6 July 2016 by Dispute Resolution Alert

The investor protection landscape in Southern Africa

The economic community in Southern Africa is known as the Southern African Development Community (SADC) formed in terms of the SADC Treaty. The purpose of SADC is to promote trade and investment intra-SADC and encourage foreign direct investment from outside the SADC region. The principle instrument which intends to encourage finance and investment in SADC is the Southern African Development Community Protocol on Finance and Investment (SADC Protocol).

Annex 1 to the SADC Protocol provides more or less similar investment protection to investors as found in certain Bilateral Investment Treaties (BITs). The benefit of the SADC Protocol is, however, that it intends to ensure uniform protection to foreign investors (including intra-SADC investors) in any of the 15 member states.

In terms of the SADC Protocol the following protection measures are, among others, guaranteed for investors to any SADC member state:

  • in the event of expropriation, a right to prompt, adequate and effective compensation. Investments shall not be nationalised or expropriated in the territory of any member state except for public purpose, under due process of law, on a non-discriminatory basis and subject to payment of prompt, adequate and effective compensation;
  • right to fair and equitable treatment. Investments and investors shall enjoy fair and equitable treatment in the territory of any state party, which shall not be less favourable than granted to investors of the third state with the exception that state parties may (in accordance with their respective domestic legislation) grant preferential treatment to qualifying investments and investors in order to achieve national development objectives;
  • right to repatriation of investment and returns in accordance with the rules and regulations stipulated by the host state; and
  • right to international arbitration for the investor state.

Thus despite any domestic legislation adopted or BITs concluded by member states, the SADC Protocol provides any investor with qualifying investments in the territory of any member state within the SADC region (depending on when such country acceded to the SADC Treaty) with uniform protection. Such investors will be able to demand the protection afforded in terms of the SADC Protocol relating to, among others, property rights, transfer of funds/returns and investor-state international arbitrations. This protection may be relied on despite the investor protection in terms of the domestic law of a member state being less than what is provided in terms of the SADC Protocol. The SADC Protocol grants all qualifying investors (whether from a SADC state or from any other state outside SADC) in the region with the right to bring any claim against a SADC member state in an international arbitration for breach of the SADC Protocol.

There is pressure from South Africa and other SADC countries (such as Botswana and Namibia) to align the level of protection currently afforded by the SADC Protocol with domestic approaches to ensure that SADC as a region has a harmonised approach to the protection of investments. These changes will align it with domestic legislation, such as the Protection of Investment Act, No 22 of 2015 (Act) of South Africa (not yet in operation). The changes will also provide scope for member states to adopt the Model SADC BITs.

The SADC Subcommittee on Investment has proposed an amendment to Annex 1 of the SADC Protocol to specifically amend article 5 (expropriation), article 6 (national treatment) and article 28 (right to investor-state arbitration). Once the amendments are adopted the rights of foreign investors in terms of the SADC Protocol will, to some extent, align with the position proposed in terms of the Act.

For any investor it is important to understand under what circumstances its rights as an investor are not only protected in terms of domestic laws, but also in terms of BITs or other multilateral treaties such as the SADC Protocol.Knowing and understanding the domestic and international limits of a state’s right to regulate in the public interest and whether any specific legislative or executive measure by the state complies with any bilateral or multilateral obligations will allow an investor to better navigate a potential impasse with a host state flowing from its investment decisions.

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