ATC151105: Report of the Portfolio Committee on Trade and Industry on the Promotion and Protection of Investment Bill [B18-2015], dated 4 November 2015

Trade, Industry and Competition

Report of the Portfolio Committee on Trade and Industry on the Promotion and Protection of Investment Bill [B18-2015], dated 4 November 2015:
 

The Portfolio Committee on Trade and Industry, having considered the subject of the Promotion and Protection of Investment Bill [B18-2015], referred to it and classified by the Joint Tagging Mechanism (JTM) as a section 75 Bill, reports the Bill with amendments [B18A-2015].

 

The committee was not able to reach consensus on clauses 4(a), 6(1), 9, 12(5) and 13 as reflected in the introduced Bill as well as the short and long title.

 

The committee further reports that:

 

1. There has been a general acknowledgement that first generation Bilateral Investment Treaties (BITs) have not balanced the rights of foreign investors with the right of the State to regulate in the public interest. In this regard, the Bill sets out to rectify this by codifying and aligning the protection available to all investors with the Constitution.

 

1. The investment policy-making landscape is changing globally. This is mainly due to a number of countries being confronted by a series of legal challenges under the investment treaties. As such, both developing (India, Brazil, and Argentina, etc.) and developed countries (United States, Canada, Australia and the European Union) are either undertaking reviews or have reviewed their investment frameworks so as to provide an environment that facilitates investment while ensuring that governments are able to regulate in the public interest.

 

1. South Africa provides strong protection to investors in terms of the framework provided by the Constitution and other relevant legislation. However, it is important to develop national legislation that clarifies the standard of protection that an investor may expect in the Republic, and to promote all types of investments by creating a predictable business environment that is readily understandable to an investor.

 

1. The Bill therefore confirms a commitment by the Republic of South Africa to protect all investments irrespective of their origin.

 

1. Most importantly, the Bill contains BIT-type provisions, aimed at re-assuring investors that South Africa is, and will remain, open to foreign direct investment (FDI) and will continue to provide strong protection to investors. As such, the Bill contains the standards of protection applicable to investments whilst ensuring alignment to the South African Constitution and other applicable domestic legislation. International investment law concepts such as national treatment, physical security of investment, legal protection of investment and the transfer of funds in line with constitutional principles and applicable norms are reflected in the Bill.

 

1. At the highest political level of the Southern African Development Community (SADC), a decision has been undertaken to amend the Finance and Investment Protocol in such a manner that will be consistent with the Bill. That process is finalised pending a decision by the SADC Council and Summit through the relevant structures. A SADC Model BIT has been adopted and is aligned to the Bill.

 

1. After duly considering the submissions received from stakeholders and the response from the Department of Trade and Industry, the committee made a number of amendments to the Bill.

 

1. The committee is of the view that the Bill can only apply to investments within the Republic and cannot extend this protection to South African investors and their investments abroad. The committee’s view was supported by a legal opinion provided by the Office of the Chief State Law Advisor; however, some members did not share this view.

 

1. There was agreement that Section 25 of the Constitution is adequate to protect the physical property of investors from arbitrary expropriation and deprivation but some members wanted this codified in the Bill. However, the details of this is being outlined in legislation of general application, namely the proposed Expropriation Bill, which is the mandate of the Minister of Public Works.

 

1. The committee is of the view that the domestic judicial system is independent and is confident that it will uphold fair administrative justice processes. It also ranks in the top ten in the world in terms of its efficiency. However, the Bill still makes provisions for the international arbitration at a state-state level.

 

1. Furthermore, the Bill does not seek to undermine the existing rights of foreign investors where BITs or their survival clauses remain.

 

1. The Bill provides the necessary regulatory powers for the Minister to achieve the purposes of this Act but does not give the Minister unfettered powers.

 

1. The committee is of the view that the Bill does provide the necessary protection to investors and balances the rights of investors and the right of the state to regulate in the public interest.

 

Minority views were expressed as follows:

 

1. Democratic Alliance (DA)

 

1. South Africa needs to attract all of the foreign investment it can. The DA is of the view that there are serious concerns about the government’s policy trajectory, and confidence in South Africa among investors is at a low point. In this context, what South Africa needs is a world-leading piece of investment protection legislation that sends the unambiguous message to the investment community that South Africa is welcoming their investments, and that those investments will be protected.

 

1. This Bill fails to achieve that. In fact, it does quite the opposite. It adds to the feeling of uncertainty that many investors express about South Africa. It does not provide for any additional protection beyond that which is already available to all local investors, and in many cases, it actually offers less protection.

 

1. It provides no guarantees that investors will not be deprived of their investments, and it does not guarantee fair and equitable treatment for all investors. The ANC refused to provide for dispute resolution mechanisms, and gave huge discretion to the Minister to regulate on almost anything related to investments.

 

1. The DA proposed dozens of sensible amendments which would have gone a long way to alleviating the concerns of the investment community and put South Africa back on the top list of investment destinations. All of these were voted down by the ANC.

 

1. The DA objected to the Bill for four key reasons:

 

• The Bill does not offer any additional protection beyond that which is already available, and actually diminishes the protections we offer to foreign investors. This will deter investment and deepen concerns about South Africa. It also fails to provide any legal certainty on the issue of what constitutes “deprivation” of property.

 

• The Committee, and specifically the ANC, completely ignored the views of foreign investors - precisely the people that the Bill is supposed to be aimed at. The vast majority of foreign investors in South Africa said that the Bill would deter investment, with the American Chamber of Commerce calling it “another nail in the coffin of the South African economy”.

 

• The Bill contradicts South Africa’s international commitments under the SADC Protocol on Finance and Investment, which stipulates that member states’ investment legislation should provide for far greater protection than this Bill provides. The Department of Trade and Industry has indicated that this Protocol is in the process of being amended, but this will take about two years before becoming
• effective. In the meantime, the Bill is clearly in contravention of South Africa’s SADC commitments.

 

• The Bill exposes the government’s hypocrisy on foreign investment. While the Bill is designed to replace all of the cancelled BITs with mainly European countries, the Department continues to sign new BITs with other countries - China, for example. So while it is still acceptable to offer far greater protection to some investors, the Department argued in the committee that South Africa should only be providing the lesser protection contained in the Bill.

 

1. This Bill was an excellent opportunity for the government to restore economic confidence and secure more foreign investment for South Africa. Sadly, that was not achieved. Instead, the Bill will make things worse - it will further deter investment.

 

1. Inkatha Freedom Party (IFP)

 

1. On its own, the Investment Bill might not be a cause for concern but when considered with a host of other laws and proposed legislation on migration and foreign land ownership, it may open the door for government to apply the principle of nationalisation to industries. For example, the Private Security Industry Regulation Amendment Bill [B27-2012] which aims to force foreign-owned private security firms to sell 51 per cent of their companies to South Africans.

 

1. Too many government policies retard economic growth because their impact is never assessed. Before government enacts any new law it must look at consequences, both intended and unintended. The benefits of compliance need to outweigh the financial disadvantage of not complying.

 

1. The very word “protection” in the title is inappropriate, as the Bill does not give the same protection as BITs, which could have been renegotiated to adapt them to our current circumstances.

 

The DA opposed the adoption of the Bill.

 

 

 

Report to be considered.