LL.B Investment Law Module (Final Final)

About this Investment Law Module
The Investment Law Module has been produced by National Institute of Public Administration
(NIPA). All modules produced by the Institute are structured in the same way, as outlined
below.
How this Investment Law Module is structured
The Module overview

The module overview gives you a general introduction to the module. Information contained in
the module overview will help you determine:
What you can expect from the course.

How much time you will need to invest to complete the course.
The overview also provides guidance on:

Study skills.
Where to get help.
 Assignments and assessments
 Activity icons
We strongly recommend that you read the overview carefully before starting your study.
The Module content

The Module is broken down into six (06) units. Each unit comprises:
An introduction to the unit content.
Unit outcomes.
New terminology.
Core content of the unit with a variety of learning activities.
A unit summary.
Assignments and/or assessments, as applicable.
For those interested in learning more on this subject, we provide you with a list of additional
resources at the end of this Family law; these may be books, articles or web sites.
National Institute of Public Administration – Outreach Programmes Division 1

Your comments
After completing this Investment Law Module, we would appreciate it if you would take a few
moments to give us your feedback on any aspect of this course. Your feedback might include
comments on:
Content and structure.
Reading materials and resources.
Assignments and Assessments.
Duration.
Support (assigned tutors, technical help, etc.)
Your constructive feedback will help us to improve and enhance this course.

Time Frame
Expected duration of this Module is 6 months

Formal study time required is 4 weeks before the beginning of the
semester
Self-study time recommended is 4 hours per week
Study skills As an adult learner your approach to learning will be different to

that of your school days: you will choose what you want to study,
you will have professional and/or personal motivation for doing so
and you will most likely be fitting your study activities around other
professional or domestic responsibilities.
Essentially you will be taking control of your learning environment.
As a consequence, you will need to consider performance issues
related to time management, goal setting, stress management, etc.
Perhaps you will also need to reacquaint yourself in other areas such
as essay planning, coping with exams and using the web as a
learning resource.
Your most significant considerations will be time and space i.e. the
time you dedicate to your learning and the environment in which
you engage in that learning.
We recommend that you take time now—before starting your self-
study—to familiarize yourself with these issues. There are a number
of excellent resources on the web. A few suggested links are:
 http://www.how-to-study.com/
The “How to study” web site is dedicated to study skills
resources. You will find links to study preparation (a list of nine
essentials for a good study place), taking notes, strategies for
reading text books, using reference sources, test anxiety.
 http://www.ucc.vt.edu/stdysk/stdyhlp.html
This is the web site of the Virginia Tech, Division of Student
Affairs. You will find links to time scheduling (including a
“where does time go?” link), a study skill checklist, basic
concentration techniques, control of the study environment, note
taking, how to read essays for analysis, memory skills
(“remembering”).
 http://www.howtostudy.org/resources.php
Another “How to study” web site with useful links to time
management, efficient reading, questioning/listening/observing
skills, getting the most out of doing (“hands-on” learning),
memory building, tips for staying motivated, developing a
learning plan.
The above links are our suggestions to start you on your way. At
the time of writing these web links were active. If you want to
look for more go to www.google.com and type “self-study
basics”, “self-study tips”, “self-study skills” or similar.
Need Help? In case you need help, you can contact NIPA at the following
website, phone number or you can email.
www.nipa.ac.zm
NIPA-Main Campus – Outreach Programmes Division
Phone Numbers:+260-211-222480
Fax:
e-mail address:opd@nipa.ac.zm
The teaching assistant for routine enquiries can be located from
the Outreach Division from 08:00 to 17:00 or can be contacted
on the numbers and email address indicated above.
Library
There is a library located at the main campus along Dunshabe
Road. The library opens Monday to Friday from 08:00 to 17:00.
Assignments There shall be one assignment and a test during residential school
given for this module and the assignments should be sent by post or
email them to the provided email addressed to the Outreach
Programmes Division – Nigeria Hall.
Assignments should be submitted to Outreach Programmes Division
Registry.
Assessments There shall be a minimum of two (02) assessments given to the

students undertaking this subject
These assessments shall be teacher marked assessments.
The assessments shall be determined and given by the course tutors
after you have covered a number of topics
The teacher/tutor shall ensure that the assessments are marked and
dispatched to the student within a period of two weeks.
A complete icon set is shown below. We suggest that you familiarize yourself with the icons
and their meaning before starting your study.
Activity Assessment Assignment Case

study
Discussion Group activity Help Note it!
Outcomes Reading Reflection Study

skills
Summary Terminology Time Tip

Learning tips
You may not have studied by distance education before. Here are some guidelines to help you.
How long will it take?

It will probably take you a minimum of 70 hours to work through this study guide. The time
should be spent on studying the module and the readings, doing the activities and self-help
questions and completing the assessment tasks.
Note that units are not all the same length, so make sure you plan and pace your work to give
yourself time to complete all of them.
About the study guide

This study guide gives you a unit-by-unit guide to the module you are studying. Each unit
includes information, activities, self-help questions and readings for you to complete. These are
all designed to help you achieve the learning outcomes that are stated at the beginning of the
module.
Activities, self-help questions and assessments

The activities, self-help questions and assessments are part of a planned distance education
programme. They will help you make your learning more active and effective, as you process
and apply what you read. They will help you to engage with ideas and check your own
understanding. It is vital that you take the time to complete them in the order that they occur in
the study guide. Make sure you write full answers to the activities, or take notes of any
discussion.
We recommend you write your answers in your learning journal and keep it with your study
materials as a record of your work. You can refer to it whenever you need to remind yourself of
what you have done.
Unit summary
At the end of each unit there is a list of the main points. Use it to help you review your learning.
Go back if you think you have not covered something properly.

Studying at a distance
There are many advantages to studying by distance education – a full set of learning materials
as provided, and you study close to home in your own community. You can also plan some of
your study time to fit in with other commitments like work or family.
However, there are also challenges. Learning at a distance from your learning institution
requires discipline and motivation. Here are some tips for studying at a distance.
1. Plan – Give priority to study sessions with your tutor and make sure you allow enough
travel time to your meeting place. Make a study schedule and try to stick to it. Set
specific days and times each week for study and keep them free of other activities. Make
a note of the dates that your assessment pieces are due and plan for extra study time
around those dates.
2. Manage your time – Set aside a reasonable amount of time each week for your study
programme – but don’t be too ambitious or you won’t be able to keep up the pace. Work
in productive blocks of time and include regular rests.
3. Be organised – Have your study materials organized in one place and keep your notes
clearly labeled and sorted. Work through the topics in your study guide systematically
and seek help for difficulties straight away. Never leave this until later.
4. Find a good place to study – Most people need order and quiet to study effectively, so
try to find a suitable place to do your work – preferably somewhere where you can leave
your study materials ready until next time.
5. Ask for help if you need it – This is the most vital part of studying at a distance. No
matter what the difficulty is, seek help from your tutor or fellow students straight away.
6. Don’t give up – If you miss deadlines for assessments, speak to your tutor – together you
can work out what to do. Talking to other students can also make a difference to your
study progress. Seeking help when you need it is a key way of making sure you complete
your studies – so don’t give up.
UNIT ONE: PRINCIPLES OF INTERNATIONAL INVESTMENT LAW
INTRODUCTION
This unit deals with the principles of international investment law. Investment arbitration continues to
expand and to occupy more and more arbitrators, lawyers, teachers and researchers. Looking at the
state of international law in general, and of international economic law in particular, investment law
has over the past decade become the most dynamic field. Developments within various subfields of
international law influence international investment law, but changes in investment law also have an
impact on the evolution of other fields within international law.
LEARNING OUTCOMES
After studying the unit, you will be able to:-
 Explain the nature of Investments Law in a broader sense;
 Undertake a reflective evaluation of elements of Investments.
 Explain the legal framework exists/developed to ease investment in a
foreign country.
INTERNATIONAL INVESTMENT THEORETICAL CONVERSIONALISATION OF
FOREIGN DIRECT INVESTMENT.
Distinguish Portfolio from Foreign Investment
Foreign direct investment (FDI) abroad often occurs subsequent to less extensive experience with the
foreign country in the form of trading goods, or transferring technology to have goods produced
under license in a foreign nation. Persons and multinationals have many reasons to invest abroad. It
may be part of an initial overall plan to produce goods or provide services worldwide. It may be the
next progression considered after the home market is saturated. It may be to avoid high tariffs for

imported finished products in the foreign nation. It may be a consequence of an unhappy relationship
with a licensee abroad, and a belief that the company can make a better product or provide a better
service on its own. Poor –quality products or services produce by licensees is often the reason for
assuming control of production abroad. Whatever the motivation, foreign investment will almost
always encounter laws in the host nation that differ from the laws regulating investment in the home
nation. Investment abroad involving the creation of new businesses, and the capital transfers to
underwrite them, is often referred to as foreign direct investment (FDI). It means ownership and
control of the enterprise abroad, whether branch or subsidiary in form. Enterprises which undertake
foreign investment are referred to by several names, multinational corporations (MNCs) or
enterprises (MNEs) or transnational corporations (TNCs) or enterprises (TNEs). More important than
what they are called are their percentages of ownership and control by the home –nation person or
entity. That discloses whether or not the enterprise is a joint venture, and which country is likely to
assert authority over the enterprise in the host or foreign nation. Both the governments of the home
nation (place of incorporation) and the foreign host nation (place of the productive part of the
business) may attempt to assert such authority, leading to intergovernmental conflicts Foreign
investment is a major part of the business of many companies chartered in developed nations.
Especially since the early 1980s, multinational enterprises have moved toward global production and
division of labor. As a result, global foreign direct investment rose by the opening of this century.
Intraregional foreign investment is another aspect of this development. The creation of the European
Community (now European Union) in 1958 and the adoption of the North American Free Trade
Agreement in 1994 stimulated increased foreign investment within trading areas. Others are SADC,
COMESA.etc.
The completion of the Uruguay GATT in late 1993 added new WTO investment rules. These new
rules have encouraged even more foreign investment. The composition of the rules which should

govern foreign investment has been a subject of frequent debate among developed and developing
countries. The North- South dialogue led in the 1970s to both restrictive United Nations General
Assembly resolutions and restrictive foreign investment laws in many developing nations. But after
the debt crisis in the early 1980s, and the subsequent election of governments more determined to
join the developed world than to lead the third world, impediments to foreign investment began to be
dismantled. Nationalizations gave way to privatizations; investment restrictions gave way to
investment incentives. But even though this recent liberalization has provided investors with
significant opportunities in many foreign nations, obstacles to foreign investment remain, and old
ones may be exhumed as governments change.
PORTFOLIO VS FOREIGN INVESTMENT
Portfolio investment- is a collection of securities owned by an individual or institution. A fund’s
portfolio may include a combination of financial instruments such as bonds, equities, money market
securities etc. the theory is that the investments should be spread over a range of options in order to
diversify and spread risk. Portfolio investment is one done in financial instruments where generally
investors aim to diversify their holdings of financial instruments across a portfolio. Herein investment
is more likely to occur when investors believe they are treated fairly during the process of investment.
Foreign Portfolio investment increases the liquidity of domestic capital markets and can help develop
market efficiency as well.
Foreign portfolio investment can bring discipline and knowhow into the domestic capital markets, it
may also help;
 Demand for better information, both in terms of quantity and quality.
 Promote transparency
 higher level of information disclosure and accounting standards.
 development of equity markets and shareholders ’voice in corporate governance

 May introduce sophisticated instruments and technology for managing portfolio.
In various ways foreign portfolio investment can help to strengthen domestic capital markets and
improve functioning, leading to a better allocation of capital and resources in the domestic economy.
Foreign investment is investment foreigners make in our country and that investment gives the
investor ownership right as well as management right- they have a say in the running of that firm,
foreign investment reflects greater confidence in the economy. With its orientation to developing
enterprises directly, foreign investment helps to strengthen economic potential. Competition is one of
the ways a foreign investment can have a broader effect on the economy, it spurs other enterprises to
increase their own efficiency and productivity. Technology transfers and the human development
capital are often seen as two of the primary benefits for foreign investment. Competition has arole to
play in both, as it encourages domestic competitors of the foreign investment to build up their own
technological capabilities. They will also learn from the technology of the foreign investment, and
the ways in which it improves the productivity of its labour and management. The development of
human capital can be one of the chief contributions of foreign investment; the foreign owners will
bring their management skills and technology to their enterprises. In training the local workforce,
they will pass on those management skills and technology.
OTHER FORMS OF FOREIGN INVESTMENT
There are some unique forms of foreign investment that have gathered their own rules as an overlay.
COUNTERTRADE– investment may assume the form of a countertrade agreement, where
production is established in the host nation and the profit is received exclusively as a share of the
production. This is usually called ‘’compensation’’ or buy –back. In such case the foreign investor
may agree to build a production plant in the foreign nation and take as compensation or profit a part
of the production of the plant. It is a form used mainly when the foreign nation is very short of hard
currency. Compensation agreements are usually of fairly long duration, since it may take years to pay

for the plant by the share of the plant’s production. The foreign investor must be able to market the
production, and often negotiates a low price for the goods (in the form of a higher percentage of the
production than might otherwise be called for).
BORDER INDUSTRIES AND ECONOMIC ZONES
A unique form of foreign investment has taken place for several decades along the borders of the
United States and Mexico, called the border industries or maquiladoras. A foreign, primarily United
States, company establishes an assembly plant across the border in Mexico to take advantage of low
labour costs. Mexico in turn would not apply its former, restrictive foreign investment rules to the
investment. With the adoption of the NAFTA, and Mexico’s dismantling of its restrictive rules, the
advantages of the maquiladora are considerably reduced. The maquiladora concept is related to the
use of free trade or economic zones, common in many countries.
FREE TRADE OR ECONOMIC ZONES
Free trade or economic zones are geographic areas, often at a port, where foreign investors are
allowed to exist with few domestic restrictions. The foreign investor provides raw materials and
goods are manufactured or assembled in the economic zone for subsequent export. One common rule
is that the productsmay not be distributed in the domestic market. The benefit of the zone is that the
country in which the zone is located does not impose tariffs on either the parts entering the zone or
the products leaving the zone, provided that they are exported. The benefit of the zone to the host
nation is principally the jobs produced in the zone.
LEASE FINANCING
Lease financing involves financial (or operational) leasing equipment to manufacture products. It is
often a part of an investment arrangement, and may help reduce demands on foreign exchange (lease
versus purchase). It also may allow the nation to obtain high technology equipment under lease.

THE LANGUAGE OF INVESTMENTBARRIERS- TRIMS
Foreign investment barriers that individual nations impose have come to be described as “trade
related investment measures’’ or TRIMS, language incorporated in the WTO. Although many
countries impose TRIMS, the developed and developing countries have different views regarding
their economic effects. Developed nations argue that TRIMS cause investors to base their decisions
on considerations other than market forces. The principle of national treatment, that mandates that
foreign controlled enterprises receive no less favorable treatment from governments than their
domestic counterparts, embodies this idea. Led by the United States, the developed nations have tried
to limit TRIMS through the General Agreements on Tariffs and Trade (GATT)/ World Trade
Organization (WTO) process.
Developing nations take a less negative view of TRIMS. They believe TRIMS provide a means of
host nation control over various aspects of foreign multinational enterprises activity. Specifically they
believe that TRIMS serve as useful policy tools to promote government objectives in furthering
economic development and ensuring balanced trade. Additionally, developing nations have quite
vigorously defended the use of TRIMS as an aspect of national sovereignty, historically to maintain
control over natural resources, and more recently to preserve domestic culture. The overall data as to
whether TRIMS successfully meet policy objectives or always cause inefficiency appears mixed.
Also unclear is exactly which practices the term TRIMS encompasses. The Uruguay round of GATT,
leading to the creation of the WTO, defined fourteen practices as TRIMS. UN have broken these into
four categories; local content, trade balancing, export requirements, and the broad area of investment
incentives.1 The first three serve as restrictions or barriers, while the fourth encourages investment.
Some viewers divide foreign investment laws into different groups2. Rather than discuss the broad
area of incentives, which typically involves tax benefits, we will focus more on barriers to
investment. The term ‘’performance requirements’’ often refers to barriers that governments use to

condition entry, often through a screening mechanism. In order to distinguish between the incentives
and barriers, barrier TRIMS are often called trade related performance requirements (TRPRS).
RECENT GLOBAL INVESTMENT TRENDS
Developed Countries
The reliance on private enterprise and the phenomenon of its growth beyond home markets into the
global arena is most evident among the developed countries, comprising the Triad of North America,
Japan, and European economic Area encompassing the European Union (EU) and European Free
Trade Area (EFTA). The Triad continues to draw the largest share of foreign direct investment,
although this has changed substantially. Whereas in 1990 developed countries share of global
investment wasUS$190 billion against about $30 billion for the developing countries, the figures for
1993 were US$120 billion for the developed world and nearly US$70 billion for developing
countries. The Triad also leads in innovations to stimulate enterprise and growth, through such
activities as deregulation of industries resulting in more domestic and international competition,
privatization, cross- border and intra-industry production, and regionalization of markets. Recent
prime examples are the expansion of the US-Canada Free Trade Agreement to include Mexico in the
North American Free Trade Area (NAFTA), and the further harmonization of the EU and EFTA. The
main lesson from the industrialized world is that, while there is certainly an urgent need to draw
international investments and technology, trade liberalization within a region is at least as important.
To a large extent, previous experience shows that trade liberalization must precede any massive
international trade and investment initiatives. Moreover, it is evident that an economically successful
country must ease, strengthen and enlarge trade and investment in its neighborhood, so that as a bloc,
they will be seen as an attractive trade and investment option for foreign direct investment.

Developing Countries
The identification of private industry as the principal means of economic growth and development,
as well as the recognition on the importance of participating in the global economy have not been
limited to the industrialized world alone. A growing number of developing countries have likewise
embarked on internationally- oriented production and trade on the basis of domestic enterprise and
locally- based foreign direct investment. A good indication of this is the share of foreign direct
investments by the developing world which jumped by 42 percent between 1992 and 1993 to the tune
of nearly US$70 billion. Foreign direct investment in developing countries rose as; fifty five percent
ended in East Asia, 24 percent in Latin America, and 14 percent went to the former communist bloc.
The change that permitted this spectacular growth is not hard to fathom. Sustained promotion of
private enterprise, increased public sector technical competence to manage an economy in which the
state played a lesser direct role, improved human resources and physical infrastructure, are some of
the elements that have accounted for developmental successes in some parts of the developing world.
As a result of this strategy, some developing countries are especially known for sustained movement
in that direction. East Asian newly industrializing countries, such as South Korea, have transformed
to such an extent that they are no longer mere recipients, but have become responsible for increased
foreign direct investment outflows in their own right. This trend has begun to be reflected in Southern
Africa, a region that has begun to attract the attention of the East Asian business community. An
example of this trend is the establishment of a car assembly plant in Botswana by Hyundai, the South
Korean automobile manufacturer.
Sub –Saharan Africa has generally not done well in regard to foreign direct investment. The region
received only 3 percent of the total foreign investment that went into the developing world. There are
signs, however, that the SADC region is beginning to draw a modest share of foreign direct
investments. In fact, Zimbabwe, since undertaking its economic reforms in 1991, saw its level of

foreign investments double in 1993 although, admittedly, from a small initial base. After the
democratic election in 1994, foreign direct investments in South Africa are rapidly reversing previous
trends of divestment. International corporations such as IBM, Ford Motor Company, Mc Donald’s
and Pepsi Cola set up operations in the 1994-95 periods. The sizeable domestic market, well-
developed infrastructure and financial markets make South Africa a prime candidate for foreign
direct investment. Zambia has also seen substantial foreign direct investment in the wake of its
privatization program. The Common wealth Development Corporation (CDC), and Lonrho, both
from Britain, are some of the buyers of Zambia’s privatised public enterprises. South Africa’s Anglo
American also purchased privatised assets in Zambia. With this trend, almost all countries in the
region are poised to attract foreign direct investment on the basis of among other things, political
stability, economic reforms, and greater use of investment incentives, including unrestricted
repatriation of profits and dividends, and guarantees against nationalization of private enterprise.
TRIMs
The GATT Uruguay Round produced important new investment rules. Prior to this round, the GATT
had not directly governed foreign investment5. The new rules are thus quite a significant
development. But as must be expected with any large organization with members possessing
divergent views, the investment provisions of the GATT are not as comprehensive as those in the
much smaller NAFTA.
The GATT/WTO investment rules are included in the ‘’ Agreement on Trade-Related Investment
Measures.’’ These measures, commonly called TRIMS, first set forth a national treatment principle.
TRIMs which are considered inconsistent with GATT/WTO obligations, are listed in an annex, and
include such performance requirements as minimum domestic content, imports limited or linked to
exports, restrictions on access to foreign exchange to limit imports for use in the investment, etc.
Developing countries are allowed to ‘’ deviate temporarily’’ from the national treatment concept,

thus diminishing in value the effectiveness of the GATT/WTO investment provisions, and obviously
discouraging investment in nations which have a history of imposing investment restrictions, and
making such agreements as the NAFTA all the more useful and likely to spread.
The essence of the GATT/WTO TRIMs is to establish the same principle of national treatment for
investments as has been in effect for trade. TRIMs are incorporated in the overall structure of the
GATT/WTO, alongside trade measures, rather than being treated as a quite distinct area. Because all
the deficiencies of the GATT/WTO with regard to trade measures may apply to TRIMs, it remains to
be seen how effective these measure will be in governing foreign investment. Because the measures
are much less certain than those included in bilateral investment treaties and small area free trade
agreements, it is likely that much of the regulation of foreign investment will develop in their context
rather than within the GATT/WTO.
The WTO has a working party on trade and investment which has been discussing new investment
rules. The EU wants investment policy to be a major issue in a comprehensive millennium round of
trade talks it had hoped to commence in 1999. The unsettled nature of the Seattle WTO meeting in
early 2000 has delayed further development. By early 2005 there was no immediate prospect of new
WTO investment rules.
FOREIGN INVESTMENT TREATIES
The decade of the 1990s was an active period for the signing of bilateral investment treaties. The
principal focus was the protection and promotion of foreign investment. It is not only the United
States which has emphasized these treaties; they are common features of most developed nations in
their relations with host nations for foreign investment. For example, China has investment
protection agreements with such nations as Australia, Austria, Belgium, Luxembourg, Denmark,
France, Germany, Japan, the Netherlands, and the United Kingdom. A benefit of such an agreement
is that its provisions prevail over domestic law, although the agreements usually allow for exceptions

to investment protection when in the interests of national security. The investment treaties of interest
to U.S. investors are those which have been concluded by the United States with other nations.
Because the process of enactment of these agreements is a continuing one, the number in existence is
certain to increase in the coming years. The existence of the WTO TRIMs provisions may reduce the
number of bilateral treaties, but they will be used because they are able to tailor the provisions to
meet the unique needs of the two nations. The parties must be careful, however, that concessions
granted may be demanded by other WTO members under MFN concepts.
Nations currently allowing foreign investment often strive to create regulations that narrowly fall
short of the degree of restrictiveness that would cause a large scale withdrawal of foreign direct
investment. Multinationals react adversely to any form of regulation and often attempt to convince
host nation authorities that the nation either has achieved the nadir of restrictiveness, or, more likely
that the nation is retarding development. They argue that the restrictiveness has increased above the
‘’Edge of Discouragement’’, that level of restrictiveness beyond which foreign investors will
withhold investment. Each host nation has such a level which the combination of its written and
unwritten laws must not exceed if the nation truly wants to receive foreign investment.

ACTIVITY
. 1. Identify reasons why investors invest abroad.
2. What is known as foreign direct investment in international investment
law?
Write short notes on
a. lease financing
b. countertrade
c. border industries/ economic zones
d. Free trade or economic zones.
UNIT TWO LEGAL FRAMEWORK FOR INVESTMENT IN ZAMBIA
INTRODUCTION
Investment laws in the republic of Zambia are mainly covered by the Zambia Development Agency
Act no. 11 of 2006 of the laws of Zambia. The purpose of this Agency is to attract foreign
investment, set conditions for its entry into Zambia, simply the investment process for the foreign
investor and facilitate and promote investment.
Learning Outcomes
Upon completion of this unit will be able to:

 Appreciate the importance of this principle
 The reasons by the policy
The Zambia Development Agency Act offers a range of incentives, including the following; investors
who qualify for special incentives under the Act are entitled to exemption from customs duty to all
machinery and equipment required for establishment, rehabilitation or expansion of that enterprise.
Investment guidelines may restrict the type of investment or the type of investors. For example
section 7 of the Zambian Mines and Minerals Act states that; a mining license cannot be granted to a
person below the age of 18 or an discharged bankrupt. Further, a company that is in liquidation
cannot be granted a mining license either (this is a restriction on who can have mining rights or invest
in the mining industry)
At what point in the investment process the government regulation or law takes effect presents
another key distinction. Some nations make entry very difficult, by mandatory review of the proposed
investment, requirements of joint ventures or exemptions gained only after long negotiation and
concessions, restrictions on acquisitions, and numerous levels of permission from various Ministries
and agencies. Mexico, until the late 1980s, possessed in its legal structure an example of each
restriction. But by 1994 it had repealed nearly all of these restrictions.
In Zambia entry is determined by the Zambia Development Agency which is established by section
4(i) Act no.11 of 2006 of the laws of Zambia. One of its functions under section 5(2)(i)is to ‘’assist in
securing from any state institution any permission, exemption authorization, license, bonded status,

land and any other thing required for the purposes of establishing or operating a business enterprise’’.
The host nation has to approve or disapprove a foreign investor’s proposal. This will often be in form
of a letter from the appropriate agency. The case of Egypt v Southern Pacific Properties, Illustrates
that the burden of ensuring that the proper approval is granted rests with the investor. In this case
Southern Pacific Properties (SPP) a Hong Kong based company had entered into an agreement with
the Egyptian General Organization for Tourism and Hotels (EGOTH). The idea here was to construct
a tourist complex near the site of the Pyramids of Giza. There was also a supplemental agreement
which re-affirmed and explained the rights of the two parties. This agreement also contained an
arbitration clause. The supplemental agreement was signed by EGOTH and SPP. The minister of
tourism added the words ‘’approved agreed and ratified’’ and then his signature. A misunderstanding
arose between the two parties. In addition to this, environmentalists were opposed to the idea of
developing a tourist complex on this historical site. The government cancelled the entire pyramid
project. SPP therefore initiated arbitration proceedings before the ICC. They took the view that the
Minister’s signature on the supplemental agreement bound Egypt to arbitration. The International
Chamber of Commerce (ICC) agreed. They found that Egypt had breached its obligations and thus
SSP was awarded a sum of 12.5 million dollars.
Egypt brought a case to the Court of Appeals of Paris in order to have the award set aside. They took
the view that the signature was nothing more than the ‘’ material manifestation of approval by the
supervising authority mentioned in the statement’’. Even though he granted approval, the Minister
was not a party to the contract and therefore Egypt was not bound by the arbitration clause.
EXPROPRIATION
Generally, international law provides that investments will not be expropriated except in the Public
interest. Expropriations are invariably carried out in accordance with law and with payment of
compensation. Section 19 of the Zambia Development Act states that;

(i) An investor’s property shall not be compulsorily acquired nor shall any interest in or right over
such property be compulsorily acquired except for public purposes under an Act of Parliament
relating to the compulsory acquisition of property which provides for payment of compensation for
such acquisition.
(ii) Any compensation payable under this section shall be made promptly. At the market value and
shall be fully transferable at the applicable exchange rate in the currency in which the investment was
originally made, without deduction for taxes, levies and other duties, except where those are due.
Section 19(i) is congruous with Article 16(i) of the constitution of Zambia which states that;
except as provided in this article, property of any description shall not be compulsorily taken
possession of, and interest in or right over property of any description shall not be compulsorily
acquired unless by or under the authority an Act of parliament which provides for payment of
adequate compensation for the property or interest or right to be taken possession of or acquired.
Zambia Development Act allows for the transfer of capital under section 20 which states;
Notwithstanding any other written law relating to externalization of funds, a foreign investor may
transfer out of Zambia in foreign currency and after payment of the relevant taxes;
(a) Dividends or after tax income
(b)The principal and interest of any foreign loan
(c)Management fees, royalties and other charges in respect of any agreement:
(d) The net proceeds of sale or liquidation of a business enterprise.
TAXATION
In order to encourage the flow of foreign direct investment, developing countries provide for tax
incentives in their investment. According to section 55 of the Zambia Development Agency Act these
incentives last for a period of 5 years from the grant of the licence, permit or certificate (or for such

period as the Minister responsible for Finance may prescribe. A minimum investment of US$
500,000, in a priority sector or product is needed for one to qualify for such incentives, see section
According to section 57, any machinery acquired by either a business enterprise operating in a
priority sector (or in respect of priority products) or a rural enterprise is exempt from paying customs
duty. Section 58 provides that major investments of $10million or more in new assets may be
entitled to additional incentives. There are also provisions for double taxation in section 61. This is to
say that if the corporation is taxed here, then it will not be taxed again in its home state.
DISPUTE SETTLEMENT
Generally, the law gives local Courts jurisdiction, but allow for dispute Settlement by arbitration.
Section 21 of the Zambia Development Agency Act states; any dispute arising from privatization
process shall be settled by arbitration in accordance with the arbitration Act no. 19 of 2000. It must
be noted that laws regulating investment are not limited to developing countries. The United States
has acts requiring foreigners to disclose investment in the agricultural sector, whereas France requires
investors to obtain a merchant card. The main difference between the laws of developed countries
and the laws of developing countries is that the latter is trying to attract investment whereas the
former is merely trying to monitor it. The Zambia Development Agency is also given the task of
encouraging and promoting: the transfer of appropriate technology and promote public
understanding of matters relating to industrial development and productivity.
Sovereignty dictates that host states may amend their investment laws at any time they so wish. This
may include altering the fiscal incentives that government has previously offered either under the
legislative framework, or through the contractual one. Investors thus seek to protect themselves, form
the municipal or local laws through the insertion of various clauses.
SECURITIES ACT CHAPTER 354

Securities are essentially investment instruments issued primarily for the purpose of corporate/
project finance. They are instruments capable of being used to mobilize/ procure financing or funding
for commercial development projects. Since securities are capable of being used to mobilize
corporate or project finance they operate as an alternative to the banks and bank based lending. The
definition for securities in effect should encompass- collective investment schemes, (CIS) hedge
funds and derivatives (options/futures) Securities take a variety of forms depending on the nature,
financial circumstances and preference of the entity that is seeking to issue them (issuer). The
securities Act 1993 was enacted in the 1990s, the rationale for securities market development was
for;
(i) Empowering Zambians through share ownership
(ii) Source of cheaper, long term finance
(iii) Encourage local and foreign investment
(iv) Facilitate change of ownership of parastatals
(v) Provide efficient, fair, orderly and transparent market for secondary trading in shares.
Unlike the stock exchange act 1990 which had no provisions on continuing disclosure obligations the
securities Act 1993 requires an issuer of securities to keep the public informed of all matters affecting
the value of the securities immediately upon their becoming known to the directors of the issuer- sec
38 (1)(2) and 3. Part vii of the securities Act 1993 addresses the issue of improper trading practices in
the securities industries in Zambia. The securities Act 1993 prohibits the creation of false or
misleading volumes of trade in securities s.48
Under the securities Act 1993, it is a criminal offence to induce or attempt to induce another person
to deal in securities through misleading, false or deceptive s. 49. Essentially, it is important to note
that he securities Act chapter 354 of the laws of Zambia also establishes the Securities and Exchange
Commission and defines its objects and functions; and to provide for matters connected with or

incidental to the securities industry. S3(1). Under section 4, the commission outlines its functions
among which;
(a) To take all available steps to ensure that this Act and any rules made under this Act are complied
with. Under section 5 the commission may delegate to its officers and employees such of its powers
and functions as the commission considers necessary or expedient to delegate.
ACTIVITY
The Zambian Development Agency Act goes far enough in its provisions to
attract Foreign Direct Investment. Discuss.
2. Why should securities be regulated?
3. What are the criteria for regulating capital markets?
4. Why was the securities and exchange established in
Zambia?
5. Define public purpose in relation to expropriation
UNIT THREE CONCEPT OF GOOD INVESTMENT CLIMATE
INTRODUCTION
It is reasonable to assume that the object and purpose of investment is closely tied to the desirability
of foreign investments, to the benefits for the host state and the investor, to conditions necessary for
the promotion of foreign investment, and to the removal of obstacles which may stand in the way of
allowing and channelling more foreign investment into the host states. Factors that encourage foreign
direct investment include the following
LEARNING OUTCOMES
After learning or studying this unit, you will be able to:
 Meaning of insurable interest
 The reason by this principle.
Factors that encourage foreign direct investment include the following;
POLITICAL STABILITY.
The evolution of SADC as a major and significant African regional economic bloc was in the past
hampered by political difficulties and uncertainties on several fronts. There were wars in Angola and
in Mozambique. After almost two decades of war, Angola has recently experienced a much improved
political situation, particularly after the signing of the Lusaka Protocol in November 1994.
Political stability should enable the SADC to realize its immense economic and investment potential.
Another political breakthrough for the SADC was South Africa’s peaceful transition from the system
of apartheid in May 1994 and the establishment of the government of national unity (GNU).
Among the first indications of South Africa’s desire and willingness to cooperate with its neighbors
was its accession to the SADC treaty in August 1994, barely three months after the creation of a new
political dispensation. Political changes in South Africa, Mozambique, and Angola, are not isolated
incidences but are part of the larger transformation of the Southern African region. Multi party
systems have in the last few years replaced one party political systems in Zambia, Malawi and more
recently in Tanzania and Zimbabwe which has been operating under a democratic system. Mauritius,
the newest member of SADC comes to the community with an already well established multiparty
political system whose tradition goes back to the early phase of independence, as in the case of
Botswana.

As a result of all these changes, the region is far more stable and peaceful with rapidly changing
developmental investment agenda. SADC is now rapidly moving into matters pertaining to the
creation of an enabling investment environment to permit the private investment to grow.
Government initiatives aimed at greater wealth-creation, business enterprise development, and
general modernisation and development is an agenda item that most member countries have
embraced. There is now greater emphasis in the region for increased need of trade and foreign direct
investment. The relative peace and political stability that now reigns throughout the SADC region is
proving to be a major boost to economic and investment management generally.
DOUBLE TAXATION AGREEMENTS
Many developed nations have concluded tax treaties with nations in which their multinationals invest,
essentially to avoid double taxation. Even though a nation may have a liberal foreign investment law,
unless there is a reasonably clear expression of the form of taxation facing investment, investment
will be slow to enter. Some nations offer tax incentives to foreign investment, such as tax holidays
that defer tax for a certain number of years, or rebates when profits are reinvested rather than
repatriated. The tax benefits are often linked to investment in high priority areas, such as those that
generate foreign exchange. Tax benefits may extend beyond tax on profits to taxation of royalties,
taxes on imports and exports, sales and consumption taxes, and taxes on personal income of
expatriates. One problem for foreign investors is the dynamics of taxation in foreign nations.
PHYSICAL INFRASTRUCTURE
Comparatively, SADC has the best economic infrastructure is sub –Saharan Africa, most notably the
longest paved road system, most expensive railroad, and the highest number of telephone mainlines.
The status of regional infrastructure determines its success or failure in creating an enabling
environment for investment, diversifying production, and expanding international trade. The transport
and communication sector is a priority sector in SADC for a number of related reasons, among them

the fact that landlocked members (Botswana, Lesotho, Malawi, Swaziland, Zambia, and Zimbabwe)
depend on the use of road and rail links to seaports. Given this reality, it is important that the regions
railway systems, as commercial entities, are relatively free of government operational subsidies and
excessive public sector controls.
SADC’s port facilities are equally important, especially regarding the import and export capabilities
of the region. South African ports at Durban, Richards Bay, and Port Elizabeth have tremendously
contributed to the improved regional trade traffic. Walvis Bay, in Namibia, is equally important in
this regard. The ports of Beira, Nacala and Maputo in Mozambique, the Dares- salaam port in
Tanzania, as well as that of Lobito in Angola are undergoing comprehensive restructuring. In the civil
aviation sub sector, commercialization of economically and financially viable airports is being
considered by some member states. This includes the involvement of the private sector in the
management and provision of some specific services, including private ownership In the
telecommunications field, SADC members are already taking some measures to restructure the sub
sector with a goal of turning national operators into public companies selling shares on the financial
markets which can attract capital from private sector investments.
The postal services are also being restructured into autonomous commercial enterprises, whose
operations would be expected to respond to the market demands rather than the mere provision of a
public service.
WORK ETHICS
Labor, particularly skilled labor, technical and professional personnel, is very scarce in other member
countries of the SADC, for instance Angola. The region recognizes that harmonious labor relations
are a critical ingredient in attracting new investment. Mechanisms are in place to ensure that
industrial action may only be taken after extensive consultation. Employers are also encouraged to
train workers with the government playing a leading role.

In regard to foreign personnel where suitably qualified locals are not available, non- citizens may be
employed subject to obtaining work permits from the relevant ministry, as well as resident permits
from relevant ministry of home affairs. Where necessary, a local will be attached to understudy the
expatriate professional. In most of the region, the principal means of addressing industrial action is
the tripartite negotiations which bring together management, trade unions and the government to
resolve disputes. In regard to non- citizen employees, they enjoy favorable working terms, such as
reasonably high salaries, fringe benefits in the form of, for example company car, free education for
children, a medical scheme, and local holidays. Wage rates in semi-skilled and unskilled categories of
labour are guided by a legal framework.ie the minimum wages Act in Zambia.
Activity
Foreign direct investment occurs where the conditions for its entry are
available. Discuss
2. Explain the concept of Double taxation.
3. The SADC region is ripe for attraction of foreign direct investment.
Discuss

UNIT FOUR THE CONCEPT OF PERMANENT SOVEREIGNTY OVER NATURAL
RESOURCES
Introduction
Every state enjoys the right to use their resources to attain development. However, this right may in
certain instances cause conflicts with the interests of other states. It is from here that this unit will
now endeavor to look at the concept of permanent sovereignty over natural resources.
LEARNING OUTCOMES
In this UNIT you are going to learn on the following:

 Understand the meaning of subrogation
 Identify its relevance
The United Nations has been the birthplace of this principle and the main forum for its
development and implementation. Relevant resolutions were first adopted by the
General Assembly in the years 1950’s giving initial recognition to this concept as
applied to peoples and nations. In 1958, the General Assembly established the
Commission on Permanent sovereignty Over Natural Resources and instructed it to
conduct a full survey of the status of permanent sovereignty over natural wealth and
resources as a ‘’basic constituent of the right to self-determination’’. But it was General
Assembly resolution 1803 (XVII) in 1962 that gave the principle momentum under
international law in the decolonization process. In this important resolution the
Assembly declared, inter alia:
‘’ The right of peoples and nations to permanent sovereignty over their natural wealth
and resources must be exercised in the interest of their national development and of the
well –being of the people of the State concerned’’.
The exploration, development and disposition of such resources, as well as the import of
the foreign capital required for these purposes, should be in conformity with the rules
and conditions which the state freely consider to be necessary or desirable with regard
to the authorization, restriction or prohibition of such activities.
In the above-mentioned resolution, the General Assembly further declared:
‘’ Violation of the rights of peoples and nations to sovereignty over their natural wealth
and resources is contrary to the spirit and principles of the Charter of the United
Nations and hinders the development of international cooperation and the maintenance

of peace.’’
While the principle of permanent sovereignty over natural resources originally arose as
merely a political claim by newly independent States and colonized peoples attempting
to take control over their resources and with it their economic and political destinies, in
1966 permanent sovereignty over natural resources became a general principle of
international law when it was included in common Article 1 of the Covenant on Civil
and Political Rights and the Covenant on Economic, Social and Cultural Rights.
In modern times it is commonplace to observe that no State enjoys unfettered
sovereignty, and all States are limited in their sovereignty by treaties and by customary
international law. In fact, it is common practice for States to enter into international
agreements that not only reflect certain limits to their sovereignty, but also acknowledge
certain benefits that can be derived when sovereigns cooperate in their management and
use of natural resources. Thus, in legal principle there is no objection to using the term
sovereignty in reference to indigenous people acting in their governmental capacity. In
fact, indigenous peoples have long been recognized as being sovereign by many
countries in various parts of the world.
In the United States, Indian tribes have been recognized as sovereign political entities
since the formative years of the Federal Government. These principles were first
completely expressed in the case Worcester v. Georgia. That case arose when the State
of Georgia imprisoned several missionaries who were living on Cherokee Nation
territory in violation of a state law requiring non- Indian’s to obtain a license from the
governor.
Justice John Marshall set forth what is still law today in the United States when he
found that Indian nations have always been recognized as ‘’ distinct, independent,

political communities’’ and are, as such, qualified to exercise powers of self-
government, not by virtue of any delegation of powers from the Federal Government,
but by reason of their original tribal sovereignty . See the Case of the Mayagna (Sumo)
Community of Awas Tingni v Nicaragua, While international instruments, tribunals,
and commissions have been grappling with and advancing our understanding of the
scope of Indigenous peoples’ ’rights to their lands, territories, and resources, the various
domestic courts of the United Nations Member States have been making advances as
well. See the cases of Mabo v Queensland (no.2) of Australia, Delgamuukw v British
Columbia of Canada, and the recent Alexkor v Richtersveld Community and others
pronounced by the Constitutional Court of South Africa. Each of these cases, while
containing its own limitations, has advanced our understanding of indigenous peoples
rights to its lands, territories and resources.
EXPROPRIATION
The rules of international law governing the expropriation of alien property have long
been of central concern to foreigners in general and to foreign investment in particular.
Expropriation is the most severe form of interference with property. All expectations of
investors are destroyed if the investment is taken without adequate compensation.
The right to expropriate
Consistent with the notion of territorial sovereignty, the classical rules of international
law have accepted the host state’s right to expropriate alien property in principle.
Indeed, state practice has considered this right to be so fundamental that even modern
investment treaties (often entitled agreements ‘’for the promotion and protection of
foreign investment’) respect this position. Treaty law typically addresses only the
conditions and consequences of an expropriation, leaving the right to expropriate as

such unaffected. Even clauses in agreements between the host state and the investor that
freeze the applicable law for the period of the agreement will not necessarily stand in
the way of a lawful expropriation.
The three branches of the law
Beyond the right of the host state to expropriate, international law on expropriation has
developed three branches, which regulate the scope and conditions of the exercise of
this power. The first one defines the interests that will be protected. Most contemporary
treaties, in their provisions dealing with expropriation, refer to ‘’ investments’’.
Similarly, the jurisdiction of arbitral tribunals is typically restricted to disputes arising
from investments. Therefore, it is ‘’investments ‘’ as defined in these treaties that are
protected The second branch concerns the definition of an expropriation. While this
matter raises no questions in cases of a formal expropriation, the issue may acquire a
high degree of complexity when the host state interferes with the rights of the foreign
owner without a formal taking of title. Indeed, in the practice of the past, most cases
relating to expropriation have turned on the controversy of whether or not a ‘’taking’’
had actually occurred. Matters of public health, the environment, or general changes in
the regulatory system may prompt a state to regulate foreign investments. This has led
to claims against the state on the basis that a regulatory taking or indirect expropriation
has occurred.
The third branch of the law on expropriation relates to the conditions under which a
state may expropriate alien property. The classical requirements for lawful expropriation
are a public purpose, non-discrimination, as well as prompt, adequate, and effective
compensation. These requirements must be fulfilled cumulatively: The measure must
serve a public purpose. Given the broad meaning of ‘’public purpose’’, it is not

surprising that this requirement has rarely been questioned by the foreign investor.
However, tribunals did address the significance of the term and its limits in some cases.
The measure must not be arbitrary and discriminatory within the generally accepted
meaning of the terms. Some treaties explicitly require that the procedure of
expropriation must follow principles of due process. Due process is an expression of the
minimum standard under customary international law and of the requirement of fair and
equitable treatment. Therefore, it is not clear whether such a clause, in the context of the
rule on expropriation, adds an independent requirement for the legality of the
expropriation. The expropriatory measure must be accompanied by prompt, adequate,
and effective compensation. Adequate compensation is generally understood today to be
equivalent to the market value of the expropriated investment.
Direct and indirect expropriation
The difference between a direct or formal expropriation and an indirect expropriation
turns on whether the legal title of the owner is affected by the measure in question.
Today direct expropriations have become rare.9 States are reluctant to jeopardize their
investment climate by taking the drastic and conspicuous step of an open taking of
foreign property. An official act that takes the title of the foreign investor’s property will
attract negative publicity and is likely to do lasting damage to the states reputation as a
venue for foreign investments.
As a consequence, indirect expropriations have gained in importance. An indirect
expropriation leaves the investor’s title untouched but deprives him of the possibility of
utilizing the investment in a meaningful way. A typical feature of an indirect
expropriation is that the state will deny the existence of an expropriation and will not
contemplate the payment of compensation.

Partial expropriation
Some tribunals have accepted the possibility of an expropriation of particular rights that
formed part of an overall business operation without looking at the issue of control over
the entire investment. In Middle East Cement v Egypt the investor had, inter alia,
obtained an import license for cement and had operated ship. Egypt subsequently took
measures that prevented the investor from operating its license and seized and auctioned
the ship. The investor raised a series of claims in respect of which it alleged
expropriation. These included but went beyond the import license and ownership of the
ship. The tribunal looked at these claims separately and determined in respect of each
whether an expropriation had taken place. It found that the license qualified as an
investment and that the measures that prevented the exercise of the rights under it
amounted to an expropriation. The tribunal examined separately whether an
expropriation of the ship had occurred and gave an affirmative answer. Therefore, this
case demonstrates that it is possible separately to expropriate specific rights enjoyed by
the investor regardless of control over the overall investment. See also Eureko v Poland.
Creeping expropriation
The rules on protection of foreign investments must not be circumvented by way of
splitting a measure amounting to an indirect expropriation into a series of cumulative
steps which, taken together, have the same effect on the foreign owner. Therefore, it has
long accepted that an expropriation may occur ‘’outright or in stages. Thus, the term
‘’creeping expropriation’’ describes a taking through a series of acts. A study by
UNCTAD referred in this context to a slow and incremental encroachment on one or
more of the ownership rights of a foreign investor that diminishes the value of its
investment. The Tribunal in Generation Ukraine v Ukraine, also Rumeli v Kazakhstan

Award29 July 2008. Explained creeping expropriation as follows:
Creeping expropriation is a form of indirect expropriation with a distinctive temporal
quality in the sense that it encapsulates the situation whereby a series of acts
attributable to the state over a period of time culminate in the expropriatory taking of
such property………….
A plea of creeping expropriation must proceed on the basis that the investment existed
at a particular point in time and that subsequent acts attributable to the state have eroded
the investor’s rights to its investment to an extent that is violative of the relevant
international standard of protection against expropriation.
COMPENSATION
The Uncertainty of International Law
As noted above, if the expropriated foreign property owner is satisfactorily
compensated, that is likely to end the matter. A ruling by any dispute settling entity,
court or tribunal, domestic or international, that the expropriation was unlawful, is
purely Pyrrhic victory if there is no satisfactory compensation. What, therefore, is the
proper measure of compensation? The U.S. government’s repeatedly stated position
regarding compensation is that it is (1) required under international law, and it (2) must
be prompt, adequate and effective. The first view, that international law requires
compensation, is generally shared by jurists within the United States and abroad. But the
second view, the prompt, adequate and effective standard, is the subject of vigorous
debate and generally is rejected by many U.S. and foreign jurists. The two parts are
often discussed as one issue.
The first international court case usually referred to that discusses expropriation is the
1928 Chorzow Factory decision of the Permanent Court of International Justice

(PCIJ)13 that case refers only to a duty of the ‘’ payment of fair compensation’’. That
seems less stringent than the ‘’ prompt, adequate and effective’’ standard alleged to be
the prevailing international law by U.S. Secretary of State Hull in 1938 in his note to the
Mexican government. Debate over the proper level of compensation continues without
anything resembling a consensus. But some standards have developed that might be
applied by a court or tribunal. The alternatives seem to use elastic words or terms, but
when further defined, there may be less difference than is at first thought to exist.
Prompt, Adequate and Effective Compensation
The ‘’ prompt, adequate and effective’’ standard is likely to be applied by (1) U.S.
courts or tribunals applying a U.S. norm of compensation theory, or searching for an
international standard, or (2) U.S. courts or tribunals applying an agreement between the
parties or nations. The earlier 1922 Norwegian Ship owners’ claims arbitration referred
to ‘’just compensation’’ as determined by the “fair actual value at the time and place’
’Norwegian Ship owners’ Claims (Norway v U.S.), 1922 1 U.N. Rep. Int’l Arb .Awards
307 that calls for the application of the prompt, adequate and effective standard, such as
a bilateral investment treaty. There is no assurance, however, that a U.S. court or
tribunal searching for ‘’the’’ international law will arrive at a prompt, adequate and
effective rule. The 1981 Banco Nacional v. Chase Manhattan Bank decision suggested
that the consensus of nations was to apply an ‘’appropriate’’ standard, and quoted one
highly regarded American author who rejected the prompt, adequate and effective
standard as a norm of international law.
Appropriate Compensation
The ‘’appropriate’’ compensation norm is the standard in U.N. Resolution 1803 of
1962, which in the view of many jurists remains the most likely norm to be applied. It

has been suggested as the standard in the Banco Nacional decision noted above, and in
at least two important international arbitrations, the TOPCO/CALASIATIC and
AMINOIL cases.
Fair Compensation
The ‘’fair ‘’ compensation standard was used in the much discussed but little followed
Chorzow Factory PCIJ decision, noted above. However, fair compensation has not
generally been accepted as the proper standard, and has not become an accepted norm of
international law. That is at least partly due to the broad sense of what fair might
include. A legal norm deserves greater definition.
Just Compensation
The Foreign Relations Law of the United States adopted ‘’just’’ in place of
‘’appropriate’’, largely to avoid a possible inclusion of host nation demanded
deductions under an ‘’appropriate’’ standard. Several expropriating nations had
calculated compensation by taking the company’s value of the property and deducting
what were called ‘’excess profits’’ or ‘’improper pricing’’ of resources to arrive at a
conclusion that either no compensation was due, or that the company actually owed the
expropriating nation. But it is hard to envision a taking nation agreeing that while such
deductions could be allowed under an ‘’appropriate’’ standard, they could not under a
‘’just’’ standard.
Restitution as a Substitute for Compensation
The expropriated foreign investor may prefer to have the property returned rather than
receive compensation. This is not likely to be the case where there has been a
revolution with an investment –hostile government, such as Cuba, but may be
appropriate where a counter –revolution has soon restored an investment welcoming

government. There is some precedent for restitution. In the TOPCO/CALASIATIC
arbitration, following expropriations of Texas Overseas Petroleum Corporation and
California Asiatic Oil Company by Libya, the sole arbitrator, Professor Dupuy
(Secretary General of the Hague Academy of International law), noted that the Chorzow
Factory decision suggested that restitution remains international law, and ordered Libya
to resume performance of the agreement. But in the BP Arbitration the arbitrator stated
that the Chorzow Factory rule of restitution in integrum was meant only to be used to
calculate compensation, suggesting adherence to full compensation theory.
Mandatory Questions under Any Standard
Whatever standard is chosen. Three questions must be asked. First, how much is to be
paid? Second, in what form is it to be paid? And third, when must it be paid? If the
answers to these questions are the full value of the property, in convertible currency,
and immediately or very soon, then the standard that is being applied seems to be the
‘’prompt, adequate and effective’’ standard argued by the United States to constitute
international law.
If the consensus is an ‘’appropriate’’ standard, tribunals that have gained the respect of
the majority of the international community, including the main industrialized nations,
seem to be applying a standard that is ‘’fair, just and appropriate’’ as well as ‘’ prompt,
adequate and effective’’. For now, and perhaps until or unless the investment
restrictiveness of the 1970’s returns, the demand for a norm allowing only partial
compensation has little backing.
Charter of rights and duties of states
The charter of Economic rights and duties of states is a creature of the United Nations
Resolution no 3281(XXIX) of the General Assembly. Determined to promote collective

economic security for development, in particular of the developing countries, with strict
respect for the sovereign equality of each state and through the cooperation of the entire
international community, and convinced of the need to develop a system of international
economic relations on the basis of sovereign equality, mutual and equitable benefit and
the close interrelationship of the interests of all states and for other important aspects,
the charter of Economic Rights and Duties of States was adopted. Chapter one outlines
the fundamentals of international economic relations as it states that: Economic as well
as political and other relations among States shall be governed inter alia, by the
following principles among others:
a. Sovereignty, territorial integrity and political independence of States;
b. Sovereign equality of all States;
c. Non –aggression;
d. Non –intervention;
e. Mutual and equitable benefit;
f. Peaceful coexistence
g. Equal rights and self –determination of peoples;
h. Peaceful settlement of disputes;
i. International cooperation for development
An illustration is found in Article 2(3) of the Treaty between Switzerland and the United
States of 1850: In case of…..expropriation for purpose of public utility, the citizens of
one of the two countries, residing or established in the other, shall be placed on an equal
footing with the citizens of the country in which they reside in respect to indemnities for
damages they may have sustained. The implicit assumption was that each state would

in its national laws protect private property and that the extension of the domestic
scheme of protection would lead to sufficient guarantees for the alien investor.
After the Russian Revolution in 1917: the Soviet Union expropriated national
enterprises without compensation and justified its uncompensated expropriation of alien
property by relying on the national treatment standard. The ensuing dispute led, inter
alia, to the Lena Goldfields arbitration of 1930 in which case the tribunal required the
Soviet Union to pay compensation to the alien claimant, based upon the concept of
unjust enrichment. In subsequent decades, a further attack upon the traditional standard
of international law was mounted in 1938 by Mexico after the nationalization of US
interests in the Mexican agrarian and oil business. This dispute led to a frank diplomatic
exchange in which US Secretary of State Cordell Hull wrote a famous letter to his
Mexican counterpart. In this letter he spelled out that the rules of international law
allowed expropriation of foreign property, but required ‘’ prompt, adequate and
effective compensation.’’ The Russian Revolution, and the Mexican position
notwithstanding what had emerged from the various international disputes about the
status of aliens in general ( not just in regard to foreign investment) was a widespread
sense that the alien is protected against unacceptable measures of the host state by rules
of international law which are independent of those of the host state. The sum of these
rules eventually came to be known as the international minimum standard. The
fundamental reasons that prompted the evolution and recognition of these rules are
reflected in general terms in a relatively modern decision of the European Court of
Human Rights: Especially as regards a taking of property affected in the context of
social reform, there may well be good grounds for drawing a distinction between
nationals and non-nationals as far as compensation is concerned. To begin with, non-

nationals are more vulnerable to domestic legislation: unlike nationals, they will
generally have played no part in the election or designation of its authors nor have been
consulted on its adoption. Secondly, although a taking of property must always be
effected in the public interest, different considerations may apply to nationals and non-
nationals and there may well be legitimate reason for requiring nationals to bear a
greater burden in the public interest than non-nationals.
The minimum standard as it emerged historically concerned the status of the alien in
general, applying to such diverse areas as procedural rights in criminal law, rights
before tribunals in general, rights in matters of civil law, and rights in regard to private
property held by the foreigner. An early leading case on the subject matter, Neer v
Mexico decided in 1926, was concerned with the duty of the host state Mexico to
investigate appropriately the circumstances of the unaccounted death of A US national.
When the claim of the widow of the US national for compensation for failure to do so
was brought before a Mixed Claims Commission, the following statement was issued by
the Commission in regard to the circumstances under which a host state would be liable
for a violation of the minimum standard:
‘’ The treatment of an alien, in order to constitute an international delinquency, should
amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of
government action so far short of international standards that every reasonable and
impartial man would readily recognize its insufficiency. ‘’
This statement of the standard did not relate to matters of property of the alien, and was
issued when matters of foreign investment and related issues such as economic growth,
development, good governance, and an investment –friendly climate were not yet high
on the international agenda. Yet this case has resurfaced in decisions of investment

tribunals in the past decade.
With the new climate of international economic relations, the fight of previous decades
against customary rules protecting foreign investment had abruptly become
anachronistic and obsolete. The tide had turned, and the new theme for capital-
importing states was not to oppose classical customary law, but instead to attract
additional foreign investment by granting more protection to foreign investment than
required by traditional customary law, now on the basis of treaties. Five decades after it
was formulated, the Hull rule became a standard element of hundreds of new bilateral
investment treaties (BITS) as well as multilateral agreements, such as the Energy
Charter Treaty (ECT) adopted in 1994 or the North American Free Trade Agreement
(NAFTA) in which Mexico decided to join the United States and Canada, also in 1994.
Developing countries started to conclude investment treaties among themselves, and the
characteristics of these treaties did not significantly deviate from those concluded with
developed states. Ever since the early 1990s, the focus in practice has shifted to the
negotiation of new treaties on foreign investment, to their understanding and
interpretation. The elucidation of the state customary law is no longer a central concern
of academic commentators. However, the relevant issues have certainly not disappeared.
For instance, in the context of NAFTA, the three states parties decided that the
standards of ‘’ fair and equitable treatment’’ and of ‘’ full protection and security must
be understood to require host states to observe customary law and not more demanding
autonomous treaty based standards. In consequence, nearly forgotten arbitral decisions-
mainly the Neer case of 1926—were now unearthed. The importance of this award for
the current state of customary law governing foreign investment has led to a debate on
whether an old arbitral ruling addressing the duty to prosecute nationals suspected of a

crime against a foreigner is the appropriate vantage point from which contemporary
rules governing foreign investment should be developed.
Multilateral Investment Guarantee Agency (M.I.G.A.)
The concept of offering insurance for various investment risks which led to the creation
of OPIC in the United States, and to similar programs in several other nations, has been
built upon on an international level by the World Bank’s 1988 creation of the
Multilateral Investment Guarantee Agency (MIGA). This organization, the newest part
of the World Bank group, is intended to encourage increased investment to the
developing nations by offering investment insurance and advisory services.
Creating MIGA within the World Bank structure offers benefits a separate international
organization lacks. MIGA has access to World Bank data on nation’s economic and
social status. This gives considerable credibility to MIGA, and encourages broad
participation. Banks have found MIGA attractive because bank regulators in some
countries have exempted commercial banks from special requirements for provisioning
against loss where loans or investment are insured by MIGA. Furthermore, investors in
nations without adequate national insurance programs have very much welcomed
MIGA’S creation. But even some of the newly industrialized nations, such as India and
Korea, have adopted national programs. MIGA is not intended to replace national
programs, but to extend the available of investment insurance to many areas where it
was not previously available, which in turn is expected to assist economic development
in those areas. MIGA’s success will likely be where it fills gaps rather than where it
competes with established and successful national insurance programs.
Unlike national programs, MIGA has the force of a large group of nations behind it
when it presses a claim. Only experience will disclose the extent to which politics (and

particularly the North –South dialogue) will enter MIGA’S claims procedures. The clear
intention of MIGA is to avoid political interference and consider the process solely as
creating legal issues.
MIGA- Insurance Programs
Risks covered by MIGA are non-commercial and include risks of currency transfer,
expropriation, war and civil disturbance, and breach of contract by the host government.
Only developing nations are eligible locations for insured investments. Currency
Transfer it covers losses incurred when an investor is unable to convert host nation
currency into foreign exchange and transfer that exchange abroad. Host- nation currency
may be that obtained from profits, principal ,interest, royalties, capital, etc. the
insurance covers refusals and excessive delays where the host government has failed to
act, where there have been adverse changes in exchange control laws or regulations, or
where conditions in the host-nation that govern currency transfer have deteriorated.
Currency devaluations are not covered. Such devaluations are often the cause of
substantial losses, but these are commercial losses attributed to changes that are to some
extent predictable, and are not carried out by host nations to harm investment. Indeed,
currency devaluations are usually extreme measures to address changing demand for the
nation’s currency. Expropriation. This is insurance for partial or total loss from acts that
reduce ownership of, control over, or rights to the insured investment included is ‘’
creeping’’ expropriation, where a series of acts has the same effect as an outright taking.
Not covered are non-discriminatory actions of the host government in exercising its
regulatory authority. Valuation for compensation is net book value; that may mean
inadequate compensation where book value reflects historic costs. Loans and loan
guarantees are compensated to the extent of the outstanding principal and interest.

Compensation is paid at the same time as the insured assigns its rights in the investment
to MIGA.
Transnationlisation of World Economy.
The ever- increasing internationalization of the global economy that has taken place
since the end of the Second World War has led to an enormous growth in foreign
investment. This became particularly pronounced during the 1990s, when foreign
investment quadrupled. Yet the phenomenon of foreign investment has long been
known to the Dutch. The construction in 1619 of a train-oil factory on Smeerenburg in
the Spitsbergen islands by the Noordsche Compagnie, and the acquisition in 1626 of
Manhattan Island by the Dutch West Indies Company are proudly referred to as the
earliest cases of foreign direct investment (FDI) in Dutch history. Throughout the
seventeenth century, the Dutch East India Company and the Dutch West Indies
Company also began to create trading settlements around the globe. Their trading
activities generated enormous wealth, making the Netherlands one of the most
prosperous countries of the time. Ranking today as the fifteenth largest economy in the
World measured by its gross domestic product, it continues to be among the largest
sources, as well as recipients, of investment in the world, in both absolute and relative
terms. In terms of FDI stocks, in 2010 the Netherlands ranked as the eighth largest
recipient of investments (US$589.8 billion) and seventh largest source of investments
(US$890.2 billion). It is not surprising therefore, that the Netherlands has long had a
special interest in both the promotion and protection of foreign investment.
While the large inflow of foreign direct investment is largely attributable to the strategic
location of the Netherlands and its generally very favorable investment climate, foreign
Investment outflows is owed foremost to the presence of major multinational

corporations operating from within the Netherlands. In fact, until 1970s, Dutch foreign
investment outflows could not be considered in isolation from the international activities
of four industrial enterprises- Shell, Philips, Unilever and AKZO-which all began
operating on an international scale at an early stage. Because of the many international
activities of Dutch companies, the Netherlands also traditionally attaches great
importance to establishing and maintaining an adequate international legal system for
the protection of foreign investments- bilaterally as well as multilaterally. Therefore, the
Netherlands actively supported the creation of the International Centre for the
Settlement of Investment Disputes (ICSID) in the context of the World Bank, and was
among the first to ratify the ICSID Convention in 1966. It also supported the efforts to
adopt a Convention on the Protection of Foreign Property under the auspices of the
Organization for Economic Co-operation and Development (OECD) in the 1960s. The
adoption of such a convention was considered particularly desirable by the Dutch
Government, since no substantive rules on investment protection were included in the
ICSID Convention. At around the same time, the Netherlands also took the first steps to
ensure the security and protection of investments of its nationals abroad on a bilateral
level. The first agreement to be solely devoted to the encouragement and protection of
investment was the Convention on Capital investments and the Protection of Property
which was signed in Tunisia in 1963. In subsequent decades, the number of bilateral
investment treaties ( BITS) concluded by the Netherlands grew rapidly, and today it
boasts with the seventh largest network of bilateral agreements for the promotion and
protection of investments in the world, having concluded BITS with as many as ninety
eight states, ninety four of which are currently in force. Nonetheless, BITS are still
regarded as the second best option and the Dutch Government has always given priority

to multilateral instruments for the protection of investments. The government has been a
strong supporter of the Multilateral Agreement on Investment (MAI), as this was
expected to bring about an important stimulus for Dutch investments abroad and foreign
investments in the Netherlands. After failure of the MAI, the Netherlands continued to
support negotiations on a multilateral investment agreement in the context of the World
Trade Organization (WTO).
In the late 1980s there was a growing international consensus that economic liberalism
promised more growth and innovation than economic protectionism within closed
national or regional borders. A now famous paper by J Williamson provided a list of
conditions for successful economic growth, which eventually came to be known as the
‘’Washington Consensus’.’ The1980s were considered, from a development
perspective, as the ‘’lost decade’’ in Latin America and Africa, which led to more
poverty, economic stagnation, and fiscal disorder, mainly due to inward –looking, non-
competitive economic policies and a lack of domestic reforms. The comparison of
empirical economic data, more than ideological factors, between countries with growth
(mainly Asia) and stagnant regions pointed to economic liberalization and domestic
reforms as the main driving forces for growth. The lack of support for Third World
countries by the Soviet Union and its eventual collapse lent further support to this
movement. Ultimately, the retreat of ‘’ bureau crats’’ in business and the move towards
privatization were prompted in developing countries by the reality of insufficient
services for the population, by fiscal disorder, and by the compelling need for foreign
capital and technology.
The Washington Consensus has had a strong influence on international economic
policies, even though it has also become clear that economic reforms need to be

complemented by social and environmental policies. In current practice, the Washington
Consensus is reinforced by acute competition among capital importing states for foreign
investment. Nevertheless, national policies are far from uniform in this area, and even
liberal countries, such as the United States, have by no means totally opened up their
economies. More recently, the global trends in national policy developments do not
point in one direction. Whereas most states (mainly Asia and Africa) have, since 2000,
introduced measures with the aim of liberalizing the regime of foreign investment,
others (mainly in Latin America) have adopted new regulations and restrictions. From
the perspective of general international law, states are in no way compelled to admit
foreign investment. The economic dimension of territorial sovereignty continues to
confer the right on each government to decide whether to close the national economy to
foreign investors or whether to open it up, fully or with respect to certain sectors. This
includes the right to determine the modalities for admission and establishment of
foreign investors. Among the national considerations speaking against full liberalization
are the concerns of weak domestic industries being ‘’ crowded out’’, and the social
effects of rapid economic change. In addition, there are moral, health, and
environmental concerns and a growing agenda of national security. Also, views differ as
to whether it is useful to conclude treaties providing for guarantees towards
liberalization or whether the flexibility inherent in domestic legislation subject to
continuous review may provide more benefits for the national economy of the host state.
In any event, governments negotiating investment treaties must be aware that binding
commitments on admission and establishment create lasting obligations, even when
economic circumstances have changed. According to general usage, the right of
admission of foreign investment has been distinguished from the right of establishment.

P. Juillard uses the terms freedom of investment and freedom of establishment.
Generally speaking, the right of admission concerns the right of entry of the investment
in principle, whereas the right of establishment pertains to the conditions under which
the investor is allowed to carry out its business during the period of the investment. For
an investor with a short term business, the right of establishment will be of less
importance than for one who needs to rely on a longer business presence in the host
state.
ACTIVITY
1. Explain the concept of expropriation
2. Write short notes on the forms of compensation
3. MIGA is a creature of the World Bank, what is its role?
4. What is meant by Transnationlisation of World economy?

UNIT FIVE INTERNATIONAL FINANCIAL INSTITUTIONS
INTRODUCTION
A contract of insurance is slightly different from ordinary contracts. This is because it involves the
principle of utmost good faith. This unit will now discuss the relevance of this principle to insurance
law.
THE LEARNING OUTCOMES
After studying this unit, you will be able to:-
 Discuss this principle
 Appreciate the consequences of it being breached

Toward the end of the Second World War, in July 1944, representatives of the United States, Great
Britain, France, Russia, and 40 other countries met at Bretton Woods, a resort in New Hampshire, to
lay the foundation for the post war international financial order. Such a new system, they hoped,
would prevent another worldwide economic cataclysm like the Great Depression that had
destabilized Europe and the United States in the 1930s and had contributed to the rise of Fascism and
the war. Therefore, the United Nations Monetary and Financial Conference, as the Bretton Woods
conference was officially called, created the International Monetary Fund (IMF) and the World Bank
to prevent economic crisis and to rebuild economies shattered by the war. The Bretton Woods
strategy addressed what were considered to be the two main causes of the pre-war economic
downturn and obstacles to future global prosperity- the lack of stable financial markets around the
world that had led to the war and the destruction caused by war itself. The IMF would be aimed at
stabilizing global financial markets and national currencies by providing the resources to establish
secure monetary policy and exchange rate regimes, while the World Bank would rebuild Europe by
facilitating investment in reconstruction and development
International Monetary Fund.
The Bretton Woods conference set out six goals for the IMF in its Articles of Agreement. Those
goals remain the guiding principles of the IMF today.
(i) To promote international monetary cooperation through a permanent institution that provides the
machinery for consultation and collaboration on international monetary problems.
(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby
to the promotion and maintenance of high levels of employment and real income and to the
development of the productive resources of all members as primary objectives of economic policy.

(iii) To promote exchange stability, to maintain orderly exchange arrangements among members,
and to avoid competitive exchange depreciation.
(iv) To assist in the establishment of a multilateral system of payments in respect of current
transactions between members and in the elimination of foreign exchange restrictions that hamper the
growth of world trade.
(v) Try to reduce the effects of volatility in countries balance of payments accounts, it helps assure
that global trade and financial relationships can continue at a steady rate without the risks of global
depressions like that of the 1930s.
The IMF has three main activities;
 Surveillance- each year the IMF sends economists to each of its member countries to analyze
the county’s economic situation.
 The team examines fiscal and monetary policy, exchange rate, general macroeconomic
stability, and any related policies, such as labor policy, trade policy, and social policy ( such
as pension system). This process is known as an Article IV consultation. The purpose of such
consultation is to provide an outside check on national decisions that might have an effect on
the international economic system.
After the team finishes its analysis, the IMF executive board discusses the report and gives it to the
leaders of the country in question as the official opinion of the IMF. Financial Assistance the central
activity undertaken by the IMF is financial assistance to national treasury departments. Member
countries with balance of payments problems can receive credits and loans to pay off their obligations
and readjust their economic policies so that they will not face another crisis. To receive assistance,
however, the member –country must agree, through a ‘’letter of intent’’, to implement changes in its
fiscal and monetary policies that IMF experts have determined are necessary.

The IMF provides the assistance through several lending programs (Facilities)
(a)Standby –arrangements are loans granted for specific amounts over 12 to 18 months to deal with
short-term problems.
(b)The extended IMFs facility is used to help a member –country deal with what are called
‘’structural ‘’ economic problems resulting from a history of poor economic planning. The IMF
attaches strong conditions to loans through this facility, which are granted for three to four year
terms.
(c) The Poverty Reduction and Growth Facility is granted at low interest rates to poor countries.
(d) The Supplemental Reserve Facility grants short term loans during crisis, but adds a surcharge to
discourage too much borrowing.
(e) Contingent Credit Lines are granted during waves of crisis that can spread from one country to
another, called ‘’ contagions.’’
(f) Emergency Assistance is granted to countries facing military conflicts or other sudden disasters.
The IMF provides technical assistance on fiscal and monetary policy, regulatory procedures, tax
policy, and collection of statistics among other issues. These programs are aimed at strengthening
developing countries abilities’ to reform and properly manage their macroeconomic policies. The
IMF dispatches its own experts and private consultants on training missions to educate government
officials and also runs the IMF institute in Washington, D.C. to provide courses for officials. The
IMF goals are to facilitate the expansion and balanced growth of international trade, to assist in the
elimination of foreign exchange restrictions which hamper the growth of international trade, and to
shorten the duration and lessen the disequilibrium in the international balances of payments to
members. The mitigation of wide currency fluctuations is achieved through a complex lending
system which permits a country to borrow money from other Fund members or from the Fund (by
way of ‘’ special Drawing Rights’’ or ‘’SDRs’’) for the purpose of stabilizing the relationship of its

currency to other world currencies. These monetary drawing arrangements permit a member country
to support its national currency’s relative value when compared with national currencies of other
countries, especially the ‘’hard’’ (‘’reserve’’) currencies such as the Swiss franc, the Euro, Japanese
yen, and United States dollar.
In recent years, IMF loans have normally been ‘’conditioned’’ upon adoption of specific economic
reforms by debtor states, especially in Asia and Latin America. This has led to the perception that the
IMF is the world’s ‘’sheriff’’, setting the terms for refinancing national debts and protecting the
interests of commercial bank creditors. The IMF does function as the first line of negotiation in an
international ‘’debt crisis’’, and commercial and national banks often conform their loans to IMF
conditions. These IMF conditions can have dramatic political and social repercussions in debtor
nations. An American trader who incurs expenses and pays bills in U.S. dollars wishes to paid in U.S.
dollars-even for goods or services which are sold outside of the United States. Similarly, a French
business person wishes to have Euros. Both have a need for, and must rely upon, the convertibility of
currencies (e.g. dollars for Euros and vice versa) so that payments can be made abroad or foreign
income can be used to pay bills at home. Convertibility in the international setting has been achieved
at different times by using, as a common reference point or standard, different forms of ‘’
international money’’. Gold has been international money for centuries. The U.S. dollar is both a
national currency and a primary form of international money. The Europeans hope to challenge the
dollar’s supremacy with the Euro.
The World Bank
The World Bank is the name that has come to be used for the International Bank for Reconstruction
and development (IBRD) founded at Bretton Woods. As the World Bank expanded beyond its initial
scope and purpose of rebuilding Europe after the Second World War, the World Bank grew through
the creation of four additional organizations. Together, these five financial organizations comprise

the World Bank Group, namely the IBRD, the International Development Association (IDA), the
International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and
the International Centre for Settlement of Investment Disputes ( ICSID).
The IBRD and the IDA focus mainly on public sector monetary policy and provide low –interest free
credit, and grants to developing countries. Additionally, they work to affect the policies of
governments by providing macroeconomic policy advice, research, and technical advice. The
remaining three institutions that belong to the World Bank Group focus more on private market
interactions, providing funding, insurance, and dispute resolution for private sector projects. The
mission statement of the IBRD states that it ‘’ aims to reduce poverty in middle- income and
creditworthy poorer countries by promoting sustainable development, through loans, guarantees, and
non-lending- including analytical and advisory services. The World Bank aims at issues such as
building infrastructure (roads, dams, power plants,) natural disaster relief, humanitarian emergencies,
poverty reduction, infant mortality, gender equality, education, and long term development issues.
Furthermore, the World Bank tries to foster social reforms to promote economic development, such
as the empowerment of women, building schools and health centers, provision of clean water and
electricity, fighting disease and protecting the environment.
Like IMF loans, World Bank loans are conditioned on the World Bank’s approval of the investment
plans and schedule for the project and repayment of the loans. The World Bank fund its loans by
raising money on the international bond market, issuing bonds in its name to large institutional
international investors, such as banks and pension funds.
As a non –profit institution, however, the World Bank does not take any profit on the results of its
fundraising. Instead, it uses its profits to subsidize its lending back to the countries whose projects it
finances. Only about half of the World Bank’s funding comes from grants by members, and the rest
comes from the World Bank’s own operations.

African Development Bank
This is a multilateral development finance institution established to contribute to the economic
development and social progress of the African countries. It was founded in 1964, and began
operations in 1966. It comprise three entities namely; African Development Bank, African
Development Fund, and the Nigerian Trust Fund. Its mission is to fight poverty and improve living
conditions on the continent through promoting the investment of public and private capital in projects
and programs that are likely to contribute to the economic and social development of the region.
African Development Fund
Established in 1972, started operations in 1974, provides development finance on concessional terms
to low- income which are unable to borrow on the non- concessional terms of the African
Development Bank. Poverty reduction is the main aim of ADF activities. ADF financial sources are
mainly contributions and periodic replacements by non- African member states. Replenished every
three years.
Management Board of Executive directors- made up of representatives of its member countries,
the largest shareholder is Nigeria at 9% .
Functions
The primary function of African Development Bank is the provision of loans and equity investments
for the socio –economic advancement of RMC’s. The bank also provides technical assistance for
development projects and programs Promotes investment of public and private capital for
development. The bank assists in organizing the development policies of RMC’s.
PREFERENTIAL TRADE AREA

The Eastern and Southern African trade and development Bank commonly known as PTA Bank is an
African regional development financial institution established in 1985. The Bank’s mandate is to
finance and foster trade, socio- economic development and regional economic integration across its
member states. Its membership is open to non- COMESA states, non-regional countries as well as
institutional shareholders. Its offers include debt equity, equity and quasi-equity as well as
guarantees. PTA bank’s investments cut across agriculture, trade, industry, infrastructure energy and
tourism.
The Bank provides the following core products and services:
1. Trade finance- to promote the development of trade among the member states.
2. Project and infrastructure finance- provision of medium and long-term financing on
commercial terms.
3. Funds Management.
ACTIVITY:
1. Give a brief history of the formation of the IMF
2. What role does the World Bank play in the economic order?
3. Write short notes on
 International Finance Cooperation
 International development agency

UNIT SIX INTERNATIONAL ECONOMIC DISPUTE SETTLEMENT
INTRODUCTION
This unit will endeavor to look at the principle of causation. This principle requires that the loss must
be a direct consequence of a peril insured. This link must clearly be established for a claim to
succeed.
LEARNING OUTCOMES
After studying this Unit, you will be able to:-
 explain the meaning of causation
 Identify its relevance in an insurance claim

For centuries businessmen of good will in different countries have learned that trading
with each other is inevitably accompanied by disputes and controversies----for example,
failure to ship or to deliver, late shipments or deliveries, quality of the merchandise,
refusal to accept delivery of goods, differing interpretations of foreign trade terms
which set forth the risks of seller and buyer while goods are in transit, interpretation of
marine insurance that should have been supplied, terms of payment, foreign exchange
regulations and many other technical factors that enter into foreign trade transaction
from the time an exporter receives and accepts an order to the time an importer receives
and accepts the goods.
Going to court to resolve those disputes has been generally a time consuming and
costly process. Thus, many foreign traders turn to arbitration as a means of dispute
settlement. They mutually and voluntarily agree to submit the settlement of their
disputes to one or more neutral arbitrators knowledgeable in the customs and usage of
the trade giving rise to the disputes. The parties agree to be bound by the decision of the
arbitrators and the losing party normally pays the award. To make the procedure
effective, the businessman must have confidence that his agreement to arbitrate is valid;
he also has to be sure that the resulting arbitral award would, if necessary be recognized
and enforced by the courts.
In the United States, and other nations, these results are generally achieved by statute,
following a 1920 New York state statute which recognized the validity and
enforceability of an agreement to arbitrate as well as the enforceability of an arbitral
award. Prior to the 1920, New York, in accordance with the common law, viewed an

agreement to arbitrate as revocable. The American Arbitration Association was
organized following the enactment of the New York statute, and today, it has offices
throughout the United States which process approximately 40,000 cases a year. Of this
number 100 cases are in the international field.
In the United States, given the uniformity of the English language and the enactment of
a model law, they are moving towards uniformity of arbitration throughout the fifty
states. Nevertheless, in international trade they must cope with a multiplicity of
languages, judicial systems, socio-political societies, economies and cultures. In fact the
languages of the Caribbean Basin are Dutch, English, French and Spanish. As for the
legal systems, in the United States, they follow a traditional common law system as do
the people of the Caribbean whose heritage also stems from England. Other countries of
the basin have legal systems based on the civil law of their respective parent countries.
Legal as well as arbitral procedures differ between the two basic legal systems. It would
seem that these factors should give rise to international trade disputes and indeed they
do. How does one reconcile the difficulties and provide a legal framework within which
uniformity can be achieved for the resolution of international trade disputes? The
answers are on two levels—international and regional. From the international
perspective, the starting point is with the 1958 United Nations Conference on
international Commercial Arbitration held in New York City which promulgated the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The
Convention has now been ratified by over fifty two countries including the United
States, the Western European countries, Japan and India, as well as Russia and Socialist
bloc. Consequently, among the respective ratifying countries, arbitration agreements
between businessmen or with quasi- government corporations are to be recognized as

valid and the resulting arbitral awards enforced. The Caribbean Basin countries which
have ratified the 1958 Convention are Mexico, Trinidad and Tobago, Jamaica and Cuba.
Additionally, in Latin America, the Convention has been ratified by Ecuador and Chile.
ACTIVITY
1. Explain how sovereign debt is acquired
2. What’s the purpose of a legal framework in debt management?
3. Arbitration appears to be the main dispute settlement mechanism in international
business. Discuss
4. Briefly outline the role of ICSID.


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About this Investment Law Module

How this Investment Law Module is structured

The Module overview

What you can expect from the course.

The overview also provides guidance on:

The Module content

National Institute of Public Administration – Outreach Programmes Division 1

National Institute of Public Administration – Outreach Programmes Division 2

Expected duration of this Module is 6 months

Study skills As an adult learner your approach to learning will be different to

Assessments There shall be a minimum of two (02) assessments given to the

Activity Assessment Assignment Case

Discussion Group activity Help Note it!

Outcomes Reading Reflection Study

Summary Terminology Time Tip

National Institute of Public Administration – Outreach Programmes Division 5

How long will it take?

About the study guide

Activities, self-help questions and assessments

National Institute of Public Administration – Outreach Programmes Division 6

impact on the evolution of other fields within international law.

After studying the unit, you will be able to:-

 Explain the nature of Investments Law in a broader sense;

 Undertake a reflective evaluation of elements of Investments.

 Explain the legal framework exists/developed to ease investment in a

INTERNATIONAL INVESTMENT THEORETICAL CONVERSIONALISATION OF

FOREIGN DIRECT INVESTMENT.

Distinguish Portfolio from Foreign Investment

National Institute of Public Administration – Outreach Programmes Division 8

foreign investment are referred to by several names, multinational corporations (MNCs) or

National Institute of Public Administration – Outreach Programmes Division 9

dismantled. Nationalizations gave way to privatizations; investment restrictions gave way to

ones may be exhumed as governments change.

PORTFOLIO VS FOREIGN INVESTMENT

Portfolio investment- is a collection of securities owned by an individual or institution. A fund’s

market efficiency as well.

may also help;

 Demand for better information, both in terms of quantity and quality.

 higher level of information disclosure and accounting standards.

 development of equity markets and shareholders ’voice in corporate governance

National Institute of Public Administration – Outreach Programmes Division 10

they will pass on those management skills and technology.

OTHER FORMS OF FOREIGN INVESTMENT

COUNTERTRADE– investment may assume the form of a countertrade agreement, where

National Institute of Public Administration – Outreach Programmes Division 11

production than might otherwise be called for).

BORDER INDUSTRIES AND ECONOMIC ZONES

use of free trade or economic zones, common in many countries.

FREE TRADE OR ECONOMIC ZONES

nation is principally the jobs produced in the zone.

National Institute of Public Administration – Outreach Programmes Division 12

Organization (WTO) process.

National Institute of Public Administration – Outreach Programmes Division 13

RECENT GLOBAL INVESTMENT TRENDS

activities as deregulation of industries resulting in more domestic and international competition,

National Institute of Public Administration – Outreach Programmes Division 14

Korean automobile manufacturer.

National Institute of Public Administration – Outreach Programmes Division 15

much smaller NAFTA.