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Expropriation of foreign investors in South Africa

Last year we reported that the Department of Trade and Industry would refrain from entering into any future bilateral investment treaties (?BITs?) and in fact was looking at terminating the BITs. The Department of Trade and Industry is currently drafting a new bill, the Foreign Investment Bill that will replace all existing BITs.

According to the Deputy-Director General of International Trade, Mr Xavier Carim, the bill would deal with how the South African government would compensate foreign investors in the event of expropriation. It is understood that this new bill is not a reversal of government's protection of foreign investors but rather an attempt to modernise and improve on the current regulatory framework. This could indeed be valuable as South Africa has many BITs which may not always be aligned.

Although Mr Carim is reported to have stated that the proposed bill was unlikely to frighten investors as none of these investors cared about BITs the reality is that foreign investors do seek some form of protection. The proposed reform comes shortly after South Africa was engaged in arbitration proceedings with some Italian investors at ICSID (the World Bank's International Centre for Settlement of Investment Disputes) in terms of the South African - Italy BIT. The Italian investors claimed that their expropriation of certain mining rights in terms of South Africa's Black Economic Empowerment policy violated the provisions of the specific BIT. Had it not been for the BIT, the Italian investors may not have been able to bring such a dispute and attempt to enforce their rights, as under South African law the expropriation and the manner in which it occurred was sanctioned. The Department of Trade and Industry itself was also recently involved in ensuring investor protection and compensation for expropriation was included in the Bilateral Investment Protection Agreement (BIPA) concluded between South Africa and Zimbabwe. This protection was seen as a prerequisite by South African investors, without which they were not willing to commit to investing in Zimbabwe. As such foreign investor protection is an important consideration for foreign investors and the proposed bill will be followed closely.

To read Rian's quote in the Business Day, please click here.

Rian Geldenhuys
© Trade Law Chambers 2013

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