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Changes to investment Bill a ‘self-inflicted’ economic blow, think tank warns

Changes to investment Bill a ‘self-inflicted’ economic blow, think tank warns

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27th October 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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As Parliament’s Portfolio Committee on Trade and Industry continues to mull the Protection of Investment Bill, Johannesburg-based think tank the Institute for Race Relations (IRR) has described the proposed legislation as counter-productive, vague and in violation of South Africa’s trade commitments under the Southern African Development Community, or SADC, Protocol. Addressing the media from the offices of the Free Market Foundation, in Johannesburg, on Tuesday, IRR policy research head Dr Anthea Jeffrey said the dissolution of the Department of Trade and Industry’s (DTI’s) various European bilateral investment treaties (Bits) and a shift towards the introduction of more protectionist investment policy signalled an intensification of government ideology away from trade with the West and towards ramped-up trade with its Brazil, Russia, India and China, or Brics, partners and other emerging States.

South Africa had terminated Bits with 13 European Union (EU) member States since 2010, but had retained its trade agreements with Russia, China, Cuba and Iran.
This despite the IRR claiming that the cumulative value of foreign direct investment (FDI) into South Africa from western States was R1.6-trillion, while the cumulated value or FDI from China amounted to a lesser R59-billion.

Government had also cancelled its Bit with the UK – a country Jeffrey claimed was responsible for some R1.65-trillion in cumulative investment in South Africa.

“The African National Congress-led government is turning its back on the West and focusing on its relationship with countries, such as China and Russia.

“This despite the fact that there are over 2 000 EU businesses in South Africa that have created 300 000 direct jobs and 150 000 indirect jobs.

The termination of the Bits sent a negative message to the EU business community and many new investments by European companies are now on hold until there is further [legislative] clarity,” Jeffrey said. She added that, while there had been no Bit in place between South Africa and the US, South Africa’s agreements with the UK and EU States had provided US investors with a certain degree of assurance and, with these now dissolved, US-based investor sentiment had grown more cautious.

The American Chamber of Commerce in South Africa had further stated that the proposed Bill did not adequately protect the rights of US investors, whose cumulative, direct and indirect investment in South Africa, according to the IRR, were some R1.1-trillion .

Further expounding on the shortfalls of the proposed legislation, Jeffrey argued that the Bill directly contradicted clauses contained within the SADC Protocol, which required South Africa to create a favourable investment environment, prevented it from nationalising or expropriating investments and mandated that it provide investors with the right to seek international arbitration once all local remedies had been exhausted.

“However, there is an clause in the proposed law that will allow government to appropriate land without necessarily paying fair market value. There is also no clear protection against expropriation or nationalisation, but investors are told that they have the protection of Section 25 of the Constitution. “This clause, however, does not cover indirect expropriation, so immediately there is a gap in the protection. The Bill [also] only allows State-to-State arbitration after exhaustion of local remedies and only after the South African government has consented, so [the protection offered here] is meaningless,” Jeffrey maintained.

In defending its intention to implement legislation in breach of the SADC Protocol, she said government had cited an review of the protocol as justification for proposing contradictory legislation. “However, changes to the protocol can only be done with support from 75% of SADC members, which has yet to happen,” Jeffrey remarked.
Noting other “flawed” elements of the proposed Bill, she said its period of public consultation had been rushed, that many provisions were too vague to be Constitutional, that compensation under expropriation was noted to be dependent on State “resources and capacity” and that the right to repatriate capital invested and returns were poorly defined.

Moreover, should the Bill be passed into law, South Africa would have four investment regimes under survival clauses in terminated Bits, remaining Bits with certain States, the SADC Protocol and the new Protection of Investment Bill. “South Africa can’t afford the Bill . . . it will be a further self-inflicted blow to the economy and would weaken exchange rates, cause runaway inflation and drive up interest rates. Government [also] simply can’t lawfully adopt a Bill that’s in direct conflict with SADC. “Let’s be friendly with China and Russia, but let’s also keep our ties with the West. Rather than choosing sides, let’s say we’re open to all,” Jeffrey reasoned.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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