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Protection of Investment Act signed by Zuma

On 13 December 2015 President Zuma assented to the Protection of Investment Bill. This follows the South African government’s refusal to renew bilateral investment protection treaties with several EU member countries and the later introduction of what was then known as the Promotion and Protection of Investment Bill in 2013.

The purported aim of the Promotion and Protection of Investment Bill was to modernise South Africa’s policy approach on foreign investment and to treat foreign and local investors the same. Government’s approach to first have the bilateral investment protection treaties expire prior to disclosing its intention to overhaul its investment protection regime was heavily criticized. Both the Promotion and Protection of Investment Bill as well as the latter Protection of Investment Bill was also heavily criticised, predominantly as it watered down investors rights to seek redress should expropriation of their investments occur and signified a policy change by South Africa in as far as the safeguarding of investments is concerned.

The biggest concern is that investors in the case of expropriation of their investments no longer have recourse to investor-state dispute settlement in the form of international arbitration. The Act now prescribes domestic mediation as a first step, provided the investor and the government can agree on the appointment of the mediator. The only other alternative for investors is to approach the domestic Courts, a process which could take years with no guarantee of success. While the Act contains a provision for the government to consent to international arbitration, this is subject to the exhaustion of domestic remedies and to the arbitration being state-to-state arbitration as opposed to investor-state arbitration.

Trade and Industry Minister Rob Davies repeatedly tried to appease investors by stating that there is either a very weak, no or negative correlation between investment inflows and bilateral investment protection treaties. In contrast, the United Nations Conference on Trade and Development (UNCTAD) recently published a report entitled the Global Investment Trends Monitor which shows that in 2015 foreign direct investment into South Africa fell 74% to a paltry $1.5bn. While the rest of Africa also saw investment flows drop by 31.4% in the same year, the dramatic drop in South Africa’s investment flows should be a cause for concern.

While President Zuma and the Department of Trade and Ministry have this week been trying to convince foreign investors at Davos that South Africa is still open for business, these drastic domestic policy changes seem to indicate the exact opposite. In the light of these developments South Africa is unlikely to see foreign direct investment levels recover in the near future.

The Protection of Investment Act will come into operation in South Africa on the date determined by President Zuma by proclamation in the Government Gazette.

© Trade Law Chambers 2016

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