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Monday, 07 March 2016

South Africa’s new investment law: Safe hands?

The year started off on a negative note for the South African economy. In the midst of discomfort over the weak currency, the rand, foreign investors may also worry about the country’s new policy direction on investment protection. President Jacob Zuma signed the new Protection of Investment Act (PIA) into law in 2015. The new Act replaces bilateral investment treaties, which offered investors from specific countries greater protection than local investors and other foreign investors. South Africa is the first African country to terminate its bilateral treaties. Countries that have also taken this bold approach include Bolivia, Ecuador, Indonesia and Venezuela. The primary motivation behind this decision is to level the playing field between local and foreign investors, while also balancing investment promotion with the state’s right to regulate public interest issues. The stated objectives of the PIA are to promote and protect investments. Foreign investors have the right to establish investments in South Africa including setting up new enterprises, obtaining ownership instruments in enterprises (such as shares and debentures) and merging with established enterprises. Under the PIA, these investments are guaranteed no less favourable treatment than domestic investments in similar circumstances. Further, foreign investments will have the same level of security as domestic investments, subject to available resources. In addition, the Act guarantees property rights contained in the Constitution and the transfer of funds in accordance to tax and other laws. So far, so good. However the dispute resolution provisions are the most worrisome elements in the PIA. Until now, international arbitration has been the preferred mechanism for settling disagreements. The Act marks the end of direct access to investor-state arbitration. Now, investors must exhaust local remedies to resolve investment related issues. International arbitration will solely be conducted on a state-to-state basis and only after, first, consent of the government is obtained and, second, local remedies are exhausted.

Source: This Is Africa