The African Continental Free Trade Area Investment Protocol signalled a new era in sustainable trade and investment

By Michael Foundethakis, Partner, and Global Head of Project and Trade & Export Finance, Baker McKenzie Paris and Virusha Subban, Partner specialising in Customs and Trade, and Head of Tax, Baker McKenzie Johannesburg

The African Continental Free Trade Area (AfCFTA) is predicted to increase Africa’s trade income by USD 450 billion by 2035 and will boost intra-African trade by more than 81 percent, according to a recent report by the World Bank. Since the start of trade under AfCFTA in 2021, African countries have been implementing changes to diversify their economies, increase production capacity, and widen the range of products made in Africa. To be able to do so effectively, they must attract sustainable funding and investment.

Several countries are now trading under the continental free trade area, with South Africa joining other active AfCFTA trading countries in January 2024. Current product lines being traded across the free trade area include food and beverages, consumer goods, and industrial and healthcare products. Eight countries – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia – were the first to be given the opportunity to participate in free trade in Africa under AfCFTA’s Guided Trade Initiative.

The Protocols

Some of the AfCFTA Protocols, developed to facilitate investment and harmonize policy and regulations across African Union (AU) member states, have now been adopted, including Protocols on Investment, Competition Policy and Intellectual Property. Most recently, in February 2024, Protocols on Digital Trade and Women and Youth in Trade were adopted. The Protocol on Investment was launched one year ago, in February 2023, at the same time as the Competition Policy Protocol. The AfCFTA Protocols include in their mandates a focus on sustainable and inclusive socioeconomic transformative goals and a consistent approach to public interest.

The Investment Protocol

Developed to both facilitate and protect investments in intra-African trade, the intention of the Protocol is to ensure Africa is seen as a desirable destination for trade and investment. The Protocol specifically incorporates initiatives that facilitate industrialisation, assist in reducing poverty, and boost the growth of the private sector.

The Protocol builds on the policy guidelines found in the Pan-African Investment Code, various investment instruments and legal frameworks of Africa’s Regional Economic Communities, and bilateral investment treaties between AU member states and other countries. It also incorporates the principles of the United Nations Conference on Trade and Development (UNCTAD) Investment Policy Framework for Sustainable Development, further emphasizing the focus on sustainable investment.

Inclusivity focus

The Protocol encourages the participation of small and medium businesses, local communities, and underrepresented groups, including women, disabled people, and youth. It contains a definition of the concept of investment-related human rights, extending it to incorporate the protection of environmental, health, and core labour rights. The Protocol includes obligations for investors to protect these rights and comply with regional and national legal frameworks on environmental protection, anti-corruption, anti-money laundering, anti-bribery, and taxation, for example.


The definition of investment is refined in the Protocol, to extend coverage to only investments made in the form of an enterprise established in a host country. This is because enterprise-based investments are the most likely to bring in foreign investment benefits such as job creation, increased tax revenue, and capacity-building initiatives. The definition also clarifies that only assets owned through an enterprise are covered by the Protocol. There is also a definition of substantial business activities: to benefit from Protocol protections, investors must sustain a significant level of business activity in the host state. This is to ensure investors act responsibly in enhancing market access for African businesses. The Protocol also requires all state parties to commit to streamlining investment administration, such as the facilitation of visas and permits.

Treaty shopping, a process whereby investors change their corporate nationality to access treaty benefits, is strongly discouraged in the Protocol, which clarifies that a significant amount of sustainable investment in host countries is necessary for transactions to be covered by the Protocol. Essentially, the Protocol aims to balance the rights granted to investors under the Protocol with their obligations to the host state.


The Protocol excludes certain matters from its coverage, including certain tax laws and the granting of government subsidies under development programs, public and state enterprise debt restructuring, and investments made with capital or assets of an illegal origin.


The standard of protection and treatment of investments also contains carve-outs for public interest measures. This is different from previous investment agreements that have mostly focused on the investors’ rights over those of the state. This is to allow the host states leeway in the regulation of their specific public interest and sustainability requirements.

Climate incentives

The severe climate challenges that the continent faces are addressed in the Protocol, including regulations around the sustainability of investments and incentives for low-carbon projects, for example. Other provisions include commitments from investors to ensure they do not contribute to lowering environmental, governance, and social standards in host countries and the reaffirmation of the ability of African states to regulate their own climate challenge stipulations on a public interest basis.

Pan-Africa Trade and Investment Agency

The Protocol has established the Pan-African Trade and Investment Agency to assist investors in mobilising financial resources and to provide technical and business support. It is also a platform for knowledge sharing and capacity building.

Trade Finance

Trade finance is a critical enabler of cross-border investment in the free trade zone. The implementation of streamlined clear and transparent rules and mechanisms via the Investment Protocol allows financial and development finance institutions to more seamlessly support cross-border investment.

Development Finance Institutions have increasingly been bridging Africa’s trade finance gap through increased lending and alternative products to support market participants. Banks such as Afreximbank and the African Development Bank (AfDB) have been providing financial solutions to boost intra-African trade. For example, Afreximbank recently announced it would increase intra-African trade funding to USD 40 billion by 2026, up from USD 20 billion in 2021. This is in the form of an AfCFTA Adjustment Fund, which will facilitate and provide support through financing, technical assistance, grants, and compensation to state parties and private enterprises to participate in African free trade.

Other significant developments for financing intra-African trade since the launch of AfCFTA include the Transaction Guarantee Instrument, which, among other things, supports transactions for underserved groups and sub-regions with higher than usual rejection rates; the Pan African Payment and Settlement System, which is a centralised payment and settlement system for intra-African trade and commerce payments; and the Base Fund of the AfCFTA Adjustment Fund, which supports African countries and the private sector to participate in the new AfCFTA trading environment.

The Investment Protocol provides the continent with a clear set of guidelines and principles to facilitate financing and investment across what will be the world’s largest free trade zone. While the benefits of the AfCFTA have not yet been fully realised, the Investment Protocol is aligning the continent with global trading standards and setting Africa on the path towards realising its multi-billion-dollar trade potential.