No threat to foreign investors in South Africa


Draft bill no threat to foreign investors in South Africa

BY MUSTAQEEM DE GAMA

IN JULY 2010, the Cabinet approved a range of measures to update and modernise South Africa’s investment policy framework in line with international law standards.

This occurred against a changing international backdrop that saw fundamental changes to investment regimes and coincided with urgent international calls from both civil society and government circles for the reform of international investment treaties, their underlying policy frameworks, and the legal frameworks for adjudication and enforcement of investment agreements.

South Africa’s recently released Investment Promotion and Protection Bill responds to this dynamic and provides broad guarantees to all investors.

There are various perceptions that the draft bill falls short of acceptable international standards.

This is not so.

The draft bill, released for public comment in November, specifies that all foreign investors are protected irrespective of whether a bilateral investment treaty (BIT) exists between their home country and South Africa. The draft bill also embeds non-discrimination by providing national treatment for all foreign investors.

While there is no reference to the investment law standard known as “fair and equitable” treatment, all investors have access to procedural and substantive due process provided for by the South African constitution.

The constitutional dispensation on expropriation, as set out in the draft bill, is very much in line with international law. Market value is still a determining factor in the calculation of damages. In respect of indirect expropriation, nothing in the draft bill deviates from international best practice. Instead, it draws from innovations in new-generation investment agreements that countries such as the US, Canada and Japan are concluding.

The US, for example, has changed its model BIT to specify that any reference to “fair and equitable treatment” must align to the customary international law minimum standard of treatment for foreigners (which the draft bill complies with); circumscribes indirect expropriation; and refines the definition of “investment” and contains a self-judging essential security clause. In short, there is nothing unusual about the provisions in the draft bill.

Increasingly, investment treaties and national investment laws now routinely carve out regulatory space for governmental actions implemented to achieve public interest objectives.

 

The draft bill confirms that investors have access to numerous remedies for any violation of their investments by the state. Arbitration legislation has now been updated, and two draft bills covering domestic and international arbitration are ready for public comment.

In recent years, the legitimacy of the international arbitration system has been questioned, raising concerns about its neutrality. Recurring episodes of inconsistent findings and divergent interpretation of identical of similar treaty provisions are common. Erroneous decisions on important questions of law are made without the possibility of effective review or appeal.

The fragmentation of international law in general and the particular nature of investment arbitration necessitate some uniform norms. However, every arbitral award is binding on the parties to the dispute only, and in the absence of a binding system of international precedent, concerns about the legitimacy, transparency and predictability of the international investment arbitration system will continue.

Arbitration costs have escalated alarmingly in recent years and have become prohibitive, where 82% of the cost of a case was said in a recent publication by the United Nations (UN) Conference on Trade and Development to be composed of legal fees, with an average cost exceeding $8m per case.

States are exposed to liability for legitimate public interest measures that run into billions of dollars.

A recent publication by the UN Conference on Trade and Development puts the number of cases at 450 in 2011, and by 2012 there were at least 40 known cases where $1bn or more was claimed by investors. Therefore, international arbitration is not a panacea in light of the many structural and institutional problems that exist within the international investment law system. International arbitration cannot replace domestic law as the primary legal framework for the regulation of investor-state relations.

Light at the end of the tunnel

BY KINGSLEY IGHOBOR

Apapa is an industrial hub in Lagos, Nigeria’s bustling commercial capital that’s home to some 17m people. Daily, the air in Apapa reverberates with the humming sound of electricity generators. In Apapa, as in most places in Nigeria, electricity generators power big factory plants and air cooling systems, as temperatures often top 30°C.

African countries are increasing looking to generate energy through renewable source such as wind.

African countries are increasing looking to generate energy through renewable sources such as wind.

Nigerians expect the Power Holding Company of Nigeria (PHCN), the entity charged with managing electricity production and distribution, to end decades of erratic energy service delivery. Despite national efforts to tackle the power crisis, half of Nigeria’s 170m people have no access to electricity. Hajiya Zainab Kuchi, a former Nigerian energy minister, once said: “We must resolve to jointly exorcise the evil spirit behind this darkness.” And Nigerians derisively refer to PHCN as “Please Have Candles Nearby”. Candles can be handy when there is a power outage at night. Before PHCN, there was the National Electric Power Authority (NEPA), which performed so badly that it was itself nicknamed “Never Expect Power Always.”

But Nigeria needn’t be in a precarious power situation, argues Kandeh Yumkella, the Special Representative of the UN Secretary-General for Sustainable Energy for All, an initiative to mobilise resources for energy especially in the developing world. The country is endowed with 5tr cubic metres of gas reserves – the ninth highest in the world – and 37bn barrels of oil reserves, according to the Organisation of Petroleum Exporting Countries. Yumkella says Nigeria alone could potentially provide electricity for the whole of Africa. In addition to oil and gas, the country has coal, wind, thermal and sun – all sources of energy.

Energy and industrialisation

The Liberian power situation mirrors that of Nigeria. Rebel fighters destroyed Liberia’s energy infrastructure in 1990 and it was not until 2006 when streetlights were restored. “For more than 14 years, Liberia has lived in darkness, literally and figuratively,” wrote the New York Times in 2006. With financial assistance from the US government and the European Union, Liberia purchased a plant to supply power to the main hospitals and to streetlights. “We have brought back what we finally call light at the end of the tunnel,” said a visibly enthused President Ellen Johnson Sirleaf, as she switched on the streetlights at an elaborate ceremony in July 2006.

Yumkella and other development experts believe electricity oils the wheels of industrialisation. Compare South Africa, Africa’s most industrialised nation, which generates 44,175MW for its 51m people, to Nigeria, Africa’s most populous nation, which generates about 3,200MWs. Simply put, per capita, South Africans consume 55 times more electricity than Nigerians.

Reliable energy

“The cost of alternatives, mainly diesel generation, is at least four times the cost of a reliable power supply,” notes the Guardian, a UK newspaper. Industries cannot be competitive in the international market if energy is a big chunk of production costs, adds Yumkella. “It means somebody can buy your raw materials, take them to Asia or Europe, refine them and sell back processed goods to you.”

Reliable energy doesn’t just pertain to industrialisation, says the World Bank; it can be a tool to tackle poverty. With a steady flow of power, hospitals operate efficiently, people will choose gas cookers rather than wood or coal that pollute the environment, students can access the internet and plug into global information trends, railways operate efficiently, water supply is more reliable, bureaucracy runs efficiently – virtually everything relating to socio-economic development revolves around energy.

An energy insecure continent

Yet, 48 countries in sub-Saharan Africa generate only 68,000MW of electricity, which is what just one country in Europe, Spain, produces, notes the World Bank. And of that figure, South Africa alone generates more than 44,000MW. This means that without South Africa, sub-Saharan Africa’s electricity output is 24,000MW, far less than 40,000MW available in New York City. To compound matters, “the low level of power generation is accompanied by correspondingly low rates of electrification. Less than a quarter of the population of sub-Saharan Africa has access to electricity,” says the World Bank. In brief, “Africa is the world’s most energy insecure continent”, says Yumkella.

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