In July 2010, the South African Cabinet instructed the dti to initiate work towards a Foreign Investment Act that would strengthen South Africa’s investment regime by clarifying provisions typically found in Bilateral Investment Treaties (BITs) in South African law.

The Promotion and Protection of Investment Bill 2013 is the product of extensive intra-governmental legal and policy consultations and has been certified by the South Africa’s State Law Advisors. An Inter-Ministerial Committee, convened by the Minister of Trade and Industry, has overseen the development of the Bill.

The Bill was published in the Government Gazette on 1 November 2013 and is now open for public comment over a three-month period that will end on 31 January 2014. the dti invites interested stakeholders to submit any comments they may have to the department. Al comments will be taken into account in preparations to move the Bill to an Act of Parliament in the course of 2014.

The Bill is a significant milestone in the process to update and modernise South Africa’s legal framework to protect investment in South Africa. The Bill confirms that South Africa remains open to foreign investment. It does not impose any new obligations on investors. The Bill achieves a balance between the rights and obligations of investors and of Government, particularly in respect of the Government’s Constitutional obligations to safeguard the public interest.

The Bill clarifies standards of protection for investors – both foreign and domestic – by setting out provisions ordinarily found in BITs in a manner that is consistent with South Africa’s Constitution and existing legal framework.

The Preamble of the Bill sets out the South African Government’s commitment to maintain an open, transparent environment for foreign investment. ‘Definitions’ set out in the Bill defines foreign investment and the scope of protection for foreign investment that is line with existing legislation.

The provision on ‘national treatment’ confirms the Constitutional principle of non-discrimination in the treatment of domestic and foreign investors. Foreign investors can expect the same level of security of their investment as domestic investors. The Bill applies the same level of protection to investors from all countries.

Provisions on ‘expropriation’ and ‘compensation’ are aligned to the South African Constitution in which property may only be expropriated in terms of law of general application, for a public purpose or in the public interest, and expropriation is subject to compensation which must be just and equitable in line with international best practice

The provision on ‘transfer of funds’ confirms existing practice in South Africa that allows investors to freely repatriate returns on their investment.

Of particular importance, the provision on ‘dispute settlement’ provides that should a foreign investor seek to challenge a government measure, the jurisdiction for the settlement of disputes will be any competent South African court, statutory body or independent tribunal, with arbitration following the terms of the Arbitration Act of 1965.

The Bill also envisions a dispute avoidance mechanism wherein an investor may raise concerns with the Government with a view to having the issue resolved amicably without resort to legal challenges.

the dti solicits the views of interested parties that aim to strengthen the Bill and lay the basis for preparing a new investment Act for South Africa. This will mark a significant advance in our collective efforts to modernise investment protection in South Africa drawing on international best practice and experience that fosters a growing and inclusive economic development. In so doing, the new Act will be integral to the wider governmental processes aiming at enhancing South Africa’s status as a secure destination for foreign investment.  

On related issues, it should be recalled that the Cabinet decision of July 2010 which specified that South Africa would initiate the process of terminating its BITs and initiating work on a new investment Act for South Africa was made public immediately.

The South African Government reminded all its investment partners of the intention to terminate BITs and introduce a new Act during the UNCTAD Investment Conference in Qatar in May 2012 and again in Geneva at the UNCTAD Trade and Development meeting in September 2012. The Government again advised all affected countries of these intentions at an OECD investment meeting in November 2012.

Further, in October and November 2012, we held direct consultations with all EU member states on the process we were following. The Minister of DIRCO informed EU Ambassadors of this process immediately prior to SA-EU Summit in July 2013. DIRCO and the dti held consultations with each of the affected EU members in August 2013.

The issue was discussed with the Swiss during the Ministerial bilateral meeting in September 2013. This was followed up with an official level visit to Berne and Zurich in October to discuss the issue further with the Swiss government and investors in October 2013.

It should be noted that South Africa has raised the question of updating regional investment protection regimes at the SADC and AU levels. This will in time address the four BITs we have with African countries. We also have discussed termination with Cuba and Argentina, and these discussions will continue towards mutually agreed outcomes. We will also raise the question of investor protection with China under the BRICS engagement.

We do not envision any time lag or gap in protection between the termination of BITs and the entry into force of a new Act. While South Africa has recently notified partners of its intention to terminate, the termination only takes effect after six or twelve months from the notification. Further, all terminated BITs contain ‘savings clauses’ that maintain the BIT protection on existing investments for between 10 and 20 years. The new Act is likely to enter into force in 2014. In any case, and at all times, investors obtain strong protection provided by South Africa’s Constitution and legal framework.

Questions have been raised about level of compensation specified in BITs as compared to that in the South African Constitution. It should be noted that there is considerable legal scope to determine what compensation should be paid in the event of expropriation. One option may be “market value” but this presumes a market and a willing buyer and these conditions may not be present. There is no guidance in BITs as to how to arrive at ‘the correct’ market value. In practice, arbitrators turn to expert opinions and may consider book value, the cost of investment, discounted cash flows (expected returns), and even ‘all relevant circumstances’. In short, market value is one of many factors taken into account and this is entirely consistent with the approach set out in the SA Constitution.   

On the issue of lack of recourse to international arbitration under the Bill, it is important to note that investors seek effective protection of their investment, and if national courts provide that, they will be satisfied. International arbitration was established to address situations where national court systems are weak, ineffective or biased against foreigners.


This is not the case in South Africa. South Africa is a specialised commercial jurisdiction which has efficient and well capacitated legal professionals and an independent judiciary. Examples of such excellence may be found in the specialised Commercial Crimes courts. Certain issues can be outsourced for adjudication by independent quasi-judicial authorities such as the Competition Tribunal. South Africa is adept at responding to adverse market conditions, interests of stakeholders and regulating public and private interests.



The World Bank’s Doing Business publication shows that South Africa fares very well in terms of its capacity to enforce contracts. The total costs of going to court are below average and the number of procedures for enforcement is below the average when compared to other middle income countries.



FDI flows are more prevalent where the cost of contract enforcement is lower. Therefore South Africa has a favourable business environment with its comparatively lower costs.



UNCTAD released a report on 1 November 2013 that shows that FDI growth into South Africa was 7th globally over the first half of 2013. FDI into South Africa changed from an outflow of R1,4 billion in the fourth quarter of 2012 to an inflow of R12,9 billion in the first quarter of 2013. FDI into South Africa amounted to R17,4 billion in the second quarter of 2013. FDI flows in 2012 to SA were up on 2011 by 7.7%, in a year when they were down globally by 18%.



We also know that Mercedes Benz just decided to invest R3bn in SA with full knowledge that termination of the BIT with Germany was imminent and aware of the strikes and labour disruption at BMW.



Experience over the world shows that BITs are not decisive in decisions to invest or not in any jurisdiction. Investors are primarily concerned with the level of returns to their investment, and whether or not they have access to an effective legal system and recourse to justice. South Africa has and continues to fare well on these counts.