. is the biggest foreign investor in sub-Saharan Africa, but it is not fully making use of its investments’ potential to promote development in the region and boost business opportunities for U.S. companies, a study from the Center for Global Development suggests.

    Benjamin Leo, author of the study, argues that the U.S. can better contribute to the region’s development while at the same time improving the protection of U.S. investments by tapping an underused type of investment tool: the bilateral investment treaty.

    BITs are agreements designed to defend and promote a country’s overseas investments by protecting the interest of foreign investors and reducing their exposure to business and political risks. These treaties, despite the growing evidence to their potential benefits, are largely missing from U.S. engagement in sub-Saharan Africa, the author writes.

    “The U.S. government has ratified BITs with only five African countries, Cameroon, DRC, Congo, Mozambique and Senegal,” Leo says in the CGDEv study, dubbed “Where are the BITs? How U.S. Bilateral Investment Treaties with Africa Can Promote Development.”

    Leo outlines a four-pronged strategy that the U.S. can implement to promote its investments in sub-Saharan Africa. The approach will benefit both recipient countries and U.S. companies, he says.

    - View BITs as development tools and develop a new BIT instrument that will combine the core protection provisions of the old model with more streamlined language and requirements tailored to the current market situation. Leo explains that the U.S. should increase the number of its BITs with sub-Saharan African countries, by considering treaties with Kenya, Ghana, Zambia, Uganda and Ethiopia. The five countries, according to Leo, meet three key criteria: a large portfolio of U.S. development initiatives, business climate reforms and favorable economic size.

    - Engage in more commercially focused BIT to facilitate win-win commercial relationships that will open up more economic opportunities for U.S. companies. Two countries that the U.S. can enter BITs with are Nigeria and Angola, given the number of U.S. foreign investments in the country. Both countries have fragile business climate, which could be aided by BITs, the author writes.

    - Launch an “Africa Doing Business Facility.” The U.S. should seek to provide targeted technical assistance to encourage countries to implement business reform. The facility would provide technical and financial assistance to only those countries with a strong track record of addressing business sector constraints.

    - Scrap traditional trade and investment framework agreements, which do not offer investor protections and do not open up new markets for trade. They have very little significant impact on U.S. investors and business.

    The release of CGDev’s study coincides with calls from a U.S. legislator urging the U.S. government to make sure U.S. companies benefit from the country’s engagement in Afghanistan. U.S. Sen. Jim Webb (D-Va.) has recently opined that the Millennium Challenge Corp. should “immediately cease” action on development contracts awarded to non-American firms in Africa, arguing that MCC partner instead with U.S. firms.

    “American tax dollars provided for overseas investments should be used to assist U.S. economic recovery, provide American jobs, and strengthen U.S. business ties with developing countries,” Webb said as reported by Devex.  

    About the author

    • Ivy Mungcal

      As former senior staff writer, Ivy Mungcal contributed to several Devex publications. Her focus is on breaking news, and in particular on global aid reform and trends in the United States, Europe, the Caribbean, and the Americas. Before joining Devex in 2009, Ivy produced specialized content for U.S. and U.K.-based business websites.