A critical analysis of the Protection of Investment Act 22 Of 2015

• Author: Lindelwa Mhlongo
• DOI: 10.10520/EJC-19c15dce7f
• Published date: 03 December 2019
• Date: 03 December 2019
• Record Number: sapr1_v34_n1_a3
• Pages: 1-22

Article

Southern African Public Law

https://doi.org/10.25159/2522-6800/4190

https://upjournals.co.za/index.php/SAPL

ISSN 2219-6412 (Print) | 2522-6800 (Online)

Volume 34 | Number 1 | 2019 | #4190 | 22 pages

© Unisa Press 2019

A Critical Analysis of the Protection of Investment Act

22 Of 2015

Lindelwa Mhlongo

https://orcid.org/0000-0002-6051-8480

LLD Candidate

Lecturer, Department of Public, Constitutional and International Law,

University of South Africa

mhlonlb@unisa.ac.za

Abstract

In 2010, South Africa reviewed its foreign investment legal framework and

during this process, it terminated most of its bilateral investment treaties. For a

period, there was no piece of legislation that dealt with the regulation of

investment in South Africa and investors had to comply with commercial laws.

To solve this problem, South Africa introduced the Investment Act in 2015

aimed at regulating both domestic and foreign investment within its territory. In

light of the above, the questions central to the article are whether the Investment

Act in its current form balances the rights and obligations of foreign investors

and that of host states. If not, what can be added or deleted from the Investment

Act in order to balance these two competing rights? The article first looks at

why South Africa terminated the bilateral investment treaties. It then compares

the Investment Act with the SADC FIP to ascertain if the Investment Act is

aligned with the sub-regional standard of foreign investment protection. Finally,

recommendations are made which include suggested amendments to improve

the Investment Act.

Keywords: foreign direct investment; Investment Act; bilateral investment treaty;

economic development; foreign investor

2

Introduction

Foreign Direct Investment (FDI), when properly regulated, can accelerate the economic

growth and sustainable development of a country. However, it may also negatively

affect the economy of a country. If FDI is not properly regulated, a foreign investor will

be reluctant to invest in a country that does not promote and protect its interests.

Therefore, FDI regulation should ideally take into account the best interests of both the

host country and foreign investors. A country’s national investment laws should thus

be enacted in a way that protects the interests of international investors, and securing

ecological sustainable development, while promoting justifiable economic and social

development in the country.

1

However, striking this balance can be challenging for most

host states taking into account their domestic political and economic situations while at

the same time trying to fulfil their obligations to foreign investors.

2

This article examines South Africa’s Protection of Investment Act 22 of 2015

3

(the

Investment Act) in relation to the regulation and protection of foreign investments

within its jurisdiction. It will identify issues found in the Act which could be

problematic. The article will then provide a brief overview of the regulation of FDI at

the sub-regional and regional level. This overview is critical to appreciating the gaps in

the Investment Act. The article then compares the Investment Act with Annex 1 of the

SADC Protocol on Finance and Investment, 2006 (the SADC FIP)

4

before finally

assessing the Act as a whole and making recommendations for improvement.

Contextual Framework

Bilateral Investment Treaties (BITs) play an important role in the protection of foreign

investors’ rights. The main purpose of BITs is to shield foreign investments from state

interference and state regulation.

5

Conflicts can arise between foreign investors and the

host state with regard to their respective rights and obligations. For example, economic

conditions may change and alter both the feasibility and the content of existing laws and

policies. Generally, investment agreements are premised on a reciprocal relationship

between the contracting states, whereby they establish investments that create more

favourable economic conditions in their respective countries.

The question that begs an answer is: how does one balance the scale between the rights

of the host state and those of the foreign investor? Often, aligning the rights of foreign

1

See s 24(b) (iii) of the Constitution of the Republic of South Africa, 1996.

2

Surya Subedi, International Investment Law: Reconciling Policy and Principle (Hart Publishing

2012) 59.

3

The Investment Act came into operation on 13 July 2018. See Government Gazette Notice No

41766.

4

The SADC FIP was amended by the Agreement Amending Annex 1 of the Protocol on Finance and

Investment in 2016.

5

Barnali Choudhury, ‘Democratic Implications arising from the Intersection of Investment Arbitration

and Human Rights’ (2008) 46(4) The Alberta Law Review 985.