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EU softens stance on proposed changes to SA’s investment-protection regime

16th October 2013

By: Terence Creamer

Creamer Media Editor

  

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The European Union (EU) has materially softened its stance regarding South Africa’s decision to move away from bilateral investment treaties (BITs) in favour of a comprehensive investment law, indicating channels of communication have been opened to deal with its concerns. However, it also stresses that close consultations are required to avoid any future misunderstandings, which could lead to investor uncertainty.

The EU’s 28 member States account for about 70% of South Africa’s current stock of foreign direct investment and the issue of South Africa’s decision to terminate its BITs emerged as a major area of disagreement at the sixth South Africa-EU Summit, which took place in Pretoria in July.

In fact, European Commissioner for Trade Karel De Gucht was scathing in his criticism and described the move as bad policy, while German Ambassador to South Africa Dr Horst Freitag was also openly critical, arguing that “blunt instruments” and “unilateral steps” had the potential to undermine trust and damage investor confidence.

However, EU Ambassador to South Africa Roeland van de Geer says that, while diplomats were taken aback by the “heavy-handed” manner in which South Africa had communicated its decision, the EU accepts that South Africa has a right to make adjustments to its legal framework.

He also concurs that there are already safeguards in place to protect investors in South Africa and says he has been encouraged by recent statements by Trade and Industry Minister Dr Rob Davies regarding specific protection for foreign investors, which will be presented in the form of an overarching piece of legislation.

Davies has indicated that a draft Investment Act should be released for public comment before the end of the year and that the proposed legislation will be canvassed with the diplomatic community and be subjected to the normal Parliamentary oversight and scrutiny.

That said, Van de Geer defended the EU’s “robust” handling of the matter, saying that the concerns could have been offset had South Africa’s announcement been accompanied by a “consultative procedure”, as well as an explanation as to the nature of the proposed future regime.

“What happened, literally, is that ambassadors were called in the morning and received, in the afternoon, a note stating: It’s over.”

Anxiety levels were already elevated, he explains, as the announcement coincided with the efforts of a number of European diplomats, including Van de Geer, to mollify potential investors about South Africa’s stability in the wake of the Marikana shootings.

First counsellor at the EU delegation in Pretoria Axel Pougin de la Maisonneuve, who is head of the economic and trade section, also highlights that fact that the BIT decision came against a backdrop of a perceived move towards greater protectionism in South Africa – a move that the EU opposes, arguing that it will divert attention away from key domestic constraints to higher levels of competitiveness.

He says the new Investment Act needs to offer specific protection to foreign investors not merely to maintain FDI, but to lay the basis for increased levels of investment.

“We have taken note of Minister Davies’ intention to maintain a high level of protection for foreign investment and really that is important,” Pougin de la Maisonneuve outlines, stressing that close consultations are required to avoid any further misunderstandings.

“So it is a very delicate, very subtle and very sensitive issue to deal with and . . . we need to see eye-to-eye and have very close consultations, as South Africa redesigns its legal framework on investment.”

Edited by Creamer Media Reporter

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