Rwanda-US Bilateral Investment Treaty and the EAC Common Market Protocol

The Rwanda-US Bilateral Investment Treaty (BIT) was signed in Kigali in 2008 and the United States Senate unanimously approved the treaty on September 26, 2011. Meanwhile, the EAC-US Trade and Investment Framework Agreement (TIFA) was signed in July 2008 between USTR and the EAC.  In addition, the EAC Common Market Protocol (CMP) to which Rwanda is a member came into force into force on 1st July 2010. 


The Rwanda-US BIT is the first to be concluded between the US and a sub-Saharan African country since 1998 (when a BIT was signed with Mozambique). Although there are over 40 BITs in force to which the US is a Party, this Treaty with Rwanda is only the second concluded on the basis of the ambitious 2004 U.S. model BIT. Other African countries with BITs currently in force with the US include: DRC, The Congo, Morocco, Senegal, Egypt, Cameroon and Tunisia. The BIT with Rwanda will remain in force for ten years after its entry into force and will continue in force unless terminated by a Party by providing one year’s advance notice to the other Party. 

The BIT provides investors with legal protections which include non-discriminatory treatment of investors and investments and the right to freely transfer investment-related funds.  Unlike the EAC CMP however, the BIT also provides for prompt, adequate, and effective compensation in the event of an expropriation; freedom from specified performance requirements, such as domestic content or technology transfer requirements; and provisions to ensure transparency in governance. The BIT also gives investors in all sectors the right to bring investment disputes to neutral international arbitration panels.  

In comparison, EAC CMP Article 29 on the Protection of Cross-Border Investments, undertakes to protect investors and their returns in a non-discriminatory manner however the modalities for doing so are not yet finalised. Article 29:3 proposes that within 2 years after the coming into force of the CMP, Partner States will take measures to ensure necessary protections in the Community.


In contrast, the EAC-US TIFA establishes a EAC-US Council On Trade and Investment to monitor trade, identify and remove impediments to trade and investment.

The BIT contains provisions on National Treatment and Most-Favoured-Nation Treatment whereby it protects investors of a Party and their covered investments from discriminatory measures by the other Party during the full life-cycle of an investment, including the establishment phase. Each Party commits to provide to investors of the other Party and to their covered investments treatment no less favorable than that which it provides, in like circumstances, to its own investors (National Treatment) or to investors from any third country and their investments (MFN Treatment). In this instance, Rwanda has committed in the BIT to give US investors similar treatment it is providing to EAC Partner States, in like circumstances, under the Common Market Protocol. 

In contrast however, the EAC CMP Article 13 on the Right of Establishment, EAC States have committed to the principle of MFN but not the principle of National Treatment. However in Article 16 on the Free Movement of Services, the principles of MFN and National Treatment are addressed. Hence National Treatment is applicable in the EAC CMP for investment in the services sectors but seemingly not investment in industrial sectors e.g. agriculture, manufacturing, hunting, and forestry, mining and quarrying, energy production/transmission and distribution. 

On Transfers, the BIT has free transfer obligations which require that a Party permit capital and other transfers related to an investment be made freely both into and out of its territory. Additionally, a Party must permit transfers to be made in a ‘‘freely usable currency,’’ as designated by the IMF, at the market rate prevailing at the time of the transfer. Parties may however prevent transfers through the equitable and non-discriminatory application of certain laws. The EAC CMP on the other hand has provisions on the Free Movement of Capital Articles 24-28 which corresponds to the CMP Schedule on the Removal of Restrictions on Free Movement of Capital (Annex VI).

On Performance Requirements, the BIT prohibits the imposition by the Parties of several requirements relating to the performance of investments, including a requirement to achieve a given level of exports or domestic content or requirements linking the value of imports or domestic sales by an investment to the level of its export or foreign exchange earnings. The Article also prohibits Parties from offering advantages, such as tax holidays, in exchange for a more limited set of performance requirements. In the WTO context, the Agreement on Trade Related Investment Measures (TRIMS) takes a similar prohibitive approach however only in the context of trade in goods. 

So as not to place U.S. and Rwandan investors at a competitive disadvantage, the disciplines on performance requirements also apply to all investments in the territory (non-discrimination) of a Party, including those owned or controlled by host-country investors (domestic investors) and those owned by non-Parties. The EAC CMP does not impose performance requirements however it would seem that by virtue of the BIT, Rwanda cannot impose such measures even in the services sectors vis a vie any third Party. In practice, Rwanda may want as a policy to impose some performance requirements e.g. the technology transfer in targeted sectors, vis a vie more developed countries and justifiably so, in order to meet key development objectives.  This provision is therefore not in the interest of Rwanda given her level of development. It should be mentioned that the development of China is linked to performance requirements (local content) the Chinese government put in place for foreign investors. See related piece here. Fortunately however Rwanda has exempted performance requirements in her Annex II on non conforming measures (discussed below).

On Senior Management and Boards of Directors, the BIT prohibits measures requiring that persons of any particular nationality be appointed to senior management positions in a covered investment. A Party may require that a majority of the board of directors of a covered investment be of a particular nationality, or that a director be a resident of the host country, so long as such requirements do not materially impair an investor’s control over its investment. This provision would prevent Rwanda from implementing broad-based local empowerment policy to foster development of its own nationals into senior management positions and fortunately Rwanda exempted this in her list of non conforming measures (discussed below). Meanwhile in this context, the EAC CMP does not discipline the composition of Boards of Directors and the nationality of Senior Management by virtue of the principles of free movement of workers and right of establishment. The CMP only requires that juridical persons be established in accordance with the national laws of a Partner State.  

In the Publication of Laws and Decisions the provisions in the BIT seek to promote transparency in the legal framework governing investment. It requires the Parties to ensure that laws, regulations, procedures, administrative rulings of general application, and adjudicatory decisions that relate to any matter covered by the Treaty are promptly published or otherwise made publicly available. The EAC CMP contains a mildly similar provision in the Free Movement of Services chapter Article 19 whereby notification is required but not publication and the notification only applies after the introduction of the measure. 

In the BIT, each Party is obligated, to the extent possible, to publish in advance any laws, regulations, procedures, or administrative rulings of general application with respect to matters covered by the Treaty that the Party proposes to adopt, and to provide interested persons and the other Party a reasonable opportunity to comment on the proposed measures. In the EAC CMP, provisions on advance publication and comments are not addressed.  In practice this means that the US would have the opportunity to view, comment  and make recommendations in advance, on Rwanda's proposed laws and regulations however EAC Partner States would not.

On the rules of origin (Denial of Benefits) the BIT establishes that a Party may deny the benefits of the Treaty to an investor of the other Party if persons of a third country own or control the enterprise and the denying Party either (1) has no diplomatic relations with the third country; or (2) adopts or maintains measures, such as foreign policy sanctions, with respect to the third country or to a person of the third country that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of the Treaty were accorded to the enterprise or to its investments. This provision impacts on third Parties that are on sanctioned lists of either Party.

The provisions on Denial of Benefits also establishes that a Party may deny the benefits of the Treaty to an investor of the other Party if the enterprise has no substantial business activities in the territory of the other Party and persons of a third country, or of the denying Party, own or control the enterprise. 

The Agreement also lists Non-Conforming Measures (equivalent to negative lists) and in these Annexes, each Party lists existing measures to which any or all of four key obligations of the Treaty do not apply, and sectors or activities in which each Party reserves the right to adopt future measures to which any or all of those obligations will not apply. Annex III of the BIT is reserved for financial services NCMs. 

Annex I:

Rwanda: Exemption from MFN and National treatment in all sectors to allow for differential minimum capital requirements for investment registration. Here Rwanda identifies "local investors" to include Rwandese and COMESA investors who are entitled to a lower capital threshold (USD 100,000) than "foreign investors" (USD 250,000). While EAC is not mentioned in the BIT given the common market was not yet in place, one can argue that the EAC falls in the "local investor" category since the common market is technically working towards a single market.

United States: Atomic Energy; Mining; Air Transportation; Customs Brokers; Radiocommunications Licenses; and restrictions on securities registration and OPIC insurance eligibility. 

Annex II 

Rwanda: Preferences for socially or economically disadvantaged communities and differential treatment pursuant to existing international treaties. Here Rwanda reserves the right to adopt  measures in all sectors that are not consistent with the provisions on National Treatment, Performance Requirements and Senior Management and Boards of Directors in order to accord rights or preferences to socially or economically disadvantaged communities. 


Rwanda also reserves the right in all sectors to deviate from MFN provisions in order to adopt or maintain any measure that accord differential treatment to countries under any bilateral or multilateral international agreement in force or signed before the BIT. For agreements signed or in force after the date of entry into force of BIT, Rwanda reserved the right to deviate from MFN treatment with regard to: (a) aviation; (b) fisheries; and (c) telecommunications.  

United States: Radio/Satellite Communications, Cable Television, Social Services, Minority Affairs, measures relating to U.S.-flagged maritime vessels, and differential treatment pursuant to existing international treaties. 

Annex III 

Rwanda: On insurance, Rwanda states that the entry shall cease to have effect on the earlier of: (i) the date that Rwanda enacts an insurance law that eliminates the non-conforming aspects of the measure as set forth above;' or (ii) September 1, 2009.

United States: Financial Services/Banking, Insurance, and general Financial Services. 

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Overall the US has more detailed sector specific Non Conforming Measures than Rwanda especially in the services sectors (transport (maritime, aviation), communication (audio visual, telecom), financial services (banking, insurance and other financial services). However Rwanda also made useful exemptions but at a sectoral level made general carve-outs in insurance, aviation, telecommunications and fisheries.  

The key take away from this comparison is the Rwanda-US BIT is highly asymmetrical and is more ambitious than the EAC CMP. Theoretically it can prejudice the regional processes given its objectives of MFN, National Treatment, Dispute Settlement (including Expropriation, Compensation), Intrusion in Law Making Processes (governance) and broad-based elimination of: performance requirements, empowerment measures including elimination of legitimate development oriented requirements for foreign investment and repatriation. 


Whether such comprehensive coverage is desirable for African countries is an important question, the answer to which is highly context- and situation-specific, and needs to be assessed against the overall objective of ensuring that investment treaties promote investment that actually exists or has the compelling potential to exist and that fosters sustainable development. The propensities to invest and hence the need for protection through an ambitious BIT is an important consideration before signing BITs as such needs may change over time. In closing its important to note that several countries receiving high FDI receipts in Africa e.g. Angola, Sudan have very few BITs and in a previous post we found that strict FDI provisions in BITs do not increase investment.

Kenya's MPESA to Spearhead Seamless Mobile Financial Transfers in the Continent

Michael Joseph, the immediate former CEO of Safaricom, has been tapped to spearhead the expansion of M-Pesa to other African countries as part of a plan to have a seamless mobile money transfer service on the continent.  M-Pesa is already successful in Kenya, and is now also available in Tanzania, Afghanistan, South Africa, while a pilot service is on in India.

But Vodafone is looking at spreading the services to other African countries such as DR Congo, Lesotho, and Mozambique with the aim of linking the market.  This will see mobile phone consumers send and receive money across borders in a move that will pile pressure on traditional money transfer service operators such as Western Union and Money Gram who have lost market share in the local market.

“M-Pesa is the most successful mobile money transfer service in the world and with Michael is a sure bet to drive its regional expansion having been behind its growth in Kenya,” said a senior executive at Safaricom who sought anonymity because he is not the firm’s spokesperson. “The rollout of the service in the new territories will not automatically enable registered Kenyan subscribers to send or receive money.

“But there is a plan to link them to these markets in coming years,” said the source. At present, Safaricom subscribers can receive money from the UK directly to their mobile phones in transactions carried out in partnership with Western Union and Vodafone. Mr Joseph retired from Safaricom in November after serving for 11 years and passed the leadership mantle to Bob Collymore.  He sits on the board of Safaricom and Johannesburg-based Vodacom, which is owned 65 per cent by the Vodafone Group — which has operations in five countries including South Africa, Tanzania, DR Congo, Lesotho and Mozambique.

It was under him that Safaricom rose to become East Africa’s largest and most successful firm in terms of earnings, and a market leader in Kenya’s mobile telephony market with a 76 per cent stake.  By 2005, Safaricom’s grip on the Kenyan mobile market had been cemented and in 2007 the company launched its mobile money transfer service M-Pesa — an innovation whose implementation was credited to Mr Joseph’s courage and which paid off handsomely winning over more than 13.5 million subscribers by September 2010.

Transactions worth Sh596.8 billion have gone through M-Pesa since its inception.  The service accounted for 11 per cent of Safaricom’s revenues or Sh5.2 billion in the six months to September this year up from Sh930 million in the same period in 2008.  Safaricom has used M-Pesa as a value added service, successfully using it to defend and attract subscribers from rival networks.

The service has driven a revolution of sorts in Kenya’s financial services where it is being used for payment of utility bills, dividend, goods at retail shops and banking services such as ATM withdrawals, deposits and cash transfers.  It is this market position that Vodafone seeks to replicate in five African countries served by Vodacom, especially DR Congo, Lesotho and Mozambique. Mr Joseph’s brief will be to shepherd the rollout of the product in the three countries and to shore up its performance in Tanzania and South Africa where the mobile money transfer service is yet to penetrate the market.

Low cost

The service was launched in South Africa in September and Tanzania in April 2008.  Nearly half (47 per cent) of all money transfers in Kenya now take place through the mobile phone, according to a survey by Financial Sector Deepening, a research firm that conducted the survey for the Central Bank of Kenya.

This has seen traditional money transfer service operators lose their grip on the market as more Kenyans turn to mobile phone-based platforms.  Popularity of the service is mainly hinged on the low cost of transaction, safety, and speed. Mr Joseph succeeded Mr Grieves-Cook who had served as the KTB chairman for two consecutive terms since his first appointment in November 2004.  Under his chairmanship, KTB managed to put up aggressive marketing campaigns targeting domestic and international tourists.

In addition, the organisation partnered with international travel and leisure groups as well as the media and airlines to build a strong image for Kenya as a niche tourist destination.

Nation Media

SA Services Firms Making Inroads into the Kenyan Market

South African firms have in the last 2 years increased investments into Kenya, hoping to be second time lucky in a market that previously proved difficult to penetrate and effectively buried a number of corporate SA giants.  The major difference this time round is that SA investors have changed their strategy, in favour of mergers and acquisitions while doing away with the setting up of new establishments. 

Previously South African firms appeared to concentrate their investments in the retail distribution services sector- mostly consumer goods through home grown giants such as MetroCash and Carry, Shoprite, Wool Worths etc. Recently however, investments have cut across nearly all sectors including banking, capital markets and ICT.

In the ICT sector, SA service providers entering the Kenyan market include MTN Business, which acquired UUNet Kenya (to become MTN Business Kenya) and Telkom South Africa (with a SA Government shareholding of 39.8%) and which has gained a strong local presence through a series of direct and indirect acquisitions of local firms such as a local satellite data transmission services company, Afsat Communications and Internet Service Provider Africa Online in a series of complex transactions that also involved other companies.

In financial services, Nedbank one of South Africa’s largest banks, entered Kenya through the Eco bank-Ned bank alliance where their customers can use any or both of the banks’ services without any changes in shareholding structure. The alliance is the largest banking network in Africa, with more than 1000 branches in 33 countries since Ecobank, has a presence in more African countries than any other bank in the world.  The alliance offers clients a 'One Bank' experience across Africa and the arrangement enables Nedbank, which had operations in only five African countries, to extend its footprint to the 29 countries where Ecobank has operations without moving in directly. ingenious.

Interestingly Ecobank Transnational International (ETI), is a public limited liability company which was established as a bank holding company in 1985 under a private sector initiative spearheaded by the Federation of West African Chambers of Commerce and Industry with the support of ECOWAS. In the early 1980’s the banking industry in West Africa was dominated by foreign and state-owned banks as there were hardly any commercial banks in West Africa owned and managed by the African private sector. Ecobank was founded with the objective of filling this vacuum and today its the leading African bank with offices in 29 countries and consisting of 746 branches. 

EU Plans to Import North African Solar Power

Bridges Trade BioRes • Volume 10 • Number 12 • 25th June 2010

Gunther Oettinger, Europe’s Energy Commissioner, has announced that the EU is expected to begin importing hundreds of megawatts of solar energy from North Africa within the next five years. The Commissioner’s comments came following a 20 June meeting with Algerian, Tunisian, and Moroccan ministers aimed at moving the renewable energy initiative forward. Importing energy from arid regions south of the Mediterranean has been proposed by Brussels as one of several strategies for helping the EU to meet its long-term goal of decarbonising its economy.

The EU currently aims to have 20 percent of its total energy requirements come from renewable sources by 2020. To help meet this goal the EU is looking to import solar energy to supplement domestic renewable energy initiatives. The solar energy captured in northern African nations would be transmitted to Europe via an inter-connector - a high voltage cable that will run under the Mediterranean Sea.

Launched in July 2009, the Desertec Industrial Initiative, which comprises 12 companies including Siemens, Deutsche Bank and REW, is in the process of developing a plan for solar power development in northern Africa. The consortium will seek public funding for its projects. The EU has stated that it will assist with updating regulations to allow transmission across European borders, coordinating stakeholders and conducting feasibility studies. The consortium has yet to produce a business plan for the proposed projects.

“I think some models starting in the next 5 years will bring some hundreds of megawatts to the European market,” Oettinger told Reuters on Sunday after the meeting. The long-term vision for the project is to provide thousands of megawatts to Europe in the next 20-40 years. The project will require a projected investment of about €400 billion and will aim to provide 15 percent of EU electricity demand. Subsidies from the EU will not be considered until the consortium produces a business plan for the project but are expected to go towards the construction of the interconnector.

Because the cost of transmitting energy from North Africa will be significant, officials must first determine whether the costs are offset by the amount of green energy the EU will actually receive. Even if solar power plants in the Sahara exhibit much higher performance, there could be a significant energy loss in the transmission to the EU.

The ministers from Algeria, Tunisia, and Morocco have agreed they are ready to start trade negotiations. In response to past concerns from Algerian officials regarding the EU’s exploitation of North African resources, Oettinger responded in a Reuters interview by saying, “maybe a bigger percentage of the electricity will be exported to Europe but at the same time we have to export the technology, tools, machines, experts, and so it’s a real partnership, not only a partnership by selling and by buying.”

There are concerns over how the EU will ensure that the energy transmitted is, in fact, green energy, not cheap and dirty fossil fuels. Oettinger says the problem of monitoring must be resolved in the next couple of years.

Joint Ventures Key in China’s Export Growth

Foreign investors have played a key role in the evolution of China’s exports of consumer electronics. Over the past few decades, foreign investors in China were found to be the most productive of the producers, they were the source of technology, and they dominated exports. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. But if China has welcomed foreign companies, it has always done so with the objective of fostering domestic capabilities. To that end, China used a number of policies to ensure that technology transfer would take place and strong domestic players would emerge. Early on, reliance was placed predominantly on state-owned national champions. Later, the government used a variety of carrots and sticks. Foreign investors were required to enter into joint ventures using the Law of the People;s Republic of China on Joint Ventures Using Chinese and Foreign Investment with domestic firms (for instance in mobile phones and in computers).

There was also a role for tariffs. Domestic markets were protected to attract market-seeking investors, in addition to those that looked for cost savings. Weak enforcement of intellectual protection laws enabled domestic producers to reverse engineer and imitate foreign technologies. And localities were given substantial freedoms to fashion their own policies of stimulation and support, which led to the creation of industrial clusters in particular areas of the country.

On acquiring technology transfer and building local supply linkages, China’s strategy was clear: It allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry. Most of the significant firms tended to be joint ventures between foreign firms and domestic (mostly state-owned) entities. A strong domestic producer base has however also been important in diffusing imported technologies and in creating domestic supply chains. Facilitating technology transfer requires a strong focus on Research and Development by the State. Without state support and publicly funded R&D, a company like Lenovo (previously known as Legend) which became large and profitable enough to purchase IBM’s PC business would never have come into being.

In sum, China has benefited both from good fundamentals—low labor and materials costs, “outward orientation” in the form of SEZs, large market size—and from a determined government effort to acquire domestic capabilities and build a modern industry. The large size of the economy has allowed policy experimentation. It also has allowed the government to use the carrot of the internal market to force foreign investors into joint ventures with domestic producers. If China is producing an increasingly sophisticated set of consumer electronics for instance, it would appear that this is due as much to the policy environment as it is to the free play of market forces.

For more on Special Economic Zones see here.