Tag Archive | Promotion and Protection of Investment Bill

Changes to Protection of Investment Bill

sent to clients 13 Oct…. updates yet to be posted ….

Unpopular Bill on its way to final vote….

After some marathon debates in the Portfolio Committee on Trade and Industry, Parliament put aside the newly named Protection of Investment Bill (previously the Promotion and Protection of Investment Bill) until after the recent winter recess for members to consider two important substitution clauses suggested by an Opposition member.

Whether the final Bill will meet international expectations still remains a query despite being finally hammered through. (report and details still with clients)

lionel octoberThe Trade and Industry Department (DTI) was represented throughout the two days of clause by clause debate by director-general, Lionel October; Mustaqeem De Gama: DTI Legal Director: International Trade and Investment (ITED) and Counsellor to the WTO; with Ms. Phumelele Ngema: Parliamentary Legal Advisor. This followed earlier hearings which included many submissions from business, industry and institutions such as the Institute of Race Relations.

Taking it seriously

Bearing in mind that a full back-up team from DTI was also present for the first clause-by-clause debate, including Ms. Xolelwa Mlumbi-Peter: DTI Acting Deputy Director General: ITED who promoted the Bill from DTI, it could said that DTI fielded their full team on the issue with a full bench of reserves and consequently had taken all submissions during the Bill’s hearings a week before in a serious light.

Main objections to the Bill had come in the areas in the definition of investment; fair and equitable treatment of both local and international investors on equal terms; the definitions of “property” in the case of expropriation and disputes, particularly the issue of arbitration and the locale and parties involved in such determinations.

Lack of clarity

Specifically complaints were received that Bill as tabled was unclear on the obligations of investors;

ack bdlive

ack bdlive

there appeared to be differences in standards of fair and equitable treatment for international investors; many disliked the omission of a favoured nation clauses; lack of reference in the Bill to exactly what was meant by expropriation; and the fact that DTI in the form of the Minister had express rights to regulate in the public interest and in dispute resolution remedies.

The fact that the Minister “may” allow cases to be referred to international arbitration was, by some, expressed as an objectionable approach to international business relations.

No movement on national bias

In the first meeting  to provide responses to submissions received, Lionel October assuring members that DTI had no intention to act in a manner that reduced investment flows into South Africa.    He said government had a duty to regulate in the public interest and needed the political space to do so. He insisted that any dispute resolution is to be limited at first to domestic remedies with the option, now, of state-to-state arbitration once domestic remedies had been exhausted.

Further, he said, DTI was amenable to deleting the part of the definition of ‘dispute’ that read “provided that a dispute will only arise once the parties agree, or as prescribed by law”. He explained that the proposal that the definition of “measure” could be changed to a definition reading “measure refers to binding governmental action directly affecting an investor or its investment, and includes laws, regulations, and administrative actions…etc.”

Cosmetic change to title

de GamaMustaqeem De Gama, in agreeing to the point that the title of the Bill should be changed to “The Protection of Investment Bill” in the light of the argument that there was little in the way of Promotion, said that he wished to assure all that the phrase regarding “use of available resources” in the clauses on security of investment as only referring to physical security and policing.

It was agreed that the state must provide this type of security on an investment. Wording would apply as such. It was also agreed that the word “dispute” would not be defined as such in the Bill allowing a court to fall back to the normal dictionary definition of the term.

Rights to establish investment

On the right of international enterprises to invest and the restrictive clauses in this respect referred to under Clause 6 as the “ Right of Establishment’”, De Gama said the clause does not seek to deal with or create a right of establishment up front but only sought to require that an investment be established in accordance with domestic laws. He claimed that any state had an inherent right to regulate who does and does not “establish” in their territory.

Opposition members said that wording as such was another investment barrier and Dean Mcpherson (DA) pointed to the Regulation of Land Holdings Bill where it is proposed that no foreign person may own agricultural land.  He felt that South Africa should not be limiting investment but rather welcoming all investment of whatever kind in order to grow the economy. He was wary of specifying who can and cannot invest in South Africa, particularly in the light of other Bills now being processed by Parliament.

State to hold rights on access

DTI responded with the view that “no investors have ever been so bold as to attempt to exempt themselves from following domestic law”. De Gama continued that international law gives any state the right to regulate the access of foreigners to their land. “If the investment negatively impacts the economy, the state should have a right to take action to mitigate these negative effects through various policy spaces”, de Gama concluded.

If expropriation is ever necessary in an extreme case, the Constitution requires just compensation be paid and that was clearly stated in the Constitution, DTI pointed out. Opposition members complained that the exact definition of expropriation per se “in terms of the laws of the country” was still being debated in another Bill, the Expropriation Bill, currently before the Portfolio Committee on Public Works.

Double talk

The chairperson, Joanna Fubbs, refused to allow debate on the subject to continue on the basis that joan fubbs“this definition was the responsibility of another department”. DA member, Geordan Hill Davies, complained that Committee was “just side stepping the issue insofar as The Protection of Investment Bill was concerned” and the apparent avoidance in “debating this issue in this forum just added to the uncertainty of South Africa’s intentions”.

Fair and equitable treatment

Also under the microscope was the issue raised during a submission from American Chamber of Commerce in SA and others during hearings that any form of iron clad promise of fair and equitable treatment of investments by foreign companies was not evident in the Bill. In this regard, Lionel October argued that this could not possibly be the case as South Africa needed investment and the Bill was designed to protect such.

However, the phrase “subject to national legislation” could not be deleted as a matter of state policy and the expression at the outset of the Bill of “in like circumstances” also had to stay in view that “national treatment” was necessary to avoid ambiguity, as previously stated.

Like circumstances issue

Lionel October argued that the SA government would be applying “national treatment” in line with WTO practice. The DTI had never discriminated based on place of origin, he said. The only reason for the ‘like circumstances’ clause in the Bill before them was because, for example, “minor abuses of black empowerment policies”, such policies and others being specific to South Africa, he said.

He said a dispensation had been granted on the issue that international arbitration was only to be allowed at the Minister’s discretion after all domestic legal avenues had been exhausted and to allow state-to-state arbitration to take place. Opposition members argued that in some cases in the world of modern investment this was both an impractical and unenforceable suggestion.

No “certainty”

geordin hill-lewisGeordin Hill-Lewis said this whole section was the crux of the Bill’s weakness in encouraging investment. He felt that the essence was that foreign investors wanted be treated in like manner to domestic investors and the wording of the Bill still implied, or gave the impression, that SA would treat foreign investors less favourably.  In addition, SA could legislate in the future to the further disadvantage of foreign investors. “There was no certainty in the wording at present”, he said.

New clauses

Geordin Hill-Lewis produced two amending clauses, one on “Standards of Treatment” (to be inserted after Clause 7 to become Clause 8) and a further on “Legal Protection of Investments” (to replace Clause 9 which would become Clause 10 because of the above addition). These had been prepared overnight by the DA’s legal advisors.

DTI and all members were asked to study these two clauses during the two week recess when the Bill would be finally concluded. The Chairperson noted that this issue was not closed. DTI confirmed that they would study the recommended changes. In addition, seven issues within the Bill were carried over for further discussion before the Bill could be recommended to go forward until after the recess.

The hearings conducted before the debate included submissions from Anglo-American, SA Institute of Race Relations, Banking Association of SA, The Mandela Institute of Wits University, NUMSA, the EU-SA Chamber of Commerce and the American Chamber of Commerce in SA. All expressed disquiet to varying degrees on the Bill as originally proposed.

(further articles to be posted in due course leading to final committee vote)

Other articles in this category or as background

Promotion and Protection of Investment Bill re-tabled

Promotion and Protection of Investment Bill opens up major row – ParlyReportSA

Expropriation Bill phrases could be re-drafted – ParlyReportSA

Land Holdings Bill joins state acquisition trend – ParlyReportSA

Posted in Facebook and Twitter, LinkedIn, Trade & Industry0 Comments

Land Holdings Bill joins state acquisition trend

Any new land holdings by foreigners to be excluded…

bbc logoThe BBC on their website quotes Minister Gugile Nkwinti of Rural Development and Land Reform (RDRL) as stating that a Land Holdings Bill “would be introduced to the South African Parliament by 2019″ which would, quoting the Minister further, restrict to locals the purchase of new land in terms of South African law.

In the light of the ministry involved and its mandate, this is likely to mean “productive” or agricultural land.

On their website and under the heading “SA to fast-track bill to block land sales to foreigners”, the BBC further reported that according to Minster Nkwinti this “would not mean annexing of current properties as this would be unconstitutional”.

Too much owned by foreigners

A weaker rand and lenient property laws had contributed to the South African decision, said the BBC, and further quoted the Minister as stating that “7% of land in SA was currently owned by foreigners.”  Minister Nkwinti has since said it might be less than 5%.

A “foreigner”, said the BBC,  is as per “the definition used by the South African Department of Home Affairs”.

Gugile_NkwintiLocally, Minister Nkwinti has said that Bill is to be tabled urgently in Parliament but that he had “no problem with the Bill being processed in the financial year ending 2016”. It is important to realize, he said, that the Bill will apply to agricultural land ownership only, or what is termed “productive land”.

Other Bills in process on expropriation

When the first outcry against the Bill was heard in South Africa, the BBC continued, it was soon confirmed by the RDRL department that residential property was not being targeted. Most of the argument against the Bill has been on constitutional issues, backed by a fear that this is the “thin edge of the wedge” in terms of investment certainty, the BBC concluded.

The reason for the Bill, Minister Nkwinti also said during a local media briefing in the parliamentary precinct, was to “address land reform and food security in South Africa.” The property referred to was that which exceeded a 12 000 hectare ceiling and the minister added that “on the basis of a just and equitable principle we shall pay for any land.”

A separate Bill is now to be enabled whereby a state valuator post is established to evaluate whether a stated market price is fair or not and to process such acquisitions. How independent this valuator will be from state pressure is not clear.

This is all in tandem with an Expropriation Bill, stated as being more designed to meet state infrastructure requirement needs, the acquisition of land for state electricity transmission grids being quoted by Deputycronin  Minister Jeremy Cronin, who briefed Parliament on the Bill, as an example. However the Bill is unclear on the use of the words “in the public interest” and what constitutes  “property” in terms of the tabled Bill.

Also out for comment at present is a Promotion and Protection of Investment Bill tabled by the Minister of Trade and Industry which deals with the subject of foreign based investment in South Africa and the “protection” of local industry and local manufacturing.

Posted in Facebook and Twitter, Finance, economic, Land,Agriculture, LinkedIn, Special Recent Posts, Trade & Industry0 Comments

Promotion and Protection of Investment Bill re-tabled

Revised Investment Bill gives some ground…..

Rob+DaviesA crucially re-amended version of the Promotion and Protection of Investment Bill has been re-tabled in Parliament by DTI that gives ground to some degree on the question of rights of investors regarding international arbitration regarding disputes in terms of the new ground breaking  legislation.

During his budget vote speech, Trade and Industry Minister, Rob Davies, stated that the Promotion and Protection of Investment Bill would finally be retabled in Parliament, meaning that it will definitely not be signed into law as it was and that it would be subject to changes.

That Bill has now been re- tabled and no doubt being studied by all.

Past bilaterals respectedPromotion and Protection of Investment Bill 

Promoted by Minister Davies specifically, the Bill as it was voted through but not signed by the President ignored existing bilateral investment treaties (BITs) between South Africa and other countries in the EU whilst extending protection to new investors from all other countries. The new Bill as amended clarifies that this does not apply retrospectively.

Minister Davies said at the time, which was worrying to many foreign companies, that there was a trend he felt amongst developing countries to ignore such treaties although they might have been agreed to by previous governments.

Impediment to investment

Africa-map-with-coinsUnder BITs at present, trading investors are allowed to have arbitration proceedings as laid down by World Bank rules.   International arbitration, for obvious reasons, is preferred by investors as it is impartial and not in the hands of the country invested in, as is promoted the Promotion and Protection of Investment Bill making it localised.

Minister Davies is on record as saying that that “South Africa had significant foreign direct investment from the US, Japan, Malaysia, India and other countries, and we have no bilateral investment treaties with them”. He commented in Parliament, some time before this budget vote speech, that such bi-lateral agreements on the whole were “irrelevant”.

The Bill as it stood allowed for acquisition by the state in the ownership of foreign companies “in a just and equitable manner”.  Such nebulous wording was rejected by the international business community in South Africa. Minister Davies said at the time when the Bill was passing through the portfolio committee on trade and industry, that “protection for overseas investors will be in terms of South Africa’s Constitution”, which he said, “provided significant and robust protection for investors and for property, both domestic and foreign.”

A “Bit” better

legalWhat the re-written Bill contains is a clause granting an investor the right to be treated no less favourably than South African investors as long as their investments are ‘‘in like circumstances’’. This is qualified by the clause which states, “The Bill provides for the security of investors and their investments. It seeks to clarify that the Republic bears no greater obligation to foreign investors than to its own investors in respect of their investments.”

However, on the rights under BITs agreements for arbitration or mediation internationally on new investment, it would appear that DTI have relented to some degree. After describing the whole process of local mediation which has to be undertaken first, the re-drafted Bill still insisting on this, a clause has been inserted that “the government may consent to international arbitration in respect of investments covered by this Act, subject to the exhaustion of domestic remedies. Such arbitration will be conducted between the Republic and the home state of the applicable investor.”

The Bill is now being digested and presumably Parliament will announce new hearings and call for further submissions.

Other Bills coming

ack bdlive

ack bdlive

In his budget vote speech a few weeks ago, Minister Davies confirmed that a Copyright Amendment Bill would also come before Parliament in the current financial year, together with a National Gambling Amendment Bill (as distinct from the Remote Gambling Amendment Bill before Parliament at present).

He also referred to a Liquor Amendment Bill which is suspected of being somewhat draconian. The whereabouts of the Intellectual Property Rights policy paper is also long outstanding from the Department of Trade and Industry.

Other articles in this category or as background
Promotion and Protection of Investment Bill opens up major row – ParlyReportSA
Private Security Industry Bill comes closer – ParlyReportSA

Posted in Earlier Stories, Facebook and Twitter, Finance, economic, LinkedIn, Trade & Industry0 Comments

Promotion and Protection of Investment Bill opens up major row

New DTI Investment Bill disliked as damaging to FDI……

A draft Promotion and Protection of Investment Bill has come under serious fire from not only South African business groups but from foreign firms operating in South employing large numbers of local employees. Most have described the proposals as adding woes to an already damaged South African investment picture, adding yet further risk to the current economic downturn

Promoted by minister of trade and industry, Dr Rob Davies, the Bill will enable South Africa to trade ignoring existing bilateral investment treaties (BITs) between South Africa and other countries in the EU whilst extending protection to new investors from all other countries.

Davis says bi ltateral treaties irrelevant

Davis says that the new Bill if passed as it stands “will enable a comprehensive and uniform legal framework to govern investments in the country”.  He said a review of South Africa’s bilateral investment treaties had found that there was no correlation between the existence or absence of a bilateral treaty with a particular country and the flow of foreign direct investment (FDI) from the country.

Minister Davies has been warning for some time that such a review would take place and the draft, just closed for public comment, indeed makes a number of radical changes to South Africa’s  trading relations, which many trade law experts say brings further uncertainty to the investment climate when least wanted by the country.

Listing the uncertainties to FDI

The first of the many changes is that investors no longer have recourse to international arbitration. Under BITs at present, trading investors are allowed to have arbitration proceedings as laid down by World Bank rules.   International arbitration, for obvious reasons, is preferred by investors as it is impartial and not in the hands of the country invested in, as is promoted the Promotion and Protection of Investment Bill making it local.

The second major change relates to the compensation paid in the event of expropriation. The new Bill simplistically says that  “compensation must be just and equitable”, clearly creating uncertainty in the light of known statements by cabinet ministers and senior ANC politicians in South Africa on the subject of expropriation.

Events in other parts of Africa will no doubt leave investors uneasy despite the promises of minister Rob Davies that “protection for overseas investors will be in terms of South Africa’s Constitution”, which he said “provides significant and robust protection for investors and for property both domestic and foreign.

All local foreign investors, even those with a half acquired knowledge of South Africa’s political development, will have watched the appointment of a state market valuator to handle land reform expropriation.

Finally, an uneasy point for many is that the new draft Bill fails to provide the normal provision of a BIT with what is considered by most internationals as the necessary affirmation that investors will enjoy fair and equitable treatment. Therefore they might feel that without the full protection that is enjoyed by any South African investor in the country, they might feel in jeopardy without the normal assurances of equal competition or against local protection.

amchamlogo2One such critic of the new Bill is the South African structured American Chamber of Commerce (AmCham) instituted by South Africans in Johannesburg some thirty years ago. AmCham represents some 250 American multinationals registered to do business in South Africa, eighty of the biggest contributing R233bn to the SA economy in 2011, and employing some 150 000 employees, either directly and indirectly.

They say they know where the minister is coming from but agree with all the points made by trade law experts, confirming their deep concern that the draft Bill states compensation will be an “equitable balance between the public interest” and the party that is involved.

This is totally unsatisfactory, they say. Reducing compensation or describing compensation in a manner as proposed in the Bill will increase the risk for investors, the paper says. The AmCham submission, available on their website, says that the state’s ability to undertake acts harmful to an investment’s profitability or property rights in the manner described appears to provide less protection than the Constitution itself affords.

They add that there is a perception given by the proposals that fair and reasonable treatment between local and international business issues will not be provided. AmCham goes on to state “any investment that violates domestic legislation or foreign agreements should be dealt with through legal channels available, without limiting the rights or protections of the investment.”

Jeff Nemeth

Jeff Nemeth – President AmCham

AmCham says, “Clear assurances that capital relating to investment and returns can be repatriated is not given and the investor should not lose their basic rights as is proposed under this law”. They add, “Investors are jittery of the slightest possibility of expropriation of assets by government which is perceived, rightly or wrongly, to be a very 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 government and should be firmly dealt with in the Protection of Investment Bill.  In its current form, the draft Bill does not offer investors assurance that predictable and stable policies are a government priority”, AmCham concludes.

Davies said both his ministry and department of international relations “have been engaging with those European countries with whom South Africa has bilateral investment treaties to inform them about the country’s plan to introduce the Bill and the termination of the BTI only takes place six to 12 months after, depending on the agreement in place.”

The minister recently told a meeting that South Africa had significant  foreign direct investment from the US, Japan, Malaysia, India and other countries, “and we have no bilateral investment treaties with them”.

AmCham and others say this is not the point and now is not the time to tinker with the investment climate, thus providing less clarity and less security for FDI given the current downturn in economic factors.

Posted in Facebook and Twitter, Finance, economic, Health, LinkedIn, Trade & Industry0 Comments


This website is Archival

If you want your publications as they come from Parliament please contact ParlyReportSA directly. All information on this site is posted two weeks after client alert reports sent out.

Upcoming Articles

  1. MPRDA : Shale gas developers not satisfied
  2. Environmental Bill changes EIAs
  3. Border Mangement Bill grinds through Parliament

Earlier Editorials

Earlier Stories

  • Anti Corruption Unit overwhelmed

    Focus on top down elements of patronage  ….editorial….As Parliament went into short recess, the Anti-Corruption Unit, the combined team made up of SARS, Hawks, the National Prosecuting Authority and Justice Department, divulged […]

  • PIC comes under pressure to disclose

    Unlisted investments of PIC queried…. When asked for information on how the Public Investment Corporation (PIC) had invested its funds, Dr  Daniel Matjila, Chief Executive Officer, told parliamentarians that the most […]

  • International Arbitration Bill to replace BITs

    Arbitration Bill gets SA in line with UNCTRAL ….. The tabling of the International Arbitration Bill in Parliament will see ‘normalisation’ on a number of issues regarding arbitration between foreign companies […]

  • Parliament rattled by Sizani departure

    Closed ranks on Sizani resignation….. As South Africa struggles with the backlash of having had three finance ministers rotated in four days and news echoes around the parliamentary precinct that […]

  • Protected Disclosures Bill: employer to be involved

    New Protected Disclosures Bill ups protection…. sent to clients 21 January……The Portfolio Committee on Justice and Constitutional Affairs will shortly be debating the recently tabled Protected Disclosures Amendment Bill which proposes a duty […]