South Africa’s new investment laws may deter foreigners from putting money into the country
The Protection of Investment Act officially came into effect on
13 July 2018.
The controversial bill, which has signed into law in
2015, has faced harsh criticism, with the EU Chamber of
Commerce stating in that the
bill ‘won’t protect or promote investment’.
Although the stated purpose of the Act is to protect foreign
investors in South Africa, overall, the protections offered in
the Act are substantially diminished when compared to the
substantive standards contained in international treaties,
explains Sarah McKenzie of law firm Webber Wentzel.
Below she set out some key features of the Act which she said
every investor should be aware of.
Governmental power
According to McKenzie, the Act explicitly grants the South
African Government the right to take regulatory measures to:
- Redress historical, social and economic inequalities and
injustices;
- Uphold the rights, values and principles contained in the
Constitution of the Republic of South Africa;
- Promote and preserve cultural heritage, foster economic
development, protect the environment; and
- Achieve the progressive realisation of socio-economic
rights.
“This seeks to ensure that the rights of foreign investors
cannot be interpreted in a way that would infringe on the
government’s right to implement regulatory measures that it
sees as being in the public interest,” said McKenzie.
“While the Act sets forth various protections, there is a
concern that these do not provide any greater comfort than
those already included in the Constitution. More so, as the Act
is ordinary legislation, it may be repealed, revoked or amended
at any stage in the future,” she said.
“Also, although the Act grants South Africa the right to take
regulatory measures, this differs from the protection under
investment treaties in that investment treaties would
ordinarily protect investors from any adverse effects of such
measures insofar as they result in an expropriation or unfair
and inequitable treatment of the investor.”
No compulsory investor-state arbitration
According to McKenzie, the Act does not provide for
compulsory investor-state arbitration and subjects disputes
under the Act to the South African domestic courts.
“This is fundamentally different to the protections offered at
international law through investment treaties, which not only
enshrine generous protections in line with international law
jurisprudence, but also ordinarily require disputes under the
treaty to be submitted to a neutral arbitral tribunal,” she
said.
Recourse to international arbitration has been
explicitly removed
Investors with grievances under the Act will only be able to
request the South African Department of Trade and Industry to
appoint a mediator and/or to approach a South African court or
a tribunal or statutory body provided in any other South
African legislation, said McKenzie.
She noted that unlike investment treaties – which prescribe
compulsory investor-state international arbitration outside of
South Africa before an international tribunal – the Act
contains no compulsory referral to international arbitration at
all.
“To the extent that international arbitration is mentioned in
the Act, it may only be conducted as between two States (i.e.,
not involving the investor directly) and only with the consent
of both States.
“The impact of this on dispute resolution clauses in contracts
concluded with the government after the date of the
commencement of the Act is unclear,”she added.
“The Act fails to address concerns over the neutrality of the
forum for adjudicating any investor disputes, which is one of
the key rationales for the investor-state arbitration regime
which has become entrenched in international law and commerce
since the 1960s.”
Removal of standards
The Act does not contain a most favoured nation treatment
standard, and a fair and equitable treatment standard,
said McKenzie.
“These protections have been the cornerstone of modern
international investment law and their omission represents a
significant departure from what has become a norm.
“The Act curtails the possibility of claiming compensation
significantly and alters the standard of compensation to what
is ‘just and equitable’ (to conform to the constitutional
standard described above), rather than full market value
compensation,” she added.
Protecions are unclear
According to McKenzie some of the protections offered by the
Act are unclear.
“By way of example, section 8 of the Act provides that foreign
investors and their investments must not be treated less
favourably than South African investors ‘in like
circumstances’,” she said.
“The Act, however, does not define ‘like circumstances’ and the
factors which should be taken into account in determining
whether there are like circumstances are so vague and broad
that they have the potential to be used to discriminate against
foreign investors.”
Read: 6 new banks launching
in South Africa soon
No comments