A bilateral investment treaty (BIT) is an international agreement between two countries that sets the rules for how investors from one country may invest in the other. It establishes protections and standards of treatment and often provides access to dispute resolution mechanisms.
Bilateral Investment Treaty Definition
At its core, the BIT outlines how investments by one country’s nationals or companies will be treated when made in the territory of the other state. These protections include rights such as fair and equitable treatment, protection against unlawful expropriation, and free transfer of funds.
What Is a Bilateral Investment Treaty and How Does It Work?
The treaty operates by two states entering into a contract-like agreement. The host state agrees to provide certain guarantees to the investor from the treaty partner. These typically include:
- Treatment no less favourable than that accorded to domestic investors (national treatment) or to investors from third states (most-favoured-nation treatment).
- Protection against expropriation without prompt, adequate and effective compensation.
- Unhindered transfer of investment-related funds in a freely usable currency.
- A mechanism for investors to raise claims against the host state through international arbitration (investor-state dispute settlement or ISDS).
Once the treaty is in force, an investor from one party can rely on the protections under the BIT rather than only rely on domestic law in the host state. This increases predictability.
How Many Bilateral Investment Treaties Are There?
Globally, there are thousands of BITs in force. For example, one source notes that nearly 2 500 BITs are in operation worldwide. The exact number shifts as treaties are entered into, renegotiated or terminated.
The Importance of a Bilateral Investment Treaty for Africa-Related Business
For organisations investing or expanding in Africa, the existence of a BIT between the home country and the African host state provides a strong legal foundation. It mitigates investment risk, offers a degree of comfort that the host state has committed to certain standards, and enables you to consider dispute-settlement options beyond local courts. When you are working in multiple jurisdictions, leveraging a BIT can be an important part of the legal toolkit.
At the same time, one must recognise that the mere existence of a BIT does not guarantee an increase in investment flows or a trouble-free investment environment.
Final Thoughts
Understanding the meaning and practical implications of a bilateral investment treaty is key when operating across borders. For legal teams advising clients in Africa, assessing whether relevant BITs exist, what protections they include and how enforceable they are must form part of the strategy in structuring investments.For further guidance and to explore how our pan-African legal team can assist you in navigating BITs and cross-border investment in Africa, please visit the full article on LEX Africa’s Guide to Doing Business in Africa. Explore how we can support your legal needs across 29 African countries.