Investment bill will protect both parties
THE investment policymaking landscape is changing globally. A number of developing and developed countries are reviewing their investment frameworks so as to provide an environment that facilitates investment while ensuring governments are able to regulate in the public interest.
There is also a growing realisation that an investment policy cannot be developed in a vacuum and that it must be part of the overall growth strategy of a country.
More emphasis is also placed on the need to ensure responsible investment to maximise the positive impact and minimise the negative effects of foreign investment.
South Africa’s policy approach to foreign investment, particularly foreign direct investment, should ensure that the economic objectives set out in the National Development Plan, the New Growth Path and the Industrial Policy Action Plan are supported.
The National Industrial Policy Framework, a central component of this strategy, seeks to encourage and upgrade value-added, labour-absorbing industrial production, and diversify the economy away from an overreliance on commodities and nontradable services.
In its 2012 publication “Why Bilateral Investment Treaties Matter to Sustainable Development”, the International Institute for Sustainable Development indicates measures subject to numerous challenges by investors, among them measures imposing and attempting to collect taxes and measures changing domestic fiscal policy. The UN Conference on Trade and Development 2015 report states that there are currently 600 such disputes.
In view of these developments, as well as a need to align the investment framework to the South African constitution, South Africa undertook a comprehensive review of the benefits, risks and challenges associated with bilateral treaties.
The analysis revealed that there is not necessarily a direct correlation between a bilateral investment treaty and a country’s ability to attract investment. South Africa is receiving substantial investments from countries it does not have agreements with, such as the US and Japan.
The Promotion and Protection of Investment Bill confirms a commitment by South Africa to protect all investments irrespective of their origin. 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.
Unlike the bilateral investment treaties that only provide protection to investors from countries with which South Africa signed and ratified these treaties, the bill protects both foreign and domestic investors.
The government’s right to regulate is emphasised since legitimate policy measures should be implemented in the public interest. The bill therefore seeks to balance the rights and obligations of investors, to provide adequate protection to foreign investors, to ensure that South Africa’s constitutional obligations are upheld, and that the government retains the policy space to regulate in the public interest.
It highlights South Africa’s commitment to maintaining an open and transparent environment for foreign investors, while recognising the importance of maintaining sufficient scope for the government to regulate in order to fulfil legitimate national policy objectives.
Most importantly, the bill contains bilateral investment treaty-type provisions aimed at reassuring investors that South Africa is, and will remain, open to foreign direct investment and will continue to provide strong protection in line with high international standards to investors. Therefore, international investment law concepts such as national treatment, protection and security, protection of property and the transfer of funds are reflected in the bill.
Such provisions in no way interfere with the protection afforded to investors under existing bilateral investment treaties, which will continue to prevail until expiration.
Furthermore, the bill confirms investors’ rights to make use of any legal avenue available in the South African legal system to enforce their rights and provides for a state-state dispute settlement mechanism after exhaustion of domestic remedies.
The bill has come at an opportune time and is in line with global trends.
It is timely and can play a critical role in filling an international investment policy gap and ensure coherence between national legislation and international commitments.
In the long term, it may serve as a guideline for negotiating future international commitments.
Davies is minister of trade and industry