Protection of Investment Bill: media briefing

The Minister briefed the media on the Protection of Investment Bill, which was scheduled to be approved by the National Assembly later that day.

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Question and Answer:

Briefing Secretary: Now is the time for questions. Is this Bill anti-investor?

Kay Davis Eyewitness News: These Bilateral Investment Treaties (BITs) that are not being renewed, some of their provisions remain in force for a period. Is that uniform across them all? In that case, what takes precedence in terms of the regime governing investments here? Is there a question around low certainty until the President signs this Bill into law? Will there be issues about what governs investment here? The media has reflected what people were saying in the hearings.

Independent Newspapers: Has there been any progress on the deadlines set by the Americans on the African Growth and Opportunities Act (AGOA)?

Journalist: There was a lot of sabre-rattling, especially from the EU and the countries there. Have they raised more concrete concerns that they feel have still not been addressed?

Minister Davies: Most of these BITs have survival clauses, generally of ten years. The Bill makes clear that those survival clause rights will continue to be recognised. There are no attempts to do anything about this. As for whether there is uncertainty, the Constitution provides fundamental certainty. There was discussion about jurisprudence arising from debate on the Bill, which we thought should not be dealt with in a piece of secondary legislation like the Bill, but rather in terms of the Constitutional Clause itself. Fundamentally there is a high level of protection against the deprivation of property. Expropriation would have to take place in terms of the law of general application, for infrastructure or something like that. If there were to be compensation, the compensation would by and large be market value, unless there were situations like if you had acquired the land in some kind of apartheid-driven land drive. If you were a legitimate company that came in recently and lawfully acquired land, we would practically be required by the Constitution to provide market value. Clauses like national treatment and physical security of property, they add to it. I do not think that there is much uncertainty or a big takeover of property on the horizon.

Investors and groups representing investors and business groups are prone to say that there used to be higher protection under the BITs, but the world holds that those things were skewed the wrong way. The former European Commissioner of Trade De Gucht was one of our strongest critics when we were in the process of taking the decision to lapse the BITs. I am sure that you all remember: Commissioner De Gucht used to lambaste us in public. The current Commissioner Malmstrom is more supportive and is concerned about the power of international arbitral panels, especially in the context of US-EU trade agreements. Even De Gucht once said that the EU would never allow cases like the tobacco company suing countries to happen.

The real question is whether this Bill will make a material difference to decisions about investing in South Africa. Evidence suggests that it makes very little difference. Investors look for opportunities in the economy. Conversely, they might decide there is very little opportunity despite having millions of agreements in place. If there were an agenda, hidden or open, of government seizing property, investors would make a calculation on that. If someone were to have that agenda, they would have to change or tear up the Constitution. Normal investment coming in here with normal activity will have a guarantee that property will be safe, and I should also mention the right, within the exchange control scheme, to take your property out of the country. All of these things are included in the Bill. No major companies in the auto sector have walked out because of this Bill. We have not seen serious foreign direct investors pull their investment from South Africa.

A quick update on AGOA. Vets from both parties last Friday have signed the main SPS agreement on avian flu. I do not want to make any claims about how close we are; the phrase I will use is ‘tantalisingly close’ to concluding. There has been an issue around salmonella on which we are awaiting a response. There is the question of shoulder cuts of pork. Those are the two outstanding SPS issues. The process of the administration of the quota through the International Trade Administration Commission has already started and is fielding consultation. Those processes are well underway. We believe that we will conclude everything well before the deadline and termination. We were close all the time, but we will report when we have other things to report. The avian flu agreement is the main thing at this time.

Paul Vecchiatto, Bloomberg Business: Is there a way for an international company to approach government and say “this act is all very well but we need exemption from certain things or we need…” Hypothetically, say a large international firm came to South Africa and wanted to do a massive infrastructure build here. Could they ask for exemption from this act, or get special regulations? Certain acts were passed to allow for the World Cup.

Ms Davis: Whether new agreements with countries where BITs applied before allow for an exemption from this Bill?

Linda: You mentioned the BMW investment. Is there a figure on Foreign Direct Investment (FDI) before and after the full knowledge of the Bill? Obviously the economy should be taken into account.

City Press Newspaper: How different is this bill to similar legislation in other countries? Why has the opposition termed this bill anti-investment? I want to hear what you think the motivation is.

Minister Davies: I do not understand why anyone would want to be exempted; it provides rights and no obligations. I doubt that is the issue. The issue might be that we have not closed the door to evolving regional and international system. We would be looking at compelling economic and political reasons to do this. We may decide to extend or agree to various rights from other bodies, but there is no reason why anyone would want to be exempted.

As for Linda’s question, you do not have to come to the Department to do FDI; a company can by and large just do it. Many investors do because they want to know what the regulation framework is, what the support measures are, and to discuss with municipalities and provinces, etc. The investment pipeline of the chain that the Department manages is a good indicator. The last I remember it was R30 Billion odd along the chain. I have been trying to find out if anyone is withdrawing investment from South Africa. The mineral commodity prices have taken a shot down to the bottom; this is true. However, we have not seen anyone outside that industry withdraw, much less has anyone withdrawn specifically because of this Bill. Some of the people yelling and screaming about this tend to be bureaucrats rather than investors; if one of these bureaucrats wants to take his investment to Mauritius, be my guest. These bureaucrats are not serious investors looking to invest in our value added productive economy. It is actually a great time to manufacture here. They are benefiting from the Rand and they are benefiting from the fact that companies report to me. BMW won the JD Power Award for the best export product to the US. The standards, qualities, defects, on time, everything was the best out of any automotive plant in the world; they won that. Other companies note these things. Absenteeism is lower here than other countries. Labour productivity is also great here. Hisense Chinese TV company told me during a plant visit recently that their SA plant is the second best performing international plant behind the USA; Australia comes third. Mr Pullman from Unilever sees growth outside Europe. Investors look beyond the chatter here in the press. Unilever is focusing on its thirty plants outside of Europe. There are four Unilever plants here; Unilever has expanded its investments here.

As for the opposition, people are picking up on comparisons between the BITs and the Bill. We more strongly support the government right to regulate. There was a fellow from Germany who, to the embarrassment of his country, threatened to take us into arbitration. He bought shares in the
Reserve Bank and had some weird and wonderful views on monetary policy for the Reserve Bank. He wanted to cash out at a huge multiple to his original investment and we would have been sitting at the mercy of an international decision on his right to fair and equitable treatment and all of these things. This is a matter of concern. We are part of a trend that supports re-balancing. No one thinks the system does not need to change in one way or another. We will continue to see what happens internationally. We are part of those debates The UN Conference on Trade and Development Head of Investment, also the author of a publication on investment trends, that visited was very supportive of the Bill and saw it in line with international trends.

Mr Vecchiatto: When do expect the next round of negotiations on AGOA with the US?

A Journalist: We have heard the R6 Million investment figure on BMW. How much in incentives does BMW get from APDP and other incentive programmes to stay in South Africa?

Minister Davies: I am not sure when the US will respond. It should be very soon, but I do not have a specific calendar. We are all looking to close the issue. On the BMW announcement, they said  they will manufacture the X3 SUV in South Africa. They are currently manufacturing the 3 series passenger vehicle, but they see growth in SUVs. This is significantly related to their ability to operate in Africa. They believe in the African story. They have not announced when manufacturing of the 3 series will stop and be replaced with the X3. There will be re-scaling, etc.

There is the automotive investment scheme that qualifies exactly how much BMW will get. We still have to go through a much more detailed discussion with them. There is a 20% level and a 30% level. The higher level rewards greater localisation and use of black-owned supplies. We announced the outcome of the APDP review recently. They told us yesterday that the auto industry globally is one where you only have an auto industry if you have schemes like we do. BMW pulled out of Australia after the Australians pulled incentive support. If they do not have it, they are not players; it is as simple as that. We could tell very similar stories about other companies besides BMW, but the BMW statement praising South Africa came out most recently.

Briefing Secretary: We have come to the end of the briefing. Thank you colleagues.