A billion-dollar dispute over one of the biggest markets in Africa at sight?
Published on 7 October 2022 on the Jindal Forum for International and Economic Laws
By Danilo Ruggero Di Bella (Bottega Di Bella)
The recent takeover of the Owino Market by the Kampala Capital City Authority (KCCA) and the Ugandan Government cancelling the project of its redevelopment may lead to an 800-million-dollar plus international arbitration between an Asian investor and the Republic of Uganda and a 200-million-dollar domestic compensation claim directed against the KCCA by the company operating the Market. While reporting on the potential multi-million international arbitration, this article serves to exemplify the resourcefulness of national investment laws for foreign investors when it comes to protecting their undertakings against expropriatory actions of the host government.
The Owino Market and its long overdue re-development
The Owino Market is the biggest open market in Uganda and possibly in the whole East Africa sitting on 7.5 acres of land and receiving over 300.000 daily customer visit. It is the busiest market in Kampala, located right in the business district of Uganda’s capital city, next to the Nakivubo Stadium. It is the single largest source of employment in the city and women represent 70% of its workforce. The Market also represents one of the largest sources of the revenues collected by the KCCA. Its official name is the “St. Balikuddembe Market;” however, it is affectionately nicknamed Owino by its vendors after an old man who used to roast maize and sweet potatoes there.
The Market was opened in the early 70’s and was originally a municipal market managed by the now defunct Kampala City Council (KCC) until 1995, when the vendors took over the management of the Market with the enactment of Uganda’s Constitution allowing for the privatization of markets. In 2002, KCC dissolved the vendors’ leadership and handed the market to Victoria International Company which managed it from 2002 to 2006. In 2010, “St. Balikuddebe Market Stalls space and lockup shops owners Association Limited” (SSLOA) acquired a long-term lease from the Kampala District Land Board. The SSLOA is a public limited liability company with over 10,500 registered members who are vendors operating in the Market. Accordingly, nowadays the Owino market is a private market owned and managed by the SSLOA.
The Market has been over-crowded for years and is regrettably in poor and unhealthy conditions. There is a great need to re-develop the Owino Market by constructing modern business premises to enable all vendors to work in a safe, healthy, and inclusive environment.
The planned redevelopment project envisaged two stages: 1) the erection of a temporary “Relocation Market” adjacent to the Owino Market where the vendors would have been relocated during the construction works to be able to continue earning incomes during the re-development; 2) the construction of a modern multi-storey retail and commercial building as the new “Main Market.”
Once completed, the new Main Market complex would have increased the number of business units from the current 8,262 units to over 12,600 shops of various sizes available for rent or sale and over 10,000 market stalls on the ground floor reserved for low-income vendors on concessionary terms.Thus, the development would have increased the revenue collection for KCCA and Government statutory charges while considerably improving the business environment by providing modem facilities and amenities.
After many years of fruitless engagements with several companies, SSLOA identified Al-Ameri Intel. Company East Africa Construction Ltd (Al-Ameri Intel) to source financing of 350 million dollars and carry out the construction works for the Relocation Market and the new Main Market. Al-Ameri Intel is a majority Yemeni-owned company registered in Uganda operating in tandem with Al-Ameri for Engineering, Trading and Contracting Company Ltd (Al-Ameri Limited), a Yemen-based corporation whose management has more than 20-year of international experience in construction works of large scale and related services.
On 24 January 2020, SSLOA and Al-Ameri Intel executed a loan agreement for USD 350 million available for drawdown and repayable within a period of 15 years at a 6% interest rate and a construction contract to undertake the redevelopment of the Market. Whereas the role of the Yemeni companies was to provide financing for the project and to undertake construction works, the management of the Market would have remained within the SSLOA.
The unlawful takeover
Unfortunately, the redevelopment of the Owino Market has been frustrated by the KCCA and the Ugandan Government. The SSLOA was eventually unable to hand over the project site to Al-Ameri Intel because of the takeover of the management of the Owino Market by the KCCA that occurred on 3 November 2020.
The SSLOA challenged the expropriatory actions of the KCCA before the High Court of Kampala. On 2 June 2021, the High Court ruled that the takeover by the KCCA was illegal and that the SSLOA is entitled to continue managing the Owino Market. The ruling established that the St. Balikudembe (Owino) Market is a private market owned and managed by the SSLOA and that the KCCA cannot take it over without paying a fair compensation. Nevertheless, up to now, the KCCA continues managing the Owino Market in defiance of the High Court’s judgment.
On 29 June 2021, despite having all the required permits, approvals, and also a favourable ruling of the High Court, the President of the Republic of Uganda ultimately cancelled the redevelopment of the Owino Market thus espousing the illegal takeover of the Market by the KCCA. This in spite of the fact that, just a few months earlier, on 8 February 2021, the Ugandan First Deputy Prime Minister recommended to redevelop the Market as it would have boosted the economy.
Therefore, the SSLOA has been de facto expropriated from the management of the Owino Market and, accordingly, will seek remedies for damages and compensation against the KCCA in excess of UGX 1,000,000,000,000 (284,736,600.00 in USD) for the loss of opportunity to re-develop the Market and the costs so far incurred in sourcing financing and preparing the project.
By the same token, Al-Ameri Intel and Al-Ameri Limited have suffered an expropriation of their investments in Uganda consisting in the redevelopment of the Owino Market. Being these companies a majority foreign-owned company and a foreign corporation, respectively, Al-Ameri Intel and Al-Ameri Limited may rely on the Ugandan foreign investments law to launch an international arbitration against the Government and claim compensation for the damage and loss suffered due to the unlawful expropriation of their investments in Uganda. Reportedly, the overall damage suffered by the foreign investors is in excess of 858 million dollars, of which 350-million-dollar worth of construction works and 508-million-dollar in interest on the accorded loan.
Possible international arbitration
Ugandan foreign investments law currently in force – the “2019 Uganda Investment Code Act” – provides for the payment of prompt, fair, adequate, and freely transferable compensation in case of a compulsory taking of a foreign investor’s business enterprises, interests, and rights over any property or undertaking. The same text also provides for recourse to arbitration at the International Centre for the Settlement of Investment Disputes (ICSID) to settle disputes concerning foreign investments.
Being Al-Ameri Intel a company incorporated under the laws of Uganda in which the majority of the shares are held by a foreign national, the company as well as its Yemeni shareholder and its foreign partner (Al-Ameri Limited) may claim compensation from the Ugandan Government by accepting the Republic of Uganda’s offer to arbitrate the current investment dispute before an ICSID tribunal as per the 2019 Uganda Investment Code Act.
Indeed, the Yemeni companies’ investments in Uganda consisting in the re-development of the Owino Market by providing the financing and undertaking the construction for the Relocation Market and the new Main Market meet the definition of protected foreign investment under the 2019 Uganda Investment Code Act. This instrument defines “investment” as “the creation or acquisition of business assets and services with a view to generate future higher value and includes the expansion, restructuring or rehabilitation of an existing business enterprise.”
Hence, in light of the illegal takeover of the Owino Market by the KCCA and the Ugandan Government resulting into the expropriation of the Yemeni companies’ investments in Uganda, the Yemeni investors may claim compensation from the Republic of Uganda by resorting to an ICSID arbitral tribunal.
On the other hand, a recalcitrant respondent State could argue that the arbitration provision in question is not mandatory since that it simply provides for the possibility of resorting to arbitration by using the verbs “may”. However, based on consistent jurisprudence of major arbitration jurisdictions – specifically, in common law countries, and Uganda is one of them, being a former British colony – an arbitration clause stipulating that a dispute may be referred to arbitration by both parties is permissive in nature, until a party elects to arbitrate, at which point arbitration becomes mandatory. The leading case on this matter is Anzen Ltd and others v Hermes One Ltd decided by the Privy Council in 2016. Another more recent case confirming this stance is Kinli Civil Engineering Ltd v Geotech Engineering Ltd decided by the High Court of Hong Kong n 2021.
Between SSLOA’s domestic expropriation claim and the Yemeni investors’ international expropriation claim, the Ugandan Administration is requested to pay over 1 billion dollars in compensation.
In the absence of any bilateral or multilateral investment treaty in force, national investment laws contemplating recourse to international arbitration in case of expropriation of foreign investments may prove equally effective legal instruments.