The development of South African investment protection law – legal protection of foreign investments under the Protection of Investment Act no. 22 of 2015 with special regard to indirect expropriation
Master Thesis
2017
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University of Cape Town
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Foreign Direct Investment (FDI) constitutes an important tool regarding the generation of capital inflow and economic growth and development, particularly for developing countires. Bilateral Investment Treaties (BITs) constitute the prevalent global mechanism in respect of the protection of FDI. Following the Apartheid era and its economic isolation, South Africa concluded numerous BITs with capital exporting countries, especially European countries, in order to show its desire to reengage with the international community especially by the provision of long-term protection regarding foreign investments made within the Republic. However, in 2008 the South African government conducted a review of its BITs as a reaction to the ICSID case Piero Foresti et al. v Republic of South Africa. This review process was concluded by the decision to terminate or not to renew numerous BITs, particularly with European countries, whilst establishing a national investment policy framework. Subsequently, in December 2015 the Protection of Investment Act No. 22 of 2015 was promulgated. The replacement of BITs with national legislation was widely criticised by members of the international investment community asserting that the scope of protection regarding FDIs within the South African territory was significantly lower than under the previous BITs and the enactment of the Investment Act sent a negative signal to foreign investors. The South African Department of Trade and Industry, on the contrary alleged that an overhaul of the current investment framework was necessary due to unacceptably limited policy space and neglect of the specific socio-economic challenges found in South Africa in regards to BITs. Generally, BITs inhibited the promulgation of vital national legislations, which sought to rectify the abhorrent racial discrimination and injustice experienced by the majority of South Africans during Apartheid. Furthermore, the investor-state dispute settlement provisions allowed mere commercial interests to influence crucial national concerns in an intolerable way. This dissertation assesses the Protection of Investment Act No. 22 of 2015 against the background of these opposing assertions. By outlining the protection mechanisms ordinarily provided by BITs and the customary international minimum standard and the examination of the provisions entailed by the Protection of Investment Act No. 22 of 2015, this dissertation shows that certain stipulations of the Investment Act provide a considerably lower scope of protection regarding foreign investments in comparison to the previous BITs. Particularly in terms of crucial elements such as fair and equitable treatment, most-favoured nation treatment and investor-state dispute settlement, the protection of foreign investments is reduced. Moreover, the Investment Act and the Constitution of the Republic of South Africa No. 108 of 1996 determine a significantly narrower concept of expropriation, whilst lacking provisions regarding compulsory payment of compensation in terms of indirect measures, and a limited concept of full protection and security. These stipulations are essentially incompatible with the requirements of the customary international minimum standard. Therefore, the Protection of Investment Act No. 22 of 2015 is likely to create uncertainty and unpredictability regarding the protection of investments, and is likely to decrease investor confidence in South Africa as an investment venue. The thesis concludes that the manner of utilisation of the preserved policy space, and the application not only of the Investment Act, but of the entirety of the foreign investment related legislation, will be decisive in order to achieve a harmonious balance between the domestic public interest, policy space and foreign investors' need for predictable and reliable investment protection. It will be necessary for the government to show its dedication and commitment towards the establishment of a balanced regime, equally taking into account the respective needs and interests whilst preventing arbitrariness and discrimination, in order to maintain South Africa's status as a foreign investment-friendly venue and to convince foreign investors of the continued long-term protection of investments in South Africa.
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Picker, C. 2017. The development of South African investment protection law – legal protection of foreign investments under the Protection of Investment Act no. 22 of 2015 with special regard to indirect expropriation. University of Cape Town.