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Promotion and Protection of Investment Bill

On Friday the South African government released the draft Promotion and Protection of Investment Bill for public comment. This comes after the Department of Trade and Industry signalled in mid 2012 (click here to read that news item) that it would not be entering into any new bilateral investment protection treaties (BITs), ,that it would replace all existing BITs (click ,here to read that news item) ,thereafter commenced with the termination of certain BITs notably with the European Union, South Africa's biggest trade and investment partner. Most recently South Africa has cancelled its BITs with Germany and Switzerland.

In response to concerns raised by interested parties, the South African government responded by stating that the Promotion and Protection of Investment Bill is not a reversal of government's protection of foreign investors but rather an attempt to modernise and improve on the current regulatory framework. Having finally had sight of the draft bill, it seems that there are indeed some unfavourable changes to the protection of foreign investment.

The first such change is that investors no longer have recourse to international arbitration. Typically under the BITs investors are allowed to have arbitration proceedings brought against a government at international institutions such as the World Bank's International Centre for Settlement of Investment Disputes. International arbitration, for obvious reasons, is preferred by investors. Unless the draft bill is amended, investors will only be able to rely on international arbitration under BITs currently in force or where a BIT has been cancelled, until the protection runs out (typically ranging from 10 to 20 years depending on the actual BIT that was cancelled).

A second change relates to the compensation paid in the event of expropriation. True to what the government has been hinting at since 2012, this is aligned with the Constitution, in that an investment may not be expropriated save in accordance with the Constitution and law of general application for public purposes or in the public interest. The change however lies in the compensation payable. In terms of the draft bill the compensation must be just and equitable. This is arguably less compensation than that offered under most BITs, being typically the genuine full market value of the investment expropriated (to read a news item on the lesser compensation click here). , ,

Lastly the draft bill does not allow for investors to rely on protection or seek compensation if the conditions (regulations) change under which they invested in South Africa. The new bill excludes the affirmation that investors will enjoy fair and equitable treatment and full protection and security which is generally contained in BITs. In fact it contains provisions specifically allowing for such measures or a series of measure to be put in place by government which would not amount to expropriation.

As such the draft bill does not treat foreigners as favourably as the BITs did and allows for scope to exercise expropriation if the government so decides. Investors and interested parties are encouraged to make submissions within three months from 1 November 2013. Submissions should be addressed to the Director-General at the Department of Trade and Industry and can be sent via email for the attention of Ms V Gilbert to This email address is being protected from spambots. You need JavaScript enabled to view it.

Rian Geldenhuys

© Trade Law Chambers 2013

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