The mining sector has a pivotal role in the Organisation for the Harmonisation of Corporate Law in Africa (OHADA) zone, accounting for 20% of Guinea’s gross domestic product (GDP) and 10% of Mali’s. Ivory Coast has set a target to double the contribution of its mining production to 6% of GDP by 2025, while in Senegal, the extractive sector commands 7% of public revenues.
Investment is only likely to grow, but as investment increases, it is important for investors to ensure they mitigate any political risk when they enter into long-term, capital-intensive projects abroad. These risks include governments interfering with projects for political or economic gain.
In the mining sector, interference may include:
Sometimes domestic courts may not provide enough protection for international investments, so foreign investors need to ensure that their investments benefit from the protections provided by some of the 2 000 investment treaties currently in force worldwide.
If a state interferes with an investment and there is an investment treaty in force between the home state of the investor and the host state of its investment, that investor may be able to bring a claim against the state under the treaty before an international tribunal. If they’re successful, the investor may be able to recover substantial damages.
Investor protection relies on the investment treaties to which each host state is a party, and on domestic investment laws, so investors should try to ensure that the ownership structure of their investment brings an investment treaty into play.
Neither OHADA nor its individual member states offer model bilateral investment treaties (BITs), but many OHADA zone states have a network of BITs with states that may frequently appear in the ownership structure of international investments in the mining sector.
Within the OHADA zone, national regulations intersect with OHADA uniform acts. While legal aspects directly related to mining are governed by national law, the framework for corporate law is derived from the OHADA Uniform Act on Commercial Companies. There’s also an additional layer of regulations from regional monetary and financial institutions, such as the West African Economic and Monetary Union (UEMOA).
Despite the OHADA treaty’s objective to “promote economic development and encourage investment”, there is no specific uniform act addressing investment matters. However, the OHADA Uniform Act on Arbitration refers to instruments related to investments, such as investment codes and treaties.
Significant political and legislative changes have recently occurred in the OHADA zone, including several reforms directly altering the legal framework of mining activities in Niger, Mali, Burkina Faso and Cameroon. In June 2023, the UEMOA Council of Ministers also adopted a community mining code for UEMOA.
New laws on local content in the mining sector have also been introduced in Senegal, Mali and Guinea. Although the concept of local content is not new, the increasing reliance on it and the novelty of the mechanisms in place require extra attention from investors who might need local assistance to understand the practical implications.
Another noteworthy development is resource nationalism which has also been introduced in Mali. Changes include the increase in the optional state participation level in mining projects, the elimination of investors being able to select the most favourable tax provision, and the end of tax exemptions on petroleum products granted during the production phase.
Some of these developments may concern those who have invested in mining projects in the relevant states. These investors would do well to take advice on the impact of domestic legal changes on their investments, and to consider whether their rights may be protected under investment treaties.
It is important to remember that not all foreign investments qualify for protection under an investment treaty, and not every type of state conduct will breach the standards of protection ordinarily set out in investment treaties.
When considering the potential level of investment protection, mining investors should ask the following questions:
If the state has acted improperly and the investors want to seek recourse, the investment treaties may require you to enter into negotiations with the state.
A typical investment arbitration can last for up to three years, but there may be opportunities for settlement along the way. Many mining companies also use third-party funders to fund claims under investment treaties.
If the investor is successful at arbitration, they may also be awarded damages. Many states wish to be perceived as adhering to their international legal obligations and will pay an arbitral award voluntarily, but if they don’t, it may be possible to claim against the state’s assets held abroad.
Hogan Lovells’ international arbitration team often advises on bilateral and multilateral investment treaties, including at a pre-dispute phase, to help ensure that investments are structured in a way which reflects investors’ corporate and tax requirements, as well as investment protection. When disputes cannot be avoided, we assist our clients in investment arbitrations.
ADNA, one of Hogan Lovells’ relationship firms, is firmly established in Francophone Africa, particularly in the OHADA zone, and also provides comprehensive legal advisory services to mining investors, including on the investment structuring stage to maximise the benefits of OHADA legislation, regional financial- and monetary regulations, and local laws.
Authors
Senior Associate at Hogan Lovells
Head of Disputes at ADNA
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