As the world’s economy changes, foreign investments help boost growth in many countries. But investing in another country comes with risks. One major risk is that the government of the country could take over the investor’s property. This brings up important issues about who owns what, how much power governments should have, and how to protect investors while still allowing countries to grow.
International law notes that countries must treat foreign investors and their property fairly and with respect. But how do countries make sure they’re doing that when it comes to investments in their own land?
In this article, we’ll break down the idea of expropriation: what it means, the rules around it, and what happens when it occurs. We’ll also look at how all of this works in Ghana.
Expropriation happens when a government takes property from a foreign investor, either directly or through someone it authorizes. This can be a full takeover or actions that make it hard for the investor to use or benefit from the property.
It can involve large land projects or target specific companies without their consent. There are two main types: direct expropriation (clear takeover) and indirect expropriation (when government actions reduce the property’s value or use).
Direct Expropriation
Direct expropriation happens when a government clearly and openly takes over a foreign investor’s property, either by law, official order, or physical action. This can include taking the property title or seizing it for state use or for someone the state authorizes. It’s a direct and intentional takeover.
Indirect Expropriation
Indirect expropriation happens when a government’s actions severely limit a foreign investor’s property rights, making the property almost useless, without officially taking it or transferring ownership. It’s a “de facto” expropriation—where the effect is like a direct takeover, but without the government admitting it. The investor may still legally own the property, but the government often denies its actions are expropriatory and refuses to offer compensation.
Regulatory Measures Not Amounting to Expropriation
Not every government regulation or action counts as expropriation. Sometimes, a state’s actions for the public good may harm businesses. The key question is: how can we tell the difference between a measure that’s truly expropriatory and one that’s just a regular regulation?
In international law, for a regulatory measure not to be considered expropriatory, it must be:
– Non-discriminatory
Taken in good faith
– Aimed at the general welfare or public interest
– Part of the normal exercise of the state’s regulatory powers
These measures don’t require compensation unless the government had previously promised not to regulate that specific investment.
Determination of Compensation
Under international law, when property is lawfully expropriated, the government must provide fair, prompt, and adequate compensation that reflects the property’s value. Lawful expropriation means taking property for a valid reason and in good faith. In this instance, the government only needs to pay a fair price for what was taken.
Unlawful expropriation happens without a valid reason or in bad faith, and in such cases, the government must fully compensate or restore the value of the property.
Calculating Compensation
The general rule is to compensate based on the fair market value of the expropriated property. Fair market value is the price a willing buyer would pay a willing seller for the property, ignoring any changes in value caused by the expropriation or events that happen after it.
Factors Considered in Determining Compensation
When calculating compensation for lawful expropriation, two main factors are considered:
- The value of the assets, both physical and intangible (like debts or money owed)
- Interest on the asset value
For unlawful expropriation, compensation also includes loss of future profits, which is the potential income the investment would have earned if it hadn’t been taken unlawfully.
Exhaustion of Local Remedies means that a foreign investor must use all available legal options in the host country’s legal system before seeking international legal action for a dispute or claim, such as expropriation.
This rule serves two main purposes:
- It gives the host state a chance to address the issue through its own courts.
- It respects the host state’s authority by allowing its legal system to handle the matter first.
However, there are exceptions where local remedies don’t need to be exhausted, such as when:
- Effective local remedies aren’t available.
- Local remedies don’t offer a real chance of relief.
- There’s an unusual delay caused by the host state.
- The injured person had no connection to the host state at the time of the issue.
Expropriation in Ghana
Ghana’s investment laws are governed by the Ghana Investment Promotion Act, 2013 (Act 865), which sets up the Ghana Investment Promotion Centre (GIPC) to promote and support investments. The Act ensures:
- Foreign investors have the same rights and obligations as Ghanaian citizens (Section 30).
- The GIPC treats all investors equally, regardless of nationality.
- Foreign investors follow the same laws as local businesses.
Section 31 protects against expropriation, stating that:
- Expropriation can only occur for national interest or public purpose.
- It must be done under a law providing fair and adequate compensation.
- Investors can go to the High Court to determine their rights and compensation.
- Compensation must be paid promptly.
These measures aim to protect foreign investors and create a stable investment environment in Ghana.
Economic development is important for every government. The law on expropriation and foreign investments aims to balance the host country’s goal of economic growth with the need to protect the rights of foreign investors. This balance ensures that as the country works toward its development, foreign investors are treated fairly and their rights are respected.
Alhassan Aboagye on behalf of OSD and Partners. [email protected]
