Positive changes to the Promotion and Protection of Investment Bill still does not offer a guarantee against expropriation

29 July 2015

Changes in the Promotion and Protection of Investment Bill are clearly aimed at addressing fears of state interference but there is still more than enough reason for, in particular, foreign investors to be worried, Adv. Anton Alberts, the FF Plus’ parliamentary spokesperson on Trade and Industry says.

Adv. Alberts says an example is section 8 which only guarantees the security of investments in as far as there are sufficient resources and capabilities. That means that assets and investments are vulnerable if the South African Police Service (SAPS) isn’t capable of protecting it. This means that investors will be defenceless in the case of a failed state.

Section 8 of the Bill reads as follows:

 ‘Security of investment

8. The Republic must accord foreign investors and their investments a level of security as may be generally provided to domestic investors, subject to available resources and capacity.’

Section 9 determines that the right to property as contained in Section 25 of the Constitution now also applies to foreign investments. This is a positive step, but is still subject to the judgment in the AgriSA v Minister of Minerals and Energy according to which the state could expropriate ownership without compensation by merely acting as an observer or as custodian.

The question is whether foreign investors, given South Africa’s economic dependence on investors should not be given greater protection than that which the Constitution currently offers.

The references to expropriation have been removed because it will be addressed in the new Expropriation Bill which is currently being discussed. It still does not remove the concerns that government could expropriate as an observer/custodian.

Where there had earlier not been made any provision for international arbitration as has been the practice in international investment agreements/treaties, it has now again been included in Section 12(5).

The problem is however that the South African government has to agree to it and there is therefore not an automatic jurisdiction in this regard. There is also a pre-requisite that the parties first have to exhaust all local remedies. 

This means that foreign investors firstly has to go through a costly and lengthy legal process in South Africa before it could request the government whether international arbitration could be entered into. It would simply scare international investors away even more. Provision has to be made for binding international arbitration in the first place.

The Bill in its current form will not allay the fears of international investors. They have been used to extensive protection in terms of international investment agreements/treaties and it has now been watered down to such an extent that investors will not want to run the risk of investing in South Africa, according to Adv. Alberts.

Statement issued by Adv. Anton Alberts, FF Plus parliamentary spokesperson: Trade and Industry, July 29 2015