International investors assets can be expropriated, no compensation

FF Plus

International investors assets can be expropriated, no compensation
International investors assets can be expropriated, no compensation

The FF Plus has determined that any international investment in South Africa is at risk of being expropriated without compensation. The consequences of this can be fatal for South Africa’s economy.

South Africa only has thirteen bilateral trade agreements in place that offer protection for investors in the case of expropriation and these are not going to be renewed once they lapse. There are also nine lapsed trade agreements that are still effective for a specified period after they have lapsed.

This was gleaned from the answers to questions posed in writing by the FF Plus to the Minister of Trade and Industry.

In terms of the thirteen effective and nine lapsed trade agreements, countries and their investors who are expropriated in the “national interest” must be compensated strictly according to market value. It includes countries like Germany, Belgium, the Netherlands, Italy, South Korea, Russia, China, Cuba and even Zimbabwe (the latter since 2010).

However, in the place of these agreements South Africa has implemented the Protection of Investment Act that, contrary to its name, offers almost no protection to investors should they be expropriated of their assets without compensation. This act automatically comes into effect when the operational period of a trade agreement has lapsed.

What is of great importance is section 10 of the act that stipulates that international investors have the right to property in terms of section 25 of the Constitution. The implication is that any amendment to section 25 of the Constitution to provide for expropriation without compensation will also be applicable to international investors’ assets. This can have far-reaching consequences – for example, the expropriation without compensation of BMW’s vehicle manufacturing plant, including any and all intellectual property rights; the expropriation without compensation of Disney’s film rights in South Africa in contravention of the Berne Convention; and the expropriation without compensation of listed shares of multinational companies.

Furthermore, the act does not provide for international arbitration – as opposed to the trade agreements – and any disputes will only be settled by South African courts. This means that South Africa’s trade partners are expected to invest here knowing that they may forfeit their investments without any international legal protection or intervention. Thus, investors are at the mercy of any interpretation or amendments to section 25 of the Constitution.

The trade agreements that have already lapsed usually remain in effect for between ten and twenty more years after the lapse for the protection of the investor. It goes without saying that investors will not attach value to such agreements if a country indicates that it considers expropriation without compensation to be legal. Investors will most probably use the time that the lapsed trade agreement is still in effect to withdraw their investments from the country.

Ironically, international investors have already been exposed to deprivation without compensation – as opposed to expropriation – as established in the AgriSA mineral resources test case where it was determined that the state can indeed deprive property rights by appointing itself as curator thereof.

It is common knowledge that the international investors’ community did not welcome the current act with open arms and the FF Plus was strongly opposed to its implementation, particularly because it drives away investors.

As far back as 2015, the American Chamber of Commerce stated on record that investments worth R1.35 trillion are hanging in the balance due to the possible effect of the implementation of the act.
Presentations by the American Chamber of Commerce (NPC) and the European Chamber of Commerce and Industry in South Africa (EUCCISA) to the parliamentary committee on trade and industry made it very clear that the great uncertainty regarding South Africa’s economic policy is the main reason for their lack of investor confidence.

That was before the bombshell of expropriation without compensation was dropped and the ANC will now be even less successful in persuading investors to invest locally. The government paid no attention to the 2015 warnings and simply continued to go out of its way to drive away investors.

Given this analysis and as part of its “Fight Back SA” campaign aimed at informing the international community of the threat to property rights and other human rights abuses in South Africa, the FF Plus will address letters to all the ambassadors and trade ministers of all the relevant countries describing the dangers that they face. The FF Plus will also table a private member’s bill to amend section 10 of the act so as to ensure that the expropriation without compensation of international investments will not be possible under any circumstances. If the ANC rejects the private member’s bill, it will clearly convey the message that their investments are not safe to the rest of the world. That could lead to disinvestment and even sanctions against the ANC government.

The FF Plus will also request these countries to intervene and to keep the ANC government from carrying out its plans.

Read the original article in Afrikaans on FF Plus

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