Latest bill to promote investment fails to give foreign investors any assurance
ABOUT two weeks ago the minister of trade and industry finally tabled the so-called Promotion and Protection of Investment Bill. This follows an almost 18-month delay since the first version of the bill was released – a version that was met with near unanimous criticism from the business, investment and diplomatic communities.
Though the long delay, our hope was that a new bill would be presented that would make it unambiguously clear to all investors that South Africa needs and wants their investment, and will go the extra mile to ensure we get that investment.
Foreign direct investment (FDI) to South Africa has declined precipitously over the last 18 months, as the political and economic climate here has deteriorated. We have dropped out of global investment consulting firm AT Kearney’s list of the world’s top 25 investment destinations entirely, after hovering around 16th place for most of the last decade.
No protection
Unfortunately, the bill tabled still does not offer anything by way of promoting investment, and still does not offer the kind of investment protection that the international investor community requires. In fact, most of the original sources of concern are still there. Some new ones have been added.
The bill is only six pages long and its wording is broad and generic, leaving important issues open to interpretation. It also proposed to give the minister of trade and industry wide discretion over important areas of legal protection, such as investor-state disputes.
There are many crucial legal issues left out completely – the bill is silent on intellectual property, for example.
This bill simply will not assuage the many valid concerns that international investors have about the direction of government policy in South Africa. It is poorly drafted and ambiguous, and it needs to be extensively rewritten in the Parliamentary process. As currently drafted, the bill should be renamed the “Prevention of Investment Bill”.
Perhaps the only things worth welcoming in the bill were that the ominous “custodianship” clause of the first version was removed and the constitutional guarantee to the security of property rights has been reinforced. This clause attempted to allow the government to expropriate property without defining it as expropriation, but rather as “custodianship”, so exempting it from having to pay compensation.
We are glad that clause is gone, but there remain several other specific concerns about the text of the bill:
From an initial reading of the bill, it would seem that the government must agree with an investor that the two parties are in dispute, before arbitration can take place. This allows the government to simply deny that there is a dispute and prevent arbitration. This needs far more specific definition and clarification.
The bill introduces some limited form of international arbitration, but this is only possible after the investor has “exhausted” all other means of dispute resolution. This is not defined or specified.
International arbitration is only at a state-to-state level, which means the investor itself is not able to be involved in the dispute resolution. This is very unlikely to be adequate security for investors.
The bill covers all investments of ”economic value”, but does not include intellectual property. This seems contradictory and wrong – and it will be a source of uncertainty for foreign investors whose greatest assets are often their intellectual property. It seems inarguable that intellectual property is also an asset of economic value, and therefore should be protected under this law.
The bill seems to intimate, but does not make clear, that there will be a vetting procedure for foreign investments, which is unacceptable. Investment decisions by foreign companies cannot be subjected to a vetting process by politicians.
Lastly, the bill gives the minister wide discretion in the appointment of the arbitrators in cases of dispute, in setting the rules for what information investors must declare, in determining the process for dispute resolution, and more. These matters should be set down in the act, and not left to political discretion.
Parliamentary process
The Department of Trade and Industry has squandered an opportunity to produce a world-class investment promotion bill that re-affirms South Africa’s commitment to being an open, secure and attractive investment destination.
This bill does not achieve that – it adds to the uncertainty and concern that has resulted in a significant decline in FDI to South Africa over the last 18 months.
The DA will work to significantly improve and strengthen the bill in the parliamentary committee process. Where the department has failed, Parliament must now step in to ensure South Africa is not wiped off the global investment map.