Davos 2018 deconstructed: South Africa’s share in a fractured world?

The first few weeks of 2018 have seen the South Africa government make some dramatic changes in the fight against corruption and corporate reform at parastatals. This includes the Deputy President’s reassuring statements at the WEF in respect of the government’s approach on a number of policy and proposed regulatory measures that inhibit economic growth in sectors, such as mining and energy. To an extent, it appears that the actions by government, pursuant to a shift of political power in the governing party during December 2017, have resulted in various investors relooking at South Africa’s investment potential. However, for any new foreign direct investment (FDI) to flow to the country, the South African government will need to commit to “conditions” or “requirements” to ensure policy and regulatory certainty in the medium to long-term.

More particularly, government needs to clearly deal with, among others, the following policy and regulatory matters:

• Expropriation of property without compensation
  The African National Congress (ANC) identified this as one of their policy mandates during the December 2017 elective conference. Since property and property rights form the cornerstone of any investment, it is important for South Africa to clearly set out what the basis for any expropriation of property without compensation would be. Such clarity is essential because, if implemented, such a policy would violate s25 of the Constitution of South Africa and customary international law, as well as the guarantees provided under bilateral and multilateral investment treaties that any expropriation must be accompanied by fair market compensation.
  
  
• The protection of investment measures for foreign investors
  Specifically, South Africa needs to clearly define the different protections provided to foreign investors from different jurisdictions. This certainty is particularly important considering that (i) the Protection of Investment Act has still not been promulgated; and (ii) the bilateral and multilateral investment framework of South Africa for FDI has been dramatically altered. The South African investment framework provides for divergent protection measures for investment into the country, essentially where the same investment type or class into South Africa will receive different levels of legal protection, depending on the state from which the investment flows. In other words, where one investor could rely and enforce commitments made by the state under international treaties, an investor from another state, making the same investment, may only rely on domestic law protection. This is exacerbated by the elimination of recourse to investor-state arbitrations for investors from certain states (such as European investors), but not for other investors (such as Chinese and Russian investors). There is a need for a uniform approach to investment protection of FDI flow to South Africa, as currently there appears to be a clear disparity.
  
  
• Radical economic transformation in the broader South African economy
  The ANC also endorsed this objective at the elective conference. This notion appears to filter into the draft Mining Charter III on ownership and control, procurement of goods and services by mines, and social and labour matters. The draft Mining Charter III is a hot-potato plagued by various legal and practical problems, widely seen as a regulatory measure which will result in South Africa losing more investment in the mining sector and costing the economy dearly. The current court battle between the Minister of Mineral Resources and the industry through the Chamber of Mines does not serve South Africa’s interest. For the future growth and development of the mining sector in South Africa, it is imperative that the government reconsiders the draft Mining Charter III to ensure inclusive growth that will be the catalyst for radical structural changes to the economy.
  
  
• Legislative changes in the Information and Communication Technology sector
  South Africa is contemplating enacting legislation to impose a mandatory wholesale open access regime and shared infrastructure regime in the ICT sector. Such a move would appear to violate the South African rule of law and certain fundamental international law obligations. Before the policy is implemented, it would be wise for government to carefully reconsider its impact. As with the policy uncertainty that plagued other economic sectors such as mining and energy, it is imperative that prior to government proposing a change to the underlying business fundamental to an industry, in-depth regulatory impact assessments must be conducted. Such precautions may avert unnecessary and costly legal battles over government policy.

Taking steps to address concerns with these policy and regulatory measures is imperative to unlock a host of economic development opportunities that will be a catalyst for inclusive growth. Dealing with these issues will further demonstrate to investors that – as Deputy President put it in Davos - “South Africa is open for business”.