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South Africa Proposes New Law on Investor Rights

South Africa proposed a new law to safeguard investors’ interests after ending more onerous bilateral treaties with some trading partners, a change the main opposition party says could dent confidence in Africa’s largest economy.

Most of the bilateral accords were concluded with European nations, including Germany and Switzerland, shortly after apartheid ended in 1994. The government, which gave notice of its intention to terminate the treaties last year, says many investor rights are safeguarded in the 1996 Constitution and the legal framework needs to be modernized and extended to all investors.

The Promotion and Protection of Investment Bill gives investors “fair and equitable” compensation for any assets expropriated by the state, rather than the “fair market value” envisioned in most of the bilateral agreements. The law will also scrap an obligation on the state to submit disputes to international arbitration and a guarantee that investors will have fair and equitable treatment.

“The bill confirms that South Africa remains open to foreign investment,” Trade and Industry Minister Rob Davies said told reporters in Cape Town today. “The bill achieves a balance between the rights and obligations of investors and of government.”

The government has no intention to embark on a wholesale expropriation program, Davies said. Safeguards on existing investments will run for 10 years to 20 years after the bilateral treaties are terminated, and the government will uphold its obligations, he said.

Daimler Expands

South Africa received $3.3 billion in foreign direct investment in the first six months of this year, the most of any African nation, the United Nations Conference on Trade and Development said in report released on Oct. 31.

The law doesn’t give enough legal certainty for international investors, Wilmot James, a lawmaker with the opposition Democratic Alliance, said in an e-mailed statement.

“The manner in which the existing bilateral investment treaties have been canceled, without adequate communication and reassurance, has also added to growing uncertainty about South Africa’s political and economic stability,” he said.

Daimler AG’s Mercedes-Benz unit said on Oct. 16 it plans to invest 3 billion rand ($295 million) to expand production in South Africa, a decision Davies said was taken with the full knowledge that the government was terminating the investment protection accord with Germany.

“Experience around the world shows that bilateral investment treaties are not decisive in decisions to invest or not in any jurisdiction,” Davies said.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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