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The Department of Trade and Industry has just published the latest version of the Promotion and Protection of Investment Bill. The Bill has its origins in the government’s wish to reassure foreign investors who were alarmed by South Africa’s decision three years ago to terminate its Bilateral Investment Treaties (BITs) with a number of European countries. Its purpose is supposedly to provide for “the legislative protection of investors” and the “promotion of investment”.

It is unlikely to achieve either of these purposes.

Its main reassurance to foreign investors is the undertaking that “subject to national legislation, foreign investors and their investments must not be treated less favourably than South African investors in like circumstances.”

Aye, there’s the rub: there is now a raft of legislation trundling through Parliament that threatens to dilute the property rights of South Africans and foreigners alike – so it is hardly reassuring to foreigners that they will not be treated less favourably than their South African counterparts. The legislation includes

  • The 2013 Private Security Industry Regulation Amendment Bill which requires foreign-owned, private security companies to sell 51% of their shares to South Africans. It has been stalled by the fact that its provisions may contravene South Africa’s commitments in terms of GATT and AGOA;
  • The 2013 Mineral and Petroleum Resources Development Bill which gives the government the power to decide on the percentage of mineral production that must be set aside for beneficiation and to limit the amount that may be exported. Minerals would be sold either at the “mine gate” price or at “an agreed price”. The state would have a 20% free carried interest in all new gas and oil expropriation and production and would be entitled to a further 80% at an agreed price. The Bill was referred back to Parliament in January.
  • The 2015 Expropriation Bill which gives government at the national, provincial and municipal levels – as well as any organ of state – the power to expropriate property in the public interest. Property is not limited to land and could theoretically include homes, companies, moveable goods and shares. The “public interest” could include virtually any objective of government. The expropriating authority would determine the value of compensation – which might well be under market value. The expropriated party would then have the right to challenge the proposed compensation in court – but would nevertheless lose control of its property on a date determined by the expropriating authority; and
  • The Regulation of Land Holdings Bill – expected later this year – which will prohibit foreigners from owning agricultural land – but will allow them leasehold for a minimum period of 30 years. The Bill will place a cap on the size of farms and will stipulate that land holding above the prescribed limits will be subject to expropriation.

In addition, the Bill makes it clear that foreign investment would be subject to “any law or other measure, the purpose of which is to promote the achievement of equality in South Africa or designed to protect or advance persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability in the Republic.” In other words, foreign companies would be subject to South Africa’s racial laws, which will continue to ratchet up the percentage of investments that must be owned by black South Africans – and that will interfere with their ability to appoint key personnel on the basis of merit rather than race, and to buy goods and services from their preferred suppliers.

The latest Bill has attempted to meet the concerns of investors on two points:

  • It has opened the possibility of international mediation for investment related disputes (which was one of the safeguards in the BITs) by conceding that the government “may consent to international arbitration in respect of investments … subject to the exhaustion of domestic remedies.”
  • It has also dropped the reference to the concept of ‘custodianship’ in terms of which any deprivation of property where the state would not acquire ownership (but only custodianship) would not be regarded as expropriation – and where compensation would therefore not be payable. Nevertheless, foreign investors would presumably still be vulnerable to deprivation of property in terms of custodianship to the degree that South African investors would be subject to this process.

The problem that underlies the Bill is the ideological approach that led to abrogation of the Bilateral Investment Treaties in the first place. It is the fact that the minister responsible for this legislation, Rob Davies, is a member of the Central Committee of the South African Communist Party. His party makes no secret of its belief that its primary enemy is what it calls ‘international monopoly capital’ – or of its wish to delink South Africa from its traditional partners in the free market economies. The SACP is also committed to “advancing, deepening, defending and taking responsibility for the National Democratic Revolution as a foundation for and the most direct route to building socialism (i.e. communism) in the concrete conditions of our country.”

The title of the Bill is truly Orwellian: its actual intention is neither to ‘promote’ nor to ‘protect’ investment. Its purpose is rather to placate foreign and local investors – while opening the way to the achievement of the NDR’s racial goals and the SACP’s progress toward ‘socialism’. The authors of this Bill might just as well erect large billboards at all our international airports proclaiming: “No Foreign Investments Wanted Here!”

By Dave Steward, Executive Director of the FW de Klerk Foundation

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