New bill to cross foreign investment

The dti published a draft “Promotion and Protection of Investment Bill” (Investment Bill) on 1 November 2013. The bill is up for public comment until 31 January 2014. The government argues to replace the regimes of Bilateral Investment Treaties (BIT) by an overall investment bill. The bill mirrors the level of protection of investment as provided for in the constitution.

The government stresses this approach not being a reversal of the protection of foreign investment but a step to modernise the legislative framework and to apply equal rules to foreign and domestic investors.

The Investment Bill will substantially change the environment for foreign investors and diminishes their rights in comparison to BITs:

• Expropriation

The bill does not not exceed what is prescribed in the constitution. (Foreign) investors are not guaranteed compensation in full market value any longer. In terms of the draft bill the compensation must be just and equitable. Next to market value, public purpose and public interest come into consideration. This will lower the compensation level offered in most BITs.

•  Protection against changing conditions

(Foreign) investors will no longer be treated fair and equitable, i.e. investors can no longer rely on protection or seek compensation if the conditions (regulations) change which applied at the time of investment (this is generally contained in BITs).

• International arbitration scrapped

(Foreign) investors can no longer recourse to international arbitration, like the World Bank’s International Centre for Settlement of Investment Disputes. This is contrary to the typical provisions in BITs.

In the event of a dispute, the Bill confers jurisdiction to any South African court, competent independent tribunal or statutory body for settlement. Investors can ask dti for mediation. The latter is rather theoretical as dti/the government would be party of a dispute.

Further regulations on the settlement of disputes will be drafted by the relevant minister.

It is hard to see this bill promoting foreign investments. Additionally, BITs provide protection to South African investors in treaty countries. Are these investments sufficiently protected by exclusively the international framework regime?

[Investment Bill Gazette 1Nov2013]