Diplomats break silence on investment bill
SOME investors are concerned that legislation designed to replace investment protection treaties will not offer the same security against the expropriation of assets.
The aim of the Promotion and Protection of Investment Bill, which was published for public comment in November, is to replace the treaties and create a level playing field for all investors, local and foreign. South Africa’s decision to start cancelling the treaties — so far it has notified Belgium, Luxembourg, Germany, Spain and Switzerland — has been criticised for stoking investor uncertainty.
“The Investment Bill doesn’t offer the same protection as countries enjoyed under the treaties,” said one foreign embassy official. “If you read this bill in conjunction with everything else that is going on — the Private Security Industry Regulatory Act amendments, the amendments to the Mineral and Petroleum Resources Development Act, the new intellectual property law — it is just sending worrying signals about property rights.”
The amendments to the private security act, for example, requires majority local ownership for all security companies. Those to the resources development act give the minister significant powers to declare certain minerals “strategic”, which allows for export limitations and price controls. And the pharmaceutical industry is concerned that the Intellectual Property Laws Amendment Act erodes patent rights.
Although diplomats rarely voice their concerns publicly, US ambassador Patrick Gaspard, in a speech at the University of Pretoria late last month, warned of the impact the legislative changes and regulatory uncertainty had on investment.
“Among the key concerns of investors are evolving localisation and other performance requirements, tighter labour mar- kets and the prospect of weaker property rights,” he said. “Legislation to implement these changes . . . often lack regulatory certainty. I urge the government to take a very, very close, comprehensive look at the combined effect these bills will have on the investment climate and I ask if that is truly the best way to create a more broadly shared prosperity . . .”
The American Chamber of Commerce said the draft investment bill did not offer investors assurance that “predictable and stable policies are a government priority”.
“Investors are jittery of the slightest possibility of the expropriation of assets by government, which is perceived, rightly or wrongly, to be a real possibility in relation to the South African government’s priority objectives of industrial development, public welfare objectives and black economic empowerment. This perception should be decisively addressed by the government and should be firmly dealt with in the protection of investment bill.”
The chamber said although expropriation laws were globally recognised to protect the domestic country, the circum- stances for expropriation in terms of the bill were too broad and would provide “little or no security” for investors. It also expressed concern that compensation at market value was not guaranteed and that there was no recourse to international arbitration.
Matthias Boddenberg, head of the Southern African-German Chamber of Commerce and Industry, said the unilateral termination of investment treaties was already sending the wrong signals to investors. “The draft investment bill is also not a signal that would create a lot of trust.”
The main concerns of its members include a lack of protection against indirect expropriation, a lack of compensation at full market value, and no clause guaranteeing that all investors will be treated fairly as well as access to international arbitration.
“Investment means employment,” said Bodenberg. “German companies that are invested here employ 90 000 people directly . . . To promote investment, one needs to have a legal environment that promotes trust.”
South African Trade and Industry Minister Rob Davies said the law would modernise South Africa’s investment protection regime in line with international trends, provide adequate protection to all investors and give the government policy space to regulate in the public interest.
The government began reviewing the treaties after a group of Italian mining investors took it to international arbitration in 2007 over black economic empowerment laws. The intention is to give the state more room for policy changes.
Davies said the law would allow the state to take steps to redress historical, social and economic inequalities; promote and preserve cultural heritage, indigenous knowledge and biological resources; progressively achieve socioeconomic rights; and foster economic development, industrialisation and beneficiation.