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Could the Non-domestication of Nigerian Treaties Affect International Energy Investment Attraction into the Country?

Document Cited authorities 1 Cited in Related
Vincent
DOI10.3366/ajicl.2020.0305
Pages122-144
Date01 February 2020
Published date01 February 2020
INTRODUCTION

The signing of relevant treaties is an important way in which investment-seeking countries demonstrate their zeal to attract investments by guaranteeing to observe internationally agreed rules and principles for the protection of investments. To boost FDI inflow, Nigeria has signed several international investment and energy-related treaties with many countries across the world.

Despite the signing of the treaties, many of them have not been ratified and domesticated as required by the 1999 Nigerian Constitution and as such cannot be applied by domestic courts when necessary. Nigeria has signed 29 BITs out of which 15 are in force.1 However, none of these has been passed into law in Nigeria.2 The ICSID – Enforcement of Awards Act – CAP I20 LFN 2004 is the only treaty relevant to international investment that has been domesticated in Nigeria.

This raises serious legal questions on the status (within the country) of the treaties, especially with BITs where their non-domestication renders their provisions not legally binding on domestic courts. It becomes problematic in situations where certain provisions in BITS such as the exhaustion of local remedies (ELR), fork-in-the-road (FITR), denial of justice and expropriation claims require disputes to be addressed (at least initially) in domestic courts before international arbitration is accessed. This issue is not trivial for Nigeria, as some of its BITs in force contain provisions for recourse to domestic courts.

Domestication of treaties by the legislative arm of the government empowers the judiciary to implement treaty obligations and entertain investment disputes relating to them. Without the enactment of relevant legislation for BITs, the judiciary will be essentially handicapped to fully apply the country's treaty obligations. In this case, there will be a greater risk of non-compliance.3 This may have contributed to the low inflow of FDI in the energy sector,4 despite the signing of BITs with many countries. Investors are increasingly becoming aware of the importance of BITs and might be put off by non-domesticated treaties that lack the force of law within the host country. In view of this, it becomes pertinent to ascertain if/how the non-domestication of Nigeria's BITs in force could affect FDI inflow into the energy sector.

This is another pertinent legal issue affecting the attractiveness of the energy sector. According to the Vienna Convention on the Law of Treaties (VCLT) of 1969, treaty ‘means an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation.’5 They ‘express intentions and promise, and represent attempts to reduce the measure of uncertainty inherent in the conduct of international affairs’.6 The Nigerian Treaties (Making Procedure, Etc.) Act – CAP T20 LFN 2004 defines it as ‘instruments whereby an obligation under international law is undertaken between the Federation and any other country and includes “conventions”, “Acts”, “general acts”, “protocols”, “agreements” and “modi-vivendi”, whether they are bilateral or multi-lateral in nature’.7

This article discusses the importance of BITs in attracting foreign investments and the necessity for treaty domestication. It identifies different ways non-domestication of relevant investment and energy treaties which Nigeria has signed could affect energy investment in the country. Key approaches adopted by countries to domesticate international treaties, the reasons behind Nigeria's choice of dualism approach for treaty implementation and the factors causing delays in treaty domestication in Nigeria will be analysed. The different ways the non-domestication of relevant treaties could affect energy investment in the country and their implications will also be analysed. It concludes by arguing on the urgent need to incorporate relevant BITs and energy treaties into the country's domestic legal framework.

 INTERNATIONAL TREATIES AS TOOLS FOR FDI ATTRACTION

In addition to domestic legislation and regulatory policies, the use of international treaties such as BITs as tools for the promotion and protection of FDI has become popular and widespread.8 The positive effects of BITs on FDI attraction have been analysed by many authors.9 It has been suggested that BITs are most effective in attracting investment in the extractive and other cost-intensive sectors that are politically sensitive to foreign ownership with larger risk of expropriation, because they reduce investment risks by guaranteeing investors of necessary protection.10 It has also been found that BITs have a significant positive impact on FDI inflow into West African countries.11

Some authors have argued that for BITs to attract FDI to developing countries, necessary domestic institutions must be put in place and empowered to interact with BITs in order to make the provisions of the international treaties and commitments thereof credible and valuable to investors.12 With the non-domestication of treaties in Nigeria limiting the powers of domestic institutions such as the judiciary from treating them as a legally binding agreement,13 the effectiveness of the treaties in attracting the desired FDI is limited.

BIT as a Key Component of Investment Decisions

BIT provisions and those of other international investment agreements (IIAs) are playing important roles in investment decisions. It is particularly important to energy investors, who seek the guarantee of continuous legal protections for their investments, due to the huge amount of money involved in international energy investments. A survey of 602 transnational corporations (TNCs) by Kekic and Sauvant14 found that 25 per cent of TNCs use it to a great extent, 48 per cent used it to a limited extent and only 23 per cent did not use them at all.15

The influence of BITs in investment decisions is expected to increase as investor awareness of BITs increases. According to Waelde the relevance and protective potential of BITs are better known these days compared to the previous era.16 This finding is demonstrated by the increasing pace of international investment disputes, which demonstrates investors' increased level of awareness of the importance of various BITs protections. This necessitates the need for countries to remove barriers such as non-ratification and non-domestication of treaties that could weaken the strength of BITs in protecting investments.

 Effect of Legislation on FDI Attraction in Nigeria

In Nigeria, there is a positive trend between FDI inflow and legislation. Figure 1 shows the trajectory of FDI inflow into Nigeria from 1970 to 2016. It can be seen from Figure 1 that FDI inflow from 1970 to 1989 was generally well below half a billion dollars. This period coincided with periods of harsh foreign investment policies such as the indigenisation policy (the Nigerian Enterprises Promotion Decree (NEPD) of 1972), that restricted investment entries into certain sectors of the economy such as oil and gas and excluded investments in others such as electronics manufacturing, road transport, etc. The amendment of the NEPD in 1977 placed further restrictions on FDI entry. It expanded the number of activities exclusively reserved for Nigerian investors; lowered the share of permitted foreign participation in restricted enterprises from 60 to 40 per cent and added new activities to the list of restricted activities.17

Annual trajectory of FDI net inflows in Nigeria (BoP, current US$). Produced from information provided by the World Bank based on the International Monetary Fund, Balance of Payments database, supplemented by data from UNCTAD and official national sources.

With Nigeria suffering a near complete economic crash in the early 1980s,18 the indigenisation policies were reversed with the promulgation of the Privatisation and Commercialisation Decree No. 25 of 1988. The FDI increase observed in 1989 (see Figure 1) is a demonstration of market reaction to the new investment legislation as FDI inflows increased to almost $2 billion. This period was also marked by the signing of BITs with other countries such as the United Kingdom (1990), France (1990) and the Netherlands (1992) (see Table 1).

The status of BITs signed by Nigeria

S/N Countries Signature Entry into Force/Ratification Domestication
1 Algeria 14/01/2002 No No
2 Austria 08/04/2013 No No
3 Bulgaria 21/12/1998 No No
4 Canada 06/05/2014 No No
5 China 27/08/2001 18/02/2010 No
6 Egypt 20/06/2000 No No
7 Ethiopia 19/01/2004 No No
8 Finland 22/06/2005 20/03/2007 No
9 France 27/02/1990 19/08/1991 No
10 Germany 28/03/2000 20/09/2007 No
11 Italy 27/09/2000 22/08/2005 No
12 Jamaica 05/08/2002 No No
13 Republic of Korea 27/03/1998 01/02/1999 No
14 Kuwait 23/03/201l No No
15 Morocco 03/12/2016 No No
16 Netherlands 02/11/1992 01/02/1994 No
17 Romania 18/12/1998 03/06/2005 No
18 Russian Federation 24/06/2009 No No
19 Serbia 01/06/2002 07/02/2003 No
20 Singapore 04/11/2016 No No
21 South Africa 29/04/2000 27/07/2005 No
22 Spain 09/07/2002 19/01/2006 No
23 Sweden 18/04/2002 01/12/2006 No
24 Switzerland 30/11/2000 01/04/2003 No
25 Taiwan Province of China 07/04/1994 07/04/1994 No
26 Turkey 02/02/2011 No No
27 Uganda 15/01/2003 No No
28 United Arab Emirates 18/01/2016 No No
29 United Kingdom 11/12/1990 11/12/1990 No

By 1995, Nigeria entered the Investment Promotion phase through the enactment of the NIPC Act that signified Nigeria's readiness for more liberalised international investment activities in the country. The Act contributed to showcasing Nigeria as one of the most open economies in Africa.19 Despite its good intentions, the NIPC Act did not tremendously improve the FDI inflow into the country compared to 1989–94 as shown in Figure 1. This could be due to certain inadequacies and weaknesses in the NIPC Act that make it...

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