Inside Africa blog

Legal developments around Africa

Part 1 How should international investors deal with dispute resolution issues in Ethiopia: the Background

Lisa Koch
Holly Stebbing

Ethiopia is currently high on the investment agenda. At the Global African Investment Summit in London in December 2015, it was highlighted as one of the models for development in Africa – read more here. And there are a number of new projects in the pipeline. But does the legal regime for dispute resolution give international investors and lenders sufficient comfort to commit the significant sums required to develop these projects?

Geothermal power projects have been in the news over the last year since President Obama’s visit to the country. There are also a number of new investments being explored in the mining sector. In the Danakil Depression region, Yara International and its partners Liberty Metals and Mining and XLR Capital are progressing with their SOP potash project, Circum Minerals is focused on developing an MOP and SOP potash project, and ICL, following its acquisition of Allana Potash, is developing its potash project. (See here for more on the global potash market.) In Western Ethiopia, Kefi Minerals is focusing on gold with its Tulu Kapi project.

Whether power, mining or any other infrastructure investment, in Ethiopia as in any other country there is a risk that at some stage a dispute with the government or contracting state-owned entity will arise. When this happens, investors and the government alike will want to ensure three things:

  • an efficient dispute resolution process to reduce costs and time spent embroiled in the dispute;
  • an independent decision maker; and
  • a decision that can be ultimately be enforced.

These key outcomes feed into a number of decisions that need to be made upfront in agreeing the dispute resolution process. It is unlikely that international investors will consider  local courts to be a sufficiently neutral forum for resolving disputes, so some form of international arbitration is usually agreed on. However, the decision to use arbitration is not as simple as it appears to be. There are still questions of how the tribunal will be constituted, which arbitration rules will govern the process, where the arbitration will take place, what the governing law will be and what language proceedings will be held in. Some are easier to agree than others.   

In Ethiopia, the issues of independence and enforcement are complicated since the country is not a party to the New York Convention, which facilitates the enforcement of arbitral awards, nor has  it ratified the ICSID Convention. The government also has an informal policy that arbitration proceedings should take place in Addis Ababa, in an effort to reduce costs. Investors are therefore left to make important decisions about what to prioritise in their negotiations with the government, in order to ensure their requirements for dispute resolution are balanced against the need to agree a deal. Check out Part 2 of this blog to read more on different approaches investors might take.

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Our understanding of Africa’s markets stems from extensive experience on the ground. Through our Inside Africa blog, we aim to apply this insight to provide you with timely commentary on the latest developments across Africa, as well as insight into the many nations that make up this vast continent.

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