South Africa’s Protection of Investment Act of 2015 provides protection to foreign investors in a manner that is consistent with the Constitution, says the Department of Trade and Industry (DTI.)
In a statement on Saturday, the DTI said the bill, which has come under fire recently, is in accordance with international best practice and international customary law.
The bill was adopted by both houses of Parliament in November 2015.
The Act clarifies the level of protection that an investor may expect in South Africa, thereby removing any uncertainty about what is the applicable investment protection legislation in South Africa.
The Act also aligns South Africa’s investment protection obligations with the Constitution of South Africa.
“It should be noted that the introduction of such investment protection legislation is consistent with recent global trends. Countries such as Canada, Australia, India, Brazil and Indonesia have all undertaken reviews of their bilateral investment treaties (BITs) with a view to enacting reforms,” said the department.
The bill has been criticised for providing less legal protections to foreign investors because it does not contain all the provisions that are contained in the old-style BITs.
“In the view of the government of South Africa, which is shared by the United Nations Conference on Trade and Development (UNCTAD) and many international legal scholars, the excluded provisions such as fair and equitable treatment and investor state dispute settlement can unduly limit the right of the government to regulate in the public interest and unnecessarily open the government to potential claims of violation of investor rights.
“This may result in millions of rands of pecuniary damages at an international arbitration,” explained the DTI.
The Act contains BIT type provisions, aimed at re-assuring investors that South Africa is, and will remain, open to foreign direct investment (FDI) and will continue to provide strong protection to investors that are in line with high international standards.
International investment law concepts such as national treatment, protection and security, physical protection of investment and the transfer of funds in line with Constitutional principles and applicable norms are reflected in the Act.
The Act, said the DTI, does not interfere with the protection afforded to investors under the existing bilateral investment treaties which would continue to prevail until expiration.
“The Act ensures that investors or their investments can expect fair administrative treatment that is not arbitrary. It therefore confirms administrative or procedural justice; access to government-held information and to be given reasons for any administrative action taken in accordance with the South Africa Constitution.
“The legislation confirms investors’ right to make use of any legal avenue available in the South African legal system to enforce their rights and it provides for a state-state dispute settlement mechanism after exhaustion of domestic remedies.
“The government of South Africa is confident that the Act achieves the appropriate balance of rights and obligations between investors and the state and will provide adequate protection to investors.”
Following its adoption in Parliament last year, the bill was forwarded to President Jacob Zuma for signature.
The latest investment report from the UNCTAD shows that FDI growth globally in 2015 was largely due to cross-border mergers and acquisitions, with only limited Greenfield investment projects in productive assets.
A Greenfield investment typically refers to a project that creates a new physical facility which is considered productive, in part because they typically create jobs.
The decrease in FDI in South Africa follows a global trend due to the decrease in demand for commodities. The UNCTAD report states that “flows faltered in Africa, Latin America and the Caribbean... reflecting the plummeting prices of their principal commodities exports.”
“The decline in FDI in 2015 was therefore due to the challenging global conditions. South Africa needs to focus on diversification of its manufacturing base through the implementation of industrial policy going forward.”