Trade and Industry Minister Dr Rob Davies says South Africa accepts the need to engage in an “exercise of explanation” about its decision to migrate away from bilateral investment treaties (BITs) in favour of “comprehensive” investment legislation. However, he insists that there is no intention to weaken investment protection, but rather to modernise such protection and make it more inclusive and comprehensive.

South Africa’s stance has been heavily criticised by some European Union (EU) governments, particularly after South Africa terminated its joint treaty with Belgium and Luxembourg and its BIT with Spain.

The country has also indicated that it does not intend renewing other BITs, or allowing these to roll over automatically – the treaties typically cater for ten-year automatic rollovers unless cancelled.

European Commissioner for Trade Karel De Gucht was particularly scathing in his criticism during the sixth South Africa-EU summit, which took place in Pretoria in July, describing the cancellation of the treaties as “bad policy”.

German Ambassador to South Africa Dr Horst Freitag has also been openly critical, arguing that “blunt instruments” and “unilateral steps” could undermine trust and damage investor confidence. He has called for an “open, transparent and inclusive dialogue” on the future of South Africa’s BITs.

However, in an interview with Engineering News Online Davies stressed that the South African government had, for some time, been offering a consistent message regarding investment treaties – one that had been conveyed again to EU ambassadors at a recent meeting convened by International Relations and Cooperation Minister Maite Nkoana-Mashabane.

“That message is that these treaties were negotiated mostly ahead of the entry into force of the 1996 Constitution and while there was still uncertainty about South Africa’s positioning. We believe these investment treaties have done their job and there is now a question of what is going to be the investment protection regime in future.”

Work was well advanced on a proposed Investment Act and Davies reported that a draft of the legislation would be released for public comment before the end of the year and would also be subjected to Parliamentary oversight and scrutiny.

“I think once that draft is released people will see that it is our intention to offer substantial, significant and robust protection for the rights of investors in South Africa. It’s a question of modernising, updating and making more comprehensive our investment protection regime.”

South Africa did not have treaties in place with a number of other important investor countries, including the US and Japan. “We have robust investment relations with a number of countries with whom we don’t have investment treaties. Conversely, we have investment treaties with some countries and almost no investment,” Davies mused.

He also highlighted the fact that there were discussion under way at some global forums about the need to modernise investment protection regimes and that even the EU was shifting the responsibility for investment treaties from the level of individuals States to the level of the European Commission. Therefore, the tone of the EU criticism, while “not surprising”, had “not been welcomed by us”.

“But just because there has been negative commentary it does not mean what we are doing is wrong. We will simply need to go through a further process of discussion and engagement, which is what we are quite happy and prepared to do,” Davies concluded.