Text of the submission by the American Chamber of Commerce in South Africa on the Promotion and Protection of Investment Bill, as presented to the Portfolio Committee on Trade & Industry, Parliament, September 15 2015

AMERICAN CHAMBER OF COMMERCE IN SOUTH AFRICA NPC (AMCHAM) SUBMISSION ON THE PROMOTION AND PROTECTION OF INVESTMENT BILL 2013

1. ABOUT AMCHAM

American companies have always been the most vocal supporters of democracy for South Africa. In the 6 years between 1983 and 1989, 185 US companies disinvested from SA. In 1986 the US Government passed the "Comprehensive Anti-Apartheid Act" which implemented sanctions against SA. US companies started coming back to South Africa in 1991 when sanctions were lifted, and most were back when Apartheid ended in 1994.

There are currently 600 American companies in South Africa, and we surveyed 89 of these companies 2 years ago. It was found that the 89 companies contributed R278 billion to the South African economy in that year, and employed more than 220 000 South Africans, both directly and indirectly. American investment is long term investment, and we are immensely proud of that fact.

2. BACKGROUND TO THE BILL

Previously, European companies were protected by Bilateral Investment Treaties (BITS}. The US did not have a similar trading agreement in place with South Africa, but drew comfort from the fact that the BITS were in place and American investment in South Africa would thus be similarly protected by extension.

It is widely held that the EU BITS are being replaced by the Promotion and Protection of Investment Bill ('the Bill"}. We note with interest that the BITS applying to countries such as South America, China, Russia or the rest of Africa have not been terminated. South Africa should welcome investment from both the East and the West and treat all countries equally.

Total US investment into South Africa totals some R1 065 Billion. Cumulative investment from the West which includes the UK, the Netherlands, Germany, and other European countries makes up 85% of FDI in South Africa (R2 435 Billion). These figures underscore the importance of FDI and indirect investment from the West hence the puzzlement expressed as to why South Africa has adopted an anti-West stance.

We thank the Committee for taking our comments early in 2014 into account, as many of our suggestions have been adopted in the second iteration of the Bill.

3. POLICY CERTAINTY

In the article by Minister Davies in the Sunday Times of 6 September "Investment will protect both parties",the Minister states that the underlying philosophy of the Bill is to clarify the protection that an investor may expect in South Africa and to promote investments by creating a predictable business environment.

We submit respectfully that the Bill adds to the uncertainty of doing business in South Africa. This uncertainty is one of the compelling reasons why the private sector has put additional investment in South Africa on hold. According to data from the South African Reserve Bank, as of December 2014, corporate cash balances had reached Rl.35-trillion.The amount is the equivalent of 38% of South Africa's gross domestic product. "Companies are waiting for a less uncertain outlook to start investing" said the Reserve Bank.

We need certainty regarding policies in South Africa . Currently, the legislative pipeline consists of more than 60 bills/Acts/statutory changes which adds greatly to the uncertainty expressed above.

We have taken the opportunity to examine the Bill through the lens of what is currently taking place with regard to the Private Industry Security Amendment Bill which we believe will give a practical outline of our concerns.

4. A PRACTICAL CASE STUDY

The Private Security Industry Regulatory Bill contains a contentious clause (clause 20) which requires that 51% of internationally owned security compan ies and other companies operating in this sector, however peripheral, be "transferred" to South Africans. Briefly, the reason provided by the legislators for this requirement is that the national security of South Africa is at risk if international compan ies are allowed to work in the security sector.

This stance is held despite legislation in South Africa that demands that the management of the security companies must be South African,and that 99% of the workers in the companies are South African.

Let us look at how the Bill will impact the investment of international compan ies involved in the security industry and who will be impacted by the Bill.

3.1 Clause 11 (2) of the Bill states that the government or any organ of state may take measures that are necessary for the fulfilment of the Republic's obligations ... or the protection of security interests .....

In terms of this clause, let's assume that the SA government sees it as its right to appropriate the 51% of the Security and other companies in this sector because it is required to "protect the country's security interests".

3.2 Clause 12 (1) states that the companies involved now have six months to request the Department or any other competent authority to facilitate the resolution of the dispute by appointing a mediator or other competent body.

Companies may choose whom they believe will give afai r hearing to the dispute. They are limited to domestic relief which is in itself a limitation given the one party to the dispute is an arm of the South Africa government.

3.3 Clause 12(2) allows the Minister to decide whether or not he wishes to prescribe the criteria for the appointment of a mediator.

We are of the view that the Minister could place limitations on the possible choices relating to the appointment of a referee. This clause limits freedom of choice as to the M ediator. The question is why the Minister would feel it is necessary to prescribe criteria to appoint the mediator?

3.4 Clause 12(3) requires that the Minister MUST prescribe the information and forms that the investor must provide to the Court.

The Minister could place limitations on the information that is provided to the mediator which could result in the investor not being able toput his best case forward.

We need certainty that the investor, if a dispute is declared, has the freedom of choice to be placed in the position of putting his case forward without the possibility of any limits, of whatever nature, being placed on his ability to defend his stance.

3.5 Let's assume that the domestic courts rule against the investor, (51% equity of international security companies can be expropriated), then the Bill provides for limited state-to-state international arbitration. This is however, state to state, and the investor will be excluded. International arbitration will only be allowable if domestic remedies have been exhausted, and only if government "consents".

This will result in a process that could take years. The businesses involved in the dispute would be in a state of flux during this time, and ultimately would suffer economically, or even go out of business whilst the legal remedies are being exhausted. What recourse is available if government does not consent to international arbitration?

3.6 How will compensation payable to the investors be worked out? The Bill does not provide any indication that full market value compensation will be provided. This is a crucial omission. Fair and equitable treatment is a fundamental principle of international investment law and the Bill is silent on this principle.

It is inconceivable that investors can never be certain that their investments will raise compensation that isfair and equitable if these assets are expropriated in the interests of the public.

The Fair and Equitable Principle protects investors from uncertainty in government decision making, targeted discrimination of investments on wrongful grounds, and abusive treatment through coercion. It ensures balance against government's right to regulate in the public interest.

We submit that the Bill, in the example above, does not adequately protect the rights of the foreign investors in the security industry.

4. GENERAL COMMENTS

The following additional comments are made:

4.1 Clause 10 provides for an investor to transfer funds subject to taxation and other applicable legislation. We would appreciate it if the words "Funds" and "other applicable legislation" can be further defined to provide clarity as to what the situation is herein.

4.2 It is now an ideal time to influence international investor perception so that foreign direct investment into South Africa increases. The alternative, if FDI continues to decrease,is too dire to contemplate and includes:

- The exchange rate would weaken more than it is currently

- The outlook for run-away inflation would increase

- The danger of higher interest rates would be greater and borrowing would consequently slow down or even halt

- Job losses would increase.

5. CONCLUSION

It is our view that the Bill does not provide the necessary protection that investors need. It also does not promote investment . South Africa is shedding jobs in the thousands as the economy slows down and we cannot allow even one additional job to be lost.

Our plea to the South African lawmakers is that policies be put in place to create an environment that is attractive to do business in,and to attract quality foreign investment. South Africa needs quality foreign investment and the countries that are concerned about this Bill are the countries that invest for the long term, spending millions of Rands on corporate social investment, skills,and training. We have to show the world that South Africa is "open for business".

JEFF NEMETH

PRESIDENT

9/12/2015