South Africa’s Promotion and Protection of Investment Bill will enable a comprehensive and uniform legal framework to govern investments in the country, Trade and Industry Minister Rob Davies said on Monday.

The draft law will replace existing bilateral investment treaties between South Africa and a number of European Union countries while extending protection to investors from all other countries.

The Bill, which was adopted by the Cabinet and gazetted for public comment on Friday, has caused apprehension among investors, who say the new legislation will provide less protection for foreign investors.

Speaking to reporters in Pretoria, Davies said the Bill sought to achieve several balances between the rights and obligations of investors, and would provide “adequate protection to all investors, including foreign investors” while ensuring that South Africa’s constitutional obligations were upheld, giving the government “the policy space to regulate in the public interest”.

Major investors ‘not covered by existing treaties’

Davies said a review of South Africa’s bilateral investment treaties had found that there was no correlation between the existence or absence of a bilateral treaty with a particular country and the flow of foreign direct investment (FDI) from the country.

“For example, we have a significant [amount] of FDI from the US, Japan, Malaysia, India and other countries, and we have no bilateral investment treaties with them, compared to other countries that we hold these bilateral treaties with.”

South Africa was not the only country engaged in this process, on the grounds that such treaties infringed on governments’ policy space, Davies added.

According to the minister, the new Bill is based very much on South Africa’s Constitution, which provides that there cannot be expropriation without a law of universal application or just equitable compensation. The treaties, by contrast, were based on outdated laws applicable before the country’s Constitution came into effect.

In the event of expropriation, investors would no longer be assured of compensation at full market value. However, in line with the Constitution, the compensation would be fair and equitable. Davies said the compensation would take into account “both market value and a range of interest concerns”.

‘Significant and robust protection for investors’

The Constitution “provides significant and robust protection for investors and for property both domestic and foreign. The Bill therefore sets out a transparent and open investment environment for our investors, while modernising the investment regime.”

Davies said foreign investors from any part of the world could, once the Bill became law, expect the same level of protection and security for their investments as domestic investors in the country. “Foreign investors coming from places where we don’t have bilateral treaties will get the same treatment for the first time,” he added.

With regards to dispute settlements, the draft law provides for recourse to a judicial court, statutory body or tribunal with arbitration authority. In the past, following the introduction of black economic empowerment, South Africa has been taken to international arbitration under bilateral investment treaties.

Davies said both his ministry and Department of International Relations had been engaging with those European countries with whom South Africa has bilateral investment treaties to inform them about the country’s plan to introduce the Bill.

“While South Africa has given notice of the intention to terminate the treaties, the termination only takes place six to 12 months after, depending on the agreement in place.”

Furthermore, investors covered by existing or already cancelled bilateral investment treaties would continue to have recourse to international arbitration during the transition period of the treaties, which extend 10 to 20 years beyond their termination date, Davies said.

The Promotion and Protection of Investment Bill is out for public comment for three months, ending 31 January 2014.