UNIVERSITY OF AMSTERDAM
The South African International Investment Law Reformation
Master’s Thesis
Submitted by
Lucas Wilhelm Combrink
12527254
Supervised by
Dr Nikos Lavranos
Submitted to the University of Amsterdam in partial fulfilment of the
requirements for the Degree of International Trade and Investment
Table of Contents
Abstract……….4
Introduction and Background to the Study………...5
Chapter One: Recent Investment History of South Africa and the World………7
1.1 Introduction………..7
1.2 South Africa’s recent investment policy history………..7
1.2.1 Bilateral Investment Treaty programme………7
1.2.2 South African Investment reform………...9
1.3 International investment law trends and the current “sufficient protection” standard…...11
1.3.1 Worldwide trend of investment reform………...11
1.3.2 Current “sufficient protection” standard……….14
1.4 Conclusion………..15
Chapter Two: Analysis of the Protection of Investment Act………..16
2.1 Introduction………16
2.2 Substantive Provisions………...17
2.2.1 Definition of Investment……….18
2.2.2 National Treatment………..21
2.2.3 Physical Protection and Security……….24
2.2.4 Expropriation………...25
2.2.5 Right to Regulate……….27
2.3 MFN & FET (Omitted Provisions)………29
2.4 Conclusion………..30
Chapter Three: Comparative analysis between the Protection offered through the PIA and other Investment Instruments………...32
3.1 Introduction………32
3.2 UK-South Africa BIT……….32
3.2.1 Definition of Investment……….32
3.2.2 Full Protection and Security………33
3.2.3 National Treatment………..34
3.2.5 Fair and Equitable Treatment (FET)………...36
3.3 China-South Africa BIT……….36
3.3.1 Definition of Investment……….36
3.3.2 Full Protection and Security………37
3.3.3 National Treatment………..37
3.3.4 Expropriation………...38
3.3.5 Fair and Equitable Treatment………..38
3.4 Conclusion………..38
Chapter Four: The decision of the South African government to terminate certain BIT’s and the practical effects thereof………40
4.1 Introduction………40
4.2 Distinction between South-South and North-North BIT’s……….40
4.3 Actual investment flows in South Africa and the Rule of Law………..42
4.4 Conclusion………..44
Chapter Five: Conclusion and Recommendations………..46
5.1 Conclusion………..46
5.2 Recommendations………..47
ABSTRACT
In light of the recent backlash against international investment law, South Africa has terminated many of its BIT’s moving them away from the international investment law regime. This thesis sets out to investigate the history of this decision in light of the special
South African context. It further establishes that there is a worldwide trend in lower protection offered through BIT’s and other investment instruments. Therefore, the level of global “sufficient protection” is lower across the board. The new South African investment
code will be tested against this new lower standard of “sufficient protection”. An in-depth analysis of the Protection of Investment Act (PIA), South Africa’s new investment protection
system, shows that the PIA does not offer sufficient protection to foreign investors and deviates substantially from international investments law as well as the minimum standards
of customary international law. A comparison between two of the most prominent South African BIT’s also shows that the PIA does not offer the same robust protection to investors.
The thesis further investigates the peculiar decision to terminate some, but not all BIT’s. It further establishes that the use of empirical data in terms of actual investments flows will not
be a useful exercise, but rather looks at the issue from a rule of law perspective. This thesis lastly provides two possible solutions or alternatives that the South African government could
Introduction and background to the study
In recent times the international investment law regime has come under criticism from all corners of the globe. This area of law has within a short period of time undergone a phenomenal evolution and has become one of the fastest growing areas of international law, with far reaching affects for both capital-importing States (or developing States) as well as capital-exporting states (or developed States).1 However, some countries (mostly developing States) argue that the current system overbearingly thwarts their public policy space, whilst tribunals go too far in protecting investors and thereby disregarding the sovereign rights of the host State.2 Originally, BIT’s were introduced as instruments to assist developing countries in attracting and securing FDI to contribute to their economic development. However, due to the recent trends within international investment law, including recent jurisprudence, there seems to be a perception (or misperception) that neither BIT’s nor the international investment regime is achieving its lofty ambitions of promoting economic and social justice or sustainable development, but more glaringly, fails to serve the interests of developing States, or for that matter the international community as a whole.3 One of the biggest concerns in this regard is
that some arbitral tribunals misinterpreted or over stated their discretionary powers in interpreting international investment laws, such as their interpretation of substantive clauses in favour of foreign investors, and thereby unduly restricting the sovereign rights of the host state, including their freedom to regulate public policy and environmental or human rights considerations.4 Many of these arbitral decisions are with complete disregard to the nuances of the situations in differing developing countries. South Africa’s government, specifically, struggles with the same issues as most developing countries in terms of sustainable development, infrastructure, corruption, fraud, etc. However, there is an added nuance to South Africa called: Apartheid. The South African government, therefore, has to find a balance between attracting FDI whilst simultaneously dealing with transformation and black economic empowerment (BEE). It is therefore of crucial importance to the South African government that their investment regime be tailored to their specific needs, and that their international investment regime be sensitive to these unique nuances.
1 Surya P Subedi, International Investment Law: Reconciling Policy and Principle (7th Edition, Hart Publishing,
2016). P 1.
2 Ibid, 2. 3 Ibid, 3. 4 Ibid, 3.
In light of the above, South Africa recently made the decision to terminate many of their North-South BIT’s, and upgrading their national investment laws. Arguing that the current situation unduly impacted on their public policy space, whilst giving too much power to foreign investors. This thesis will set out to analyse this decision and determine whether the new South African regime sufficiently protects foreign investors.
Chapter One: Recent Investment History of South Africa and the World 1.1 Introduction
International investment law is one of the fastest moving areas in international law. Over the past decades it has been flowing from one side to the other trying to get a foothold in the international sphere. Countries around the globe, developed and developing, has been toying around with their policies to find the right balance between investor protection and sovereign policing powers. South Africa has not been immune to these ebbs and flows and over the past few decades has made substantial changes to its investment regime. This chapter seeks to investigates the evolution of this regime.
On the international plane there seems to be a trend of overall lower protection levels for foreign investors. This chapter further seeks to investigate this global evolution and tries to identify the current level of “sufficient protection” of the global investment regime.
1.2 South Africa’s recent investment policy history 1.2.1 Bilateral Investment Treaty Programme
South Africa signed their first BIT with the UK in 1994.5 This followed the fall of the Apartheid regime, and the UK at the time was gravely concerned that British investments would or could be expropriated or nationalised by the new African National Congress (ANC) government.6 The ANC, however, at the time was also commencing their campaign for full economic liberalization, including the attraction of foreign direct investment. Subsequently, the UK and the South African government entered into negotiations and concluded a BIT in 1994, which was based on the European model BIT, to ensure the sufficient protection of the substantial British investments in the country, as well as to attract potential future investors.7
Back in 1994 such agreements were mostly considered to be without consequences and the majority of developing countries proceeded with negotiations to enter into these agreements.8 However, upon closer inspection, many of these treaties seemed to contain potentially harmful provisions, and the issues were more nuanced, especially for developing countries.
5 South Africa | International Investment Agreements Navigator | UNCTAD Investment Policy Hub, 2020. 6 M Mossallam ‘Process Matters: South Africa’s Experience Exiting its BITs’ (2015) The Global Economic Governance Program (working paper) 7. [Hereinafter Mossallam].
7 LNS Poulsen ‘Bounded Rationality and the Diffusion of Modern Investment Treaties’ (2014) 58 International Studies Quarterly. P 7. [Herinafter Poulsen].
The South Africa-UK BIT (UK-SA BIT)9, used as one of the examples for the purposes of this thesis, included certain provisions that were not coherent with the broader economic objectives of South Africa at the time.10 More problematic, however, was that these provisions were not only incoherent with the economic policy, but also inconsistent with the brand new interim constitution.11 Due to the recently fallen Apartheid regime that left many South Africans disadvantaged, to say the least, a one size fits all approach to the conclusion of the BIT was never going to work as it should for both parties. These contradictions and inconsistencies will be discussed in detail in Chapter Two.
The UK-SA BIT opened up the world of international investment law to the South African government, who, like many other developing countries at the time, considered it a harmless instrument to attract foreign direct investment to assist with sustainable development. Consequently, and without much further thought, South Africa entered into another 15 BIT’s, mostly with developed Western countries, between 1994 and 1998.12 All of these treaties were
fashioned and modelled upon the UK-SA BIT, as a consequence flowing from the decision to use this particular BIT as the model for most future treaties.13 This choice was, however, flawed and not based on sound legal reasoning but rather largely due to the ignorance and inexperience in the field of international investment law of the South African government at the time.14 Most developing countries simply perceived these agreements as a risk-free way of attracting foreign investment, and therefore did not properly consider the extent of their reach.15
After the period of 1994-1998 South Africa proceeded to enter into numerous further BIT’s with countries across the globe. However, as the South African government gained more experience in international investment law, the more recent BIT’s looked slightly different and moved away from the UK Model BIT. Moving forward to today, South Africa has negotiated
9 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of South Africa for the Promotion and Protection of Investments 1994.
[hereinafter UK-SA BIT].
10 LE Peterson ‘South Africa’s Bilateral Investment Treaties Implications for Development and Human Rights’ (2006) Dialogue on Globalisation, Occasional Papers. P 6.
11 Constitution of the Republic of South Africa Act 200 of 1993.
12 http://www.bowman.co.za/FileBrowser/ArticleDocuments/South-African-Government-Canceling-BilateralInvestment-Treaties.pdf (Accessed 28 March 2020).
13 Mossallam, Supra note 6. 9. 14 Poulsen, Supra note 7. 8. 15 Ibid.
and entered into 50 BIT’s.16 However, of these 50, 11 has been terminated, including those
with the: UK, The Netherlands, Switzerland, Germany, France, Denmark, Austria, Italy, Argentina, BLEU (Belgium-Luxembourg Economic Union) and Spain.17 27 has been signed, but are not yet in force, these include BIT’s with: Ethiopia, Sudan, Guinea, Madagascar, Congo, Kuwait, Tanzania, Gabon, Angola, Israel, Congo, Equatorial Guinea, Qatar, Yemen, Libya, Tunisia, Rwanda, Algeria, Turkey, Uganda, Czech Republic, Chile, Egypt, Ghana, Mozambique, Canada and Mali.18 12 BIT’s are in force today, these include those with: Republic of Korea, Cuba, Iran, China, Mauritius, Sweden, Senegal, Finland, Greece, Russia, Nigeria and Zimbabwe.19
As can be seen from the above, South Africa terminated most of their BIT’s with developed European States, but peculiarly decided not to terminate with all European countries, and almost no developing States. This phenomenon will be discussed further below.
1.2.2 South African investment reform
The South African BIT programme, as it was, was never going to stand the test of time. Throughout the late 1990’ and early 2000’s there were whispers of concerns regarding the BIT programme, however, the major transformation of the South African government’s policy occurred in 2007.20 It should come as no surprise that this date correlates with the first time South Africa faced international arbitration based on a BIT. This is the moment when the South African government realised these treaties could backfire, and the whispers grew to rumblings.
The above-mentioned arbitration against South Africa, known as the Foresti Case,21 was based on the BLEU (Belgium-Luxembourg Economic Union) - South Africa BIT (1998), and involved a claim by numerous Italian nationals and a Luxembourgish corporation. The focal point of the case was based on the conflict between the South African government’s Black Economic Empowerment (BEE) policy and certain provisions of the BIT.22 The case was, however, settled on the merits but it was a rude awakening to the government that these BIT’s
16 South Africa | International Investment Agreements Navigator | UNCTAD Investment Policy Hub, 2020. 17 Ibid.
18 Ibid. 19 Ibid.
20 Mossallam, Supra note 6, 10.
21 Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1). 22 Mossallam, Supra note 6, 10.
were not harmless, as was the perception up until this point.23 The epiphany that these treaties were not risk-free, and actually infringed upon the government’s sovereignty and ability to regulate its public space brought about a complete review of the South African international investment regime.24
The review and transformation procedure started in 2007 and it “entailed looking at both the macro and micro environment surrounding BIT’s”, it involved over a hundred stakeholders and was eventually concluded in 2010.25 The review procedure ultimately ended up drawing some
very interesting conclusions, which also forms part of the wider global perception/criticism of BIT’s and the international investment regime as a whole. Firstly, it came to the conclusion that there existed no rational tangible correlation between the conclusion of a BIT with one country and the flow of FDI from that country, some see this as the raison d’etre for developing countries to conclude BIT’s in the first place.26 Secondly, it came to the conclusion that
developing countries require regulatory freedom to adequately regulate their public space, and that these BIT’s substantially infringe upon this regulatory freedom.27 The review,
subsequently, recommended a complete transformation and a new underlying international investment policy.28
Consequently, and as promised, South Africa started to terminate the outdated first-generation BIT’s. These mostly included the BIT’s that were concluded with developed European countries.29 Regardless of the fact that these BIT’s have been terminated, the majority of them still provide protection to the relevant investors through the so-called sunset clause, through which protection for existing investments can continue for up to 20 years.
In terms of incorporating the BIT provisions into domestic legislation, the South African government proceeded to draft the Promotion and Protection of Investment Bill (PPIB). The key objectives of the Bill was two-fold: a) to attract FDI; and b) to protect investments. This was achieved by establishing a domestic investment law regime that effectively replaced the
23 Poulsen, Supra note 7, 11. 24 Mossallam, Supra note 6. P 11.
25 Department of Trade and Industry (DTI) Bilateral Investment Treaty Policy Framework Review. Government Position Paper to Cabinet (2009). P 5. [Hereinafter DTI]
26 DTI, Ibid. P 22. 27 DTI, Ibid. P 54. 28 DTI, Ibid.
BIT’s terminated.30 The Bill was eventually passed in parliament and published in the
Government Gazette of 15 December 2015.31 However, the Bill came to fruition under a different name and is today known as the Protection of Investment Act 22 of 2015.32
1.3 International investment law trends and the current “sufficient protection” standard
In 1959, the first so-called modern BIT between Germany and Pakistan was concluded.33 This is considered to be the conception of the modern international investment regime and codified the system to a certain extent, however, this was by no means the beginning of international investment law itself.34 International investment law goes back much further, and attached to it lingering historic impedimenta that seems to always arouse doctrinal confusion and scepticism.
Over the years, due to the increasing pressure and backlash against the international investment regime as a whole, there has been a definite trend towards lower protection levels for investors contained in BIT’s. This will be the main focus of this part, which will strive to elucidate this worldwide trend and try to quantify the “sufficient protection” standard by looking at some of the more recently concluded BIT’s around the globe.
1.3.1 Worldwide trend of investment reform
According to Michael Reisman the international investment regime appears to be “wobbling”, because it seems to be “buckling” or “adjusting” to the new world order, and unlike previously throughout history, the “agitation for change” is definitely expressed by the traditional capital-exporting States and not by the developing nations in Africa, the Americas and China.35 Reisman further stated that the major social changes currently influencing the regime, are pressurising the creators of international investment law to question its viability.36 He also opines that “all states - developed, developing, liberal, socialist and communist - participated
on an equal footing in fashioning it.”37 Whether this statement is true or not, it is undeniable
30 Mossallam, Supra note 6, 13.
31 South Africa Government Gazette vol 606 no 39514 dated 15 December 2015. 32 Hereinafter “the Act”.
33 Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments, Ger.-Pak., Nov. 25, 1959, 457 U.N.T.S. 23 (entered into force Apr. 28, 1962).
34 Won Kidane, Supra note 40. 526.
35 Alison Ross, The End of "the Great Compact"? Reisman Declares International Investment Law at Cross-Roads, Global Arbitration Review, (Feb. 16, 2017).
36 Ibid. 37 Ibid.
that the movement for change does not discriminate between nations, from the most developed nations to the least developed are all participating. South Africa clearly has played its part in this regard with radical changes to its investment regime. This part will take a brief look at some of the recent major global agreements and BIT’s that has shaped the contemporary international investment law trends, such as the EU-Canada Comprehensive Economic Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP).
TTIP:
The Transatlantic Trade and Investment Partnership, can be classified as an ambitious, comprehensive and aggressive trade and investment agreement with the aim of promoting trade and sustainable multilateral economic growth, and was under negotiation between the two biggest economies in the world, namely the US and the EU, the negotiations has, however, come to a halt.38 The proposed changes to the international investment law regime that the
TTIP aims to achieve are more structural and specifically aimed at ISDR.39 The TTIP marks
the beginning of the backlash against international investment law and spilled over and ultimately crystallised in the Comprehensive Economic and Trade Agreement Between the European Union and Canada (CETA).
CETA:
CETA is one of the most advanced and modern treaties with investment protection currently active. The agreement was signed on the 30th of October 2016 and the European Parliament formally approved it on the 15th of February 2017.40 Chapter 8 of CETA contains several provisions relating directly to investment, and forms an integral part of the agreement as a whole.41 It contains the usual investment provisions, such as its own definition of investment as well as other issues such as admission, provisions on non-discrimination, the right to regulation, expropriation and a dispute settlement clause.42
38 Transatlantic Trade and Investment Partnership (T-TIP), Office of the US Trade Reperesntative, https://ustr.gov/ttip [https://perma.cc/GA27-NW34].
39 Won Kidane, Supra note 40. P 547.
40 EU-Canada Trade Agreement Enters Into Force, European Commission (Sept. 20, 2017), http://trade.ec.europa.eu/doclib/press/index.cfm?id= 17 2 3 [https://perma.cc/C3RLMJ2C].
41 Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, at 3, Jan. 1, 2017, 2017 0J. (L 11) 23 [hereinafter CETA].
For the purposes of this thesis the most important part relates to the deference given to a State to regulate, which features prominently. Art 8.9(1) states clearly and unambiguously, that:
"the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity."43
It is clear from the wording of this provision, that the parties explicitly agreed to allow for great deference to host States when regulating their public space. This trend has allowed more countries to take control of their policy objectives without a fear of potential claims in front of investment tribunals.
CETA, therefore, represents a definitive shift in international investment law in the direction of a more open and judicialized system, similar to that currently in operation in the World Trade Organisation (WTO), and many domestic legal systems.44
Consistent with some of the above-mentioned trends, some of the world’s biggest developing economies such as South Africa, Brazil and India has never been members of the International Centre for the Settlement of Investment Disputes (ICSID) Convention. Together with the withdrawal by states such as Bolivia and Ecuador from ICSID as well the termination of several BIT’s from states all around the globe raises new and complex challenges of systemic importance for the international investment regime.45 Whilst it is true that not being part of the ICSID convention does not mean no ISDS, the recent trend away from institutionalised arbitration may indicate States preference to ad hoc arbitration which offers them more flexibility and freedom in the arbitration process.
With the most recent EU report indicating a definite rebalancing towards shifting the focus back to host States’ rights and power to regulate public policy and protect public interest without being continuously thwarted and threatened by treatified standards of investment protection.46 It is therefore undeniable that investors worldwide are being offered less and less
43 CETA, Supra note 57. 44 Ibid.
45 Doug Jones, 'Investor-State Arbitration in Times of Crisis' (2013) 25 Nat'l L Sch India Rev 27, 26. [Hereinafter Jones].
protection, and that the international investment law system and ISDR has lost its appeal to many states across the globe, and that some sort of reform to the international investment regime generally and ISDS specifically is sorely needed.
1.3.2 Current “sufficient protection” standard
As can be seen from the above discussion the trend of lower protection is a worldwide phenomenon, the question thus remains, what is “sufficient protection” to attract enough FDI in South Africa to promote sustainable development? This part will try and codify a “sufficient protection” standard that can be used as a yardstick to compare the current regime in South Africa to establish whether there remains enough protection to sufficiently attract foreign investors.
It is clear that, what was traditionally regarded as the “sufficient protection” standard has changed dramatically over the last decade. Due to the backlash against the system, investors seem to be offered less and less protection than a decade ago. There is a definite rebalancing between investor protection and public interests. Arbitral tribunals seem to be less biased towards the investors due to numerous complaints from States. The system as a whole seems to be more transparent than ever. This has caused a definite shift in what investors consider as “sufficient protection”. They seem to be aware that public interest, including the environment, public health and labour standards, are carrying more weight in the minds of States and arbitrators. Investors even seem to have obligations under some of the new generation BIT’s, a phenomenon that was unheard of a decade ago. States have even successfully lodged counterclaims against investors for violating environmental and labour standards. The question then is, where is the point where investors will decide not to invest in a particular State due to a lack of protection? There is obviously not one right answer to this question, and every investor will probably investigate the adequate protection needed on a case by case basis.
However, on the continuum from zero protection to full protection, if you consider first generation BIT’s as “full protection”, investors are willing to still invest on a considerably lower point than full protection. The “sufficient protection” standard for the purposes of this thesis, offers the usual substantive protection that can be found in most BIT’s, such as MFN, NT, FET, FPS and protection against expropriation. However, the issues regarding regulatory freedom and State autonomy to police this space is expressly contained in this standard. Investors are aware of the global issues regarding the environment, labour and public health
and, therefore, are aware that recent investment protection shifted along this protection continuum. However, this will not deter investors from investing, unless they are pushed to a point of no return. The South African system will therefore be tested against this “sufficient protection” standard to establish whether the system attracts enough FDI to further the government’s sustainable development agenda.
1.4 Conclusion
South Africa’s recent shift away from the traditional international investment law regime, and specifically their decision to terminate most of their North-South BIT’s seems consistent with the global trend of less protection to investors. However, whether the current investment regime applied in South Africa offers investors “sufficient protection” to attract FDI remains to be seen. The next section will analyse the Promotion of Investment Act (PIA) in light of the above standard of protection.
Chapter Two: Analysis of the Protection of Investment Act
2.1 Introduction
As discussed earlier, the Protection of Investment Act47 (PIA) was conceived as a direct consequence of the South African government’s choice to review and transform the country’s traditional investment regime. In light of the terminated first-generation BIT’s, the PIA was specifically implemented to substitute these and to form the foundation of the new modern investment protection regime. The PIA, therefore, contains, amongst other provisions, the respective rights and obligations of foreign as well as local investors and of the government.48 The government’s renunciation of most of its BIT’s and the implementation of new national legislation regulating this space, has been somewhat consistent with the contemporary trend, as discussed earlier as well.4950 According to the South African government, and more
specifically the South African Department of Trade and Industry, the decision to allow the majority of its existing BIT’s to expire is predicated on its assessment that there exists no rational relationship between BIT’s and the attraction of foreign direct investment.51 This
assessment, however controversial, forms the foundation of the enactment of the PIA of 2015. The validity of this assessment will be tested later in this thesis.
The stated purpose of the PIA is, unlike most traditional BIT’s, not exactly focused on the protection and promotion aspect of investments, but is stated in Section 4 of the Act as follows:
“(a) protect investment in accordance with and subject to the Constitution, in a manner which balances the public interest and the rights and obligations of investors;
(b) affirm the Republic’s sovereign right to regulate investments in the public interest; and
47 The Act, Supra note 37.
48 S Woolfrey ‘The Emergence of a New Approach to Investment Protection in South Africa’ S Hindelang& M Krajewski (eds) Shifting Paradigms in International Investment Law: More Balanced, Less Isolated, Increasingly Diversified (2016) 282. [hereinafter S Woolfrey].
49 Karen Bosman, South Africa: Trading International Investment for Policy Space (Stellenbosch Econ. Working Paper No. 04. 2016), http://www.ekon.sun.ac.za/wpapers. [hereinater K Bosman].
50 See press statement by the South African Department of Trade and Industry, "the introduction of such
investment protection legislation is consistent withrecent global trends. Countries such as Canada, Australia, India, Brazil and Indonesia have all undertaken reviews of their BITs with a view to enacting reforms." See The
Protection of Investment Act, 2015, Republic of South Africa Department of Trade and Industry, http:/ /www.thedti.gov.za/editmedia.jsp?id=3630 [https://perma.cc/ZB3Z-7EH5].
(c) confirm the Bill of Rights in the Constitution and the laws that apply to all investors and their investments in the Republic.”52
In light of the above, the first identifiable objective of the PIA relates to the protection of investments and investors, this objective is aligned with the primary objective of almost all international investment treaties out there.53 This main objective is, however, restricted by the obligation to protect investments “in a manner which balances the public interest and the rights and obligations of investors.” This so-called balance between protection of investors on the one side and public interests on the other is a globally trending phenomenon in international investment law, and features prominently throughout the PIA as well.
The main objectives of the PIA can thus be summarised as: i) protection of investments; and ii) the balancing of this protection with public interest. This part, therefore, will analyse the provisions of the PIA in relation to its main objectives. The ultimate goal of this section is to determine whether “sufficient protection” is afforded to existing investors and whether the PIA attracts potential investors.
2.2 Substantive Provisions
When looking at the PIA itself, the Act is strikingly short for a municipal investment code compared to other domestic codes, however, it does challenge the very core of international investment law in significant ways. The PIA seeks to assure investors that they will receive fair domestic administrative treatment, it therefore rejects, as a doctrinal matter, the traditional notion that domestic courts and rules are inadequate or fundamentally biased towards the host State.54 The focus, therefore, is on ensuring that the domestic system in place is capable of adequately protecting the investors interest and to ensure that the investors have unhindered and unlimited access to the system.55 The problem that most developing countries face is that
52 The Act, Supra note 37.
53 JW Salacuse, The Three Laws of International Investment (2013) 355. As stated by Salacuse the promotion of investment is another primary purpose of investment protection treaties. Curiously, though, the PIA does not contain a promotion of foreign investment provision as one of its objectives. [hereinafter JW Salacuse]. 54 The Act, Supra note 37. S6(1) "The government must ensure administrative, legislative and judicial processes
do not operate in a manner that is arbitrary or that denies administrative and procedural justice to investors in respect of their investments as provided for in the Constitution and applicable legislation.".
55 Ibid. S6(4) "Subject to section 13(4), investors must, in respect of their investments, have the right to have
any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum consistent with section 34 of the Constitution and applicable legislation.".
investors simply do not trust the domestic system, and rightly so, it is no secret that most of these countries, including South Africa, struggle with corruption, fraud, bribery etc, not really the ideal scenario to create mutual trust in a system and it is understandable that investors will think twice before investing in a country that only offers protection through their national legislation and courts.
With regards to the substantive protection offered by the PIA, it offers no less and no more protection than that promised to South African citizens, which protection is also reflected in the Constitution56. The next part will endeavour to analyse and interpret some of the most important provision contained in the PIA.
2.2.1 Definition of investment
When interpreting international investment instruments it is always prudent to start with the definition of investment provision, this definition of investment provision is crucial as it paves the way in terms of the scope of application of the entire instrument. It is the central mechanism to trigger the substantive protections offered through the instrument.57
The most general and commonly found definition is the so-called broad asset-based approach, as can be seen in the UK-SA and China-SA BIT’s, and will be discussed later in the next Chapter.58 This type of definition is often subject to a very wide interpretation by arbitral tribunals, and therefore, heavily criticized by academics and host States alike.59 In following the recent trend in international investment law this broad stance on the interpretation of the definition provision in investment instruments has resulted in the narrowing of the definition of investments in modern instruments.60
The PIA provides its definition of investment, not in a traditional definitions section, but in a distinct part in Section 2 under the heading ‘Investment’, this emphasises the importance of the
56 Ibid. S8(1) "Foreign investors and their investments must not be treated less favourably than South African
investors in like circumstances."; S10 "Investors have the right to property in terms of section 25 of the Constitution.”.
57 EC Schelemmer ‘Investment, Investor, Nationality and Shareholders’ in P Muchlinski et al (eds) The Oxford Handbook of International Investment Law (2008). P 50.
58 Ranjan P ‘Definition of Investment in Bilateral Investment Treaties of South Asian countries and Regulatory Discretion’ (2009) 219 Journal of International Arbitration. P 220. [hereinafter Ranjan].
59 United Nations Conference on Trade and Development (UNCTAD) ‘Scope and Definition’ (2011). 5. 60 Ibid.
concept of defining investments. It follows the so-called enterprise-based approach in defining investments.61 This is evident from the clear wording in the PIA which requires the establishment, acquisition or expansion of an ‘enterprise’ or the holding or acquisition of shares in an ‘enterprise’ before it can even be considered to regarded as an investment.
It is furthermore, essential to consider some of the limiting or restrictive factors that applies to this definition of investment. In terms of the PIA these restrictions or limitations can be further subdivided into two categories (both of which are commonly found in investment instruments), namely: the legality of investment requirement (or the “in accordance with the laws of the host State” provision) and the nature of the investment.
The legality requirement contained in the definition of investment in the PIA, goes further than the mere lawfulness of the enterprise, but requires that the establishment, acquisition or expansion of an enterprise must be done ‘in accordance with the laws of South Africa’. These legality provisions are added globally to investment instruments to exclude any unlawful investment from the protection offered by that instrument, or in the case of South Africa to exclude any unlawful enterprise from enjoying the protection offered in terms of the PIA.62 This legality requirement has two main objectives in terms of the South African investment code. The first objective is to guarantee a level playing field between local and foreign investors, in the sense that both sets of investors has to make their investments in accordance with the laws of South Africa.63 The second and more substantive objective is to ensure that investments will only be protected if it is aligned with South Africa’s development policy, which can be found in its domestic legislation.64 The legality requirement, therefore, acts as a mechanism that allows the South African government to only protect those investments which qualify and satisfies its developmental policies, as contained in the domestic legislation.65
The legality requirement, as found in the PIA, should raise concern for prospective investors, in the sense that domestic legislation that could potentially affect the legality of an investment can be changed or reversed at any time at the complete discretion of the South African
61 The definition contained in the PIA is strikingly similar to the enterprise based definition found in the Southern African Development Community (SADC)‘Model Bilateral Investment Treaty Template’ (2012). 62 UNCTAD ‘International Investment Agreements: Key Issues Volume I’ (2004) 122.
63 UNCTAD ‘Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking’ (2007) 9. 64 Ibid.
government. Such a change in legislation can, therefore, potentially alter the legality of an investment after such an investment was lawful initially. This creates a lot of uncertainty in the minds of investors and does not seem to portray a stable investment climate that attracts foreign direct investment.66 It is clear that this part of the definition of investment protects the State’s regulatory rights above that of the investors.67
The second restrictive factor, as mentioned above, concerns the nature of investments that are to be covered. The PIA stipulates that investments be made by: “committing resources of
economic value over a reasonable period of time, in anticipation of profit”.68 It seems,
therefore, that this stipulation seeks to ensure that investments that qualify under the PIA as such, will contribute to the economic and sustainable development agenda of the government.69 These phrases such as “economic value”, “reasonable period of time”, and “anticipation of profit” remains ambiguous at this stage, and will be considered on a case-by-case basis.70 This
ambiguity may add to the uncertainty in the minds of the investors and ultimately influence the overall attractiveness of the system.
The analysis above confirms that the definition of investment provision as contained in the PIA is rather narrow in its scope. A direct consequence of this narrow definition is that fewer investments will qualify for protection under the PIA, and consequently, only a few investors will ultimately be able to successfully rely on its provisions. This most definitely will lead to a decline in foreign direct investment flows, as the diligent investor will not easily invest his hard-earned money unprotected. The definition is, furthermore, ambiguous and creates uncertainty in the minds of investors as to which investments will be protected and which will not. This should be a massive concern as potential investors would want assurances that they can rely on the protections offered in the PIA, should they wish to commence investments in South Africa.
66 Sornarajah, Supra note 43. P 227. 67 Ibid.
68 The Act, Supra note 37. S2(1)(1)(a).
69 Department of Trade and Industry (DTI) ‘Summary of Submissions for the Promotion and Protection of Investment Bill (PPIB)[B18-2015]’ (2015). P 22. [hereinafter DTI II]
2.2.2 National Treatment
The next important provision of the PIA to consider is the national treatment clause. This clause is arguably one of the most critical provisions contained in these instruments.71 This clause is also quite dubious, due to the fact that the national treatment standard essentially prohibits States from protecting its own citizens or from offering them any special treatment relative to foreign investors.72 It is logical that this type of clause may, therefore, raise economic and social concerns in the domestic sphere.73 The national treatment clause often restricts host States from promoting and protecting domestic industries and ultimately then refrains them from reaching their transformation and economic growth agendas, in the South African context it may also curtail the promotion of equality in light of certain BEE obligations.74
In line with the recent backlash against the international investment law regime, it has been argued on various fronts that developing countries should be allowed to discriminate between domestic and foreign investors to enhance and sufficiently support domestic industries.75 The
argument in favour of this theory, is that developed countries themselves applied some form of discriminatory policies during their development process, but now prohibits such policies resulting in the delayed development of developing countries.76 Such an exemption has, however, not been applied in practice before. In this regard South Africa could have renegotiated some of their terminated BIT’s and tried to include such an exemption.
The National treatment clause of the PIA can be found in section 8. The substantive provisions of the clause can be sub-divided into two categories, namely: i) the factual situation to which the national treatment standard applies; and ii) the substantive content contained in the standard. For the purposes of this thesis only the first one will be considered.
The factual situation to which the standard applies relates to the specific conditions under which an investor will be able to rely on the standard. In terms of the PIA, this is the case when a foreign investor and a South African investor are found to be in ‘like circumstances’. The PIA itself provides some guidance to the question what qualifies as ‘like circumstances, and
71 UNCTAD, Supra note 89. P 161.
72 K Nadakavukaren Schefer International Investment Law (2013). P 303. 73 UNCTAD, Supra note 89. P 161.
74 UNCTAD ‘National Treatment’ (1999). P 6. 75 Sornarajah, Supra note 43. P 203.
sub-section two contains an open list of elements to be considered when determining whether circumstances are alike. In terms of the PIA, in order to satisfy the ‘like circumstances’ requirement this entire list of elements needs to be examined, as well as an overall assessment of the terms of the investment. This shows that the test applied with regards to ‘like circumstances’ is quite wide as employed under the PIA, and ensures that a holistic view is taken of the ‘like circumstances’ issue.77
Whilst the list of elements is non-exhaustive and interpreted in a wide manner, it might still lead to a narrowing of circumstances that should otherwise be alike.78 This narrowing of the definition of ‘like circumstances’ might ultimately lead to a situation where foreign investors very rarely find themselves in ‘like circumstances’ compared to domestic investors, and consequently most foreign investors are, in fact, excluded from the protection offered by the national treatment clause.79 Furthermore, due to the fact that the language contained in this list
is very ambiguous and wide it may lead to more uncertainty in the minds of investors.80 The
main concern that potential foreign investors will have is that the wide language used in the PIA may be used by the government to restrict and limit the scope of application of the national treatment clause on their investments.
The logical consequence of the application of such a wide ‘like circumstances’ test is that domestic and foreign investors will seldom, in practice, be found to be in ‘like circumstances’ as the PIA provides for such a wide range of elements to be considered.81 According to some academics this might even completely bar foreign investors from the protection offered if they failed to contribute similarly with domestic investors to issues such as BEE ownership transaction, job creation and local procurement etc.82 In this regard it seems unlikely that large multi-national enterprises will ever be found to be in ‘like circumstances’ in relation to domestic investors, and this wide natured test, therefore, drastically restricts the scope of protection available to foreign investors.
77 DTI II, Supra note 96. P 33.
78 The EU Chamber of Commerce and Industry in Southern Africa ‘Submission on the Promotion and Protection of Investment Bill 2013’ (2015). P 7. [hereinafter the EU Chamber of Commerce].
79 Ibid.
80 Vodacom ‘Submission on the Draft Promotion and Protection of Investment Bill, 2013’ (2014). P 5. 81 Mandela Institute ‘Legal Analysis of the Suggested Amendments to the Promotion and Protection of Investment Bill’ (2015). P 13. [hereinafter Mandela Institute].
82 A Jeffery ‘The Investment Bill and FDI: promotion and protection of investment bill’ (2014) 18 Without Prejudice. P 19.
The last part worth mentioning in respect of the national treatment clause relates to exceptions. These can be very crucial to consider as both the quantity and scope of the exceptions are determinative in the actual practical application of the national treatment clause.83 The PIA, in sub-section four, provides for the opt-method when it comes to exceptions, and provides that the protection as granted in sub-section one will not be applicable when a domestic investor attains a benefit as a direct consequence of certain circumstances as listed in the PIA. This list contains six situations84 which are expressly precluded from the scope of protection offered by
the national treatment clause.
The list, not surprisingly in the South African context, contains an exception to the application of the national treatment provision relating to any law with the objective of attaining equality or that is devised to promote and protect the previously disadvantaged. It is glaringly obvious that this exception was created to allow the South African government to implement and enforce legislation and policies in favour of equality, such as BEE. It is, furthermore, reasonable to assume that this exception came about as a direct consequence of the Foresti Case mentioned above.
When these limitations and exceptions to the national treatment clause are applied in a sensible and coherent manner it can be used to create a balance between the sufficient protection of investors and the government’s right to regulate its public policy and interests. South Africa’s specific developmental needs, in particular, demands for such exceptions and enhanced flexibility in the national treatment provision.85 The inclusion of such exceptions to the national treatment standard, is, however, not abnormal as most of these types of instruments do contain them. What is abnormal is the vast number and wide scope of the exceptions contained in the PIA, which effectively restricts the application of the national treatment standard in practice and reduces its efficiency.
Looking at the national treatment standard, as contained in the PIA, holistically, it is fair to infer that the protection offered and the scope of application is limited. The ultimate consequence of the above will be that the effectiveness and use of the national treatment
83 UNCTAD, Supra note 89. P 177. 84 The Act, Supra note 37. S8(4) (a-f). 85 UNCTAD, Supra note 101. P 5.
standard in practice will be quite restricted, and the protection available to foreign investors will most likely be insufficient. The national treatment standard will most likely also fail to attract additional FDI.
2.2.3 Physical Protection and Security
In Section 9 of the PIA it deals with the physical security of property provision, which establishes the level of security that is to be afforded to foreign investors and their investments, and provides as follow:
“The Republic must accord foreign investors and their investments a level of physical security as may be generally provided to domestic investors in accordance with minimum standards of customary international law and subject to available resources and capacity.”86
FPS provisions are generally non-contingent and are referred to as absolute standards of treatment.87 However, when reading the provision as contained in the PIA, it becomes
abundantly clear that this provision is a combination of a relative and absolute standard. It is to be regarded as a relative standard due to the fact that the level of security provided to foreign investors is in relation to that offered to domestic investors. However, it further provides that this level should be in accordance with the minimum standard of protection offered by customary international law.88 The provision is, therefore, rather ambiguous and may lead to confusion in the minds of investors as to what level of protection can be expected.
The PIA standard also deviates from the norm in the sense that it only offers physical security, as opposed to full protection and security, as is most often found in investment instruments.89 The PIA, therefore, does not provide an overall protection, but clearly only such security that is of a physical nature. In this case the wording of the PIA is unambiguous and there should be no confusion that the security of investment offered by the PIA does not include a wide array of protections such as legal protection.90
86 The Act, Supra note 37. S9. 87 UNCTAD, Supra note 90. P 28. 88 The Act, Supra note 37. S9. 89 UNCTAD, Supra note 90. P 28. 90 DTI II, Supra note 96. P 40.
Section 9 then continues to provide that the physical security level offered is “subject to available resources and capacity.’91 This phrase should caution potential investors that the obligation on the South African government to provide physical security is subject to the availability if resources and capacity.92 This phrase is also a distinct characteristic of the FPS standard as contained in the PIA, as such a limitation is not usually found in other instruments of the same nature.
This part of Section 9 can create uncertainty in the minds of foreign investors, as it is ambiguous whether or not the phrasing grants the government with the discretion to provide a lower level of security to foreign investors under certain conditions. The main issue in this regard will be whether or not the government can provide a diluted protection to foreign investors in comparison to local investors when there is a lack of resources and capacity?93 In line with the
general interpretation of the phrase ‘subject to’, the only inference that can be drawn is that the protection offered, as provided by Section 9 of the PIA, is conditioned upon the availability of resources. It then follows that South Africa may potentially offer inferior security to foreign investors compared to their domestic counterparts in the event of such a lack of resources.
A further inference that can be drawn from this peculiar phrasing is that, in the event that sufficient resources are not available, South Africa will not be held accountable for any damages to investors’ property.94 This will effectively lead to a situation where the government
will only be obligated to offer the security, as promised in the PIA, when they have the sufficient resources and capacity to do so. In light of all the above-mentioned, it can be concluded that Section 9 of the PIA deviates significantly from traditional FPS clauses, and falls well short of being sturdy enough to offer foreign investors sufficient security, which may lead to substantial financial loss.95 This is also hardly the ideal conditions to attract potential investors.
2.2.4 Expropriation
In the eyes of investors, the guarantee against expropriation without compensation is one of the most important clauses in investment instruments, as this is one of the main risks that
91 The Act, Supra note 37. S9.
92 EU Chamber of Commerce, Supra note 105. P 8. 93 Mandela Institute, Supra note 108. P 17. 94 S Woolfrey, Supra note 73. P 279.
foreign investors face in host States.96 These clauses against expropriation, therefore, seek to nullify the fear and uncertainty that investors may foster regarding the taking of their investments, and further seeks to ease their minds into convincing them to invest in the host State. The PIA is no different in this regard and also contains such a guarantee in Section 10, which also specifically mentions Section 25 of the Constitution. When interpreting provisions relating to expropriation the first main point to consider would be to establish what exactly constitutes expropriation, and secondly to determine the compensation in the event of such an expropriation.
In terms of determining what exactly constitutes expropriation, the recent Constitutional Court decision in the Agri SA v Minister of Mining and Energy97 case is of vital importance to consider. The Court in this case had to effectively decide whether expropriation had occurred and more specifically whether indirect expropriation had occurred.
The majority ruled that, although there was deprivation, this deprivation was not arbitrary and occurred in terms of a law of general application.98 The result being that the deprivation was deemed to have occurred in terms of S25(1) of the Constitution and therefore could not amount to expropriation. The Court further held that the only way expropriation could occur was through a compulsory acquisition of rights in property by the State.99 In this specific case, however, the State never acquired ownership of the rights in question, but were only granted curatorship of the said rights, and consequently no expropriation could be said to have occurred.
The direct consequence of this judgement is that indirect expropriation is not deemed to amount to deprivation and, therefore, cannot amount to expropriation in terms of Section 25. This leads to a situation that even when there is a reduction in the value of the property of an investor, that was caused solely by the State, the investor will have no remedy. This judgment, therefore, effectively rendered the doctrinal international principle of indirect expropriation as non-existent in South Africa.100
96 UNCTAD, Supra note 89. P 236.
97 2013 (4) SA 1 (CC). [hereinafter Agri SA]. 98 Agri SA, Ibid. Para 55.
99 Agri SA, Ibid. Para 68.
Section 25(3) of the Constitution deals with the determination of compensation in the event of expropriation, and states that compensation must equitable. This equity must be achieved by considering all relevant circumstances and guidance is offered through a list contained in Section 25(3), this is a non-exhaustive list and includes elements such as the fair market value of the property, the use of the property and the purpose of the expropriation.101 This equity must further be determined by taking into consideration and balancing the public interest against that of the affected party. This method of determining the compensation, as outlined in Section 25, is one of the major points of departure from customary international law.102 Section
25 applies the market value as only one of the factors that needs to be considered in the determination of compensation, whereas most investment instruments, including those BIT’s to which South Africa is still a party, holds that compensation, in the event of expropriation, is to be determined by only applying the market value method.103 It is, therefore, clear that the
Constitution does not apply the generally used fair market value approach, but rather applies some form of a blended method that considers the market value together with a list of other factors that are completely unrelated to the commercial value of the property.104
In light of the above Section 10 of the PIA in conjunction with Section 25 of the Constitution deviates significantly from traditional international investment law standards on expropriation.105 The result being that the guarantee against expropriation offered to investors is somewhat diluted when compared to most investment instruments as well as by customary international law.106 The PIA and Section 25 of the Constitution, therefore, does little to nullify the investors fears in terms of expropriation, and could act as a potential deterrent to potential investors.
2.2.5 Right to Regulate
As mentioned at the start of this thesis the recent backlash experienced in the international investment sphere is greatly based upon the fact that it unjustly infringes upon host States rights to regulate, and especially so in the case of developing countries. The South African investment
101 The Constitution of the Republic of South Africa Section 25(3) (a-e)
102 A Langalanga ‘Imagining South Africa’s Foreign Investment Regulatory Regime in a Global Context’ South African Institute of International Affairs (2015). P 20. [hereinafer Langalanga].
103 K Bosman, Supra note 74. P 20. 104 Ibid.
105 Ibid. P 22.
reform is predicated on this infringement of sovereignty, as well as the assessment that there is no correlation between BIT’s and investment flows. It is, therefore, not surprising that the PIA places specific emphasis on this right of the government to regulate its public space and contains a provision focused specifically thereon.107 This is another part of the PIA that is quite peculiar, as most investment instruments does not contain a provision of this nature, paradoxically investment treaties in its essence restricts the right of sovereign States to regulate their public space.108 Section 12 of the PIA therefore acts as a mechanism to indicate that the South African investment code does not change or infringe upon the government’s policing powers.109
When interpreting Section 12 it is clear that the provision offers the government wide-ranging exceptions that is applicable to all protections provided for in the PIA. The phrase “notwithstanding anything to the contrary in this Act”110 elevates this right to regulate above
all other provisions in the PIA. This essentially means that when the government claims to be acting in terms of this provision, the investor loses all protection offered by the PIA to challenge such a governmental act.
In line with the ongoing theme of this thesis as well as the recent trend in international law, Section 12 seeks to restore the balance between sufficient investor protection and the sovereign’s right to regulate. From the above it is, however, clear that this section fails to achieve its lofty ambitions, and by elevating this right to regulate above all provisions of the PIA, in reality it does not provide any balance at all. Furthermore, through the ambiguous language and lack of limitation or specificity in terms of what measures may be taken by South Africa, this section is very prone to abuse.111 This is must very unsettling to potential investors, as developing countries are notorious for a very unstable political climate, which exacerbates this possibility of abuse, this ambiguity and lack of limitation may render the protection offered through the PIA inadequate in the eyes of investors.112
107 S Woolfrey, Supra note 73. P 282.
108 H Mann ‘The Right of States to Regulate and International Investment Law’. P 5. http://www.iisd.org/pdf/2003/investment_right_to_regulate.pdf.
109 DTI II, Supra note 96. P 52. 110 The Act, Supra note 37. S12(1).
111 Centre for Constitutional Rights ‘Concise Submission on the Promotion and Protection of Investment Bill [B18 -2015]’. P 4.
In light of the above, Section 12 reduces the practicality of the PIA to most foreign investors. This is due to the fact that one of the main aims of any BIT is in complete contrast to this Section and actually seeks to limit and restrict the host State’s right to regulate.113 Through this BIT’s seek to diminish the uncertainty in the minds of investors by eliminating the risk of adversarial laws and regulations, and thereby enhancing the attractiveness of the entire system.114 Section 12 of the PIA, however, achieves the complete opposite by increasing investor uncertainty and reducing the attractiveness of the system.
Whilst it is not argued that sovereign States does have, and require the right to regulate, this right must be practiced in a balanced manner that invokes confidence in the government and the system. Although, there is a fine line between the duty of a host state to provide sufficient investor protection and the right of a State to regulate, the PIA seems to have missed the mark in finding an acceptable balance between these two doctrines.115 The elevation of the right to
regulate to a seemingly unrestricted right, surely pushes the balance and blurs the lines too far in favour of the South African government. Taken as a whole Section 12 does little to increase investor certainty and even less to attract more FDI.
2.3 MFN & FET (Omitted Provisions)
As mentioned earlier the PIA conspicuously omits the traditional MFN and FET provision from its array of protections. In terms of the omission of the MFN, it is understandable, and the DTI justifies it by arguing that due to the fact that the PIA is not an international treaty, it makes no sense to include an MFN clause, and that it would be useless as the PIA does not discriminate between investors based on nationality.116 This seems rational due to the fact that in reality where South Africa is still a party to a BIT, investors would be able to rely on the provisions of the treaty, and the PIA will have no impact. The inclusion of an MFN clause in the PIA would therefore render the PIA itself pointless.
In terms of the FET clause the DTI has stated that, historically, the FET standard disproportionately restricts the ability of government to regulate its public space, and that ultimately the sustainable development and transformation policies will suffer under such a
113 JW Salacuse, Supra note 78. P 355. 114 Ibid.
115 K Bosman, Supra note 74. P 6. 116 DTI II, Supra note 96. P 36.
provision.117 In light of the above, the DTI has opted to leave the FET clause completely out of the PIA.
Keeping in mind that the traditional FET standard, as seen in most BIT’s, is often vague and prone to wide interpretation by arbitral tribunals, the omission from the PIA does seem justified to a certain extent, however, it does seriously restrict the protection that investors receive when compared to BIT’s. In the South African context, the government valued a more flexible and unthwarted right to regulate above that of the FET standard. The consequence being that investors might have serious doubt as to the level of protection available to foreign investors. In this regard, South Africa missed the trick, and could have included a provision that closely resembles that of the FET standard, by adding a clause to the PIA that was drafted in such a manner so as to avoid the vagueness so often associated with the FET standard. Such a provision would not have only enhanced the protection of investors, but would simultaneously not compromise the government’s ability to regulate.
2.4 Conclusion
The PIA is the cornerstone of the South African investment regime and exerts great influence on the South African economy as well as on sustainable development and transformation policies. In line with the recent global trend there is a constant struggle between the level of sufficient protection to investors and the right to regulate, and the PIA itself has made it clear that one if its main objectives is to find a balance between these two competing ideals.
The PIA has, however, been widely criticised for failing to achieve this objective. This is based on the simple truth that the PIA does not offer the same level of protection as under previous BIT’s.118 It has, furthermore, been argued that the PIA diverges from generally applied
international customary law standards, and that it unreasonably focusses on the host State’s right to regulate at the cost of sufficient investor protection.119
Through the enactment of the PIA, South Africa has moved away from traditional investment instruments and has attempted to bring a more balanced approach to its investment regime.
117 DTI II, Supra note 96. P 9.
118 S Woolfrey ‘ South Africa’s Promotion and Protection of Investment Bill’
http://www.tralac.org/discussions/article/5345-south-africa-s-promotion-and-protection-of-investmentbill.html.
They have left themselves with ample regulatory space to govern in favour of public interest, however, they have significantly reduced the level of protection available to investors compared to that found in customary international law as well terminated and active South African BIT’s.120 The PIA, therefore, fails to achieve this balance between investor protection
and public interest that it set out to do. In a justifiable attempt to fix their investment regime, that was favouring investors in the eyes of the government, South Africa has sadly pushed the envelope too far in the other direction. It is clear that the PIA places an overbearing emphasis on the State’s right to regulate, and in the process has neglected to provide sufficient protection to its investors. This thesis will later take a look at some possible alternatives that South Africa could have considered to better achieve this much sought balance.
