he department of trade and industry (the dti) is forging ahead with a plan to annul agreements from the 1990s that, in theory, give foreign companies massive leverage over South Africa’s economic policies.
A new version of the divisive Promotion and Protection of Investment Bill was finally tabled in Parliament last week.
It makes clear that South Africa intends to mostly opt out of the controversial and fragmented global system of international investor-state arbitration that allows companies to sue governments for compensation in special independent tribunals if their investments are harmed.
The bill is meant to standardise and replace the various bilateral investment treaties that South Africa hastily signed at the dawn of democracy – seemingly without appreciating how they would clash with the pillars of government policy in subsequent years (
After a review of these between 2007 and 2010, the dti has started to unilaterally denounce these treaties.
That review coincided with the first publicly known serious attempt by foreign investors to actually use a bilateral investment treaty against South Africa – a $350 million (R4.4 billion at today’s exchange rate) claim against the legal requirement that mining rights holders have a 26% BEE partner.
The claimants were Italian and Swiss investors in a granite mining operation. The Italians were ultimately cut an unusual deal exempting them from the 26% black ownership requirement.
Instead, they had to establish a 5% employee share scheme – and “beneficiate” 21% of their product in South Africa.
The International Centre for Settlement of Investment Disputes, a World Bank forum for arbitration, did award legal costs in favour of South Africa, but only at a fraction of the legal bill racked up fending off the Italians.
It is possible that other such disputes have arisen, but were not made public.
The first known bilateral investment treaty-related claim against South Africa was in 2001-2003 by an unidentified Swiss owner of a game farm who sued for losses after the property was allegedly destroyed by theft and vandalism – and later subject to a land claim.
While it has never been made public, in 2008, investment treaty researcher Luke Eric Peterson uncovered that an award was made in favour of the Swiss investor in 2003.
The major change in the investment bill is that foreign investors will no longer have recourse to international arbitration, like the kind used by the Italian granite producers and the Swiss landowner.
Instead the government “may consent to international arbitration ... subject to the exhaustion of domestic remedies”.
Even if the state does consent to arbitration, it will only do so with the investor’s home government, which is called state-state arbitration.
That significantly raises the threshold because the aggrieved investors will need to have backing from their governments.
It is immediately clear from the investment bill how many key policies the government feels the need to expressly defend against the possibility of challenges from abroad.
The list of government actions that will not be permitted to become an investment dispute has grown to include “any law or other measure ... to promote the achievement of equality in South Africa or designed to protect or advance persons ... historically disadvantaged by unfair discrimination”.
This is the free pass for empowerment that was sorely lacking in many bilateral investment treaties signed in the 1990s.
Some of South Africa’s standing bilateral investment treaties have this clause, including – importantly – one with the UK where many of the JSE’s prominent multinationals are based.
Significantly, none of the six treaties that the dti has so far denounced makes any mention of empowerment, equality or redress, which may explain the haste with which they, and not others, were scrapped.
BEE applied to a foreign investment necessarily offends a generic “national treatment” clause because black South Africans are consequently nationals who are treated differently.
Another new addition to the bill that is sure to raise eyebrows is that it will also protect “domestic laws designed to regulate foreign ownership in respect of a specified sector”.
This could be taken to refer to BEE ownership targets in general, but could also cover things like the controversial Private Security Industry Regulation Amendment Bill, which would limit foreign ownership of security companies to 49%.
That bill, which has faced fierce resistance from the four major foreign-security conglomerates active in the country, has seemingly been on ice since 2013.
The existence of South Africa’s bilateral investment treaties is often used to explain why the country abandoned a previous policy position from 2001 – that security companies should be 100% locally owned.
The bill is sure to go through a tough parliamentary process with opposition parties this week criticising the level of protection given to investors – and foreign business chambers are likely to participate in public hearings in full strength.