Foreigner investors may be safe from South Africa’s land expropriation – for now

South Africa’s past and existing international treaties are likely to protect foreign landowners in the country, say Sarah McKenzie, Nick Alp, Vlad Movshovich and Trevor Versfeld – partners at law firm Webber Wentzel.

Over the past few years, the South African government has terminated several Bilateral Investment Treaties (BITs) and sought to “substitute” the treaty protections with domestic laws.

This ultimately led to the passing of the Protection of Investment Act in July 2018.

Although the stated purpose of the Act is to protect foreign investors in South Africa, the protections offered in the Act are actually substantially diminished when compared to the substantive standards contained in international treaties, Webber Wentzel said.

Despite these diminished protections, the attorneys note that the Act has no direct effect on any protections which foreign investors enjoy under international treaties which have either not been cancelled or contain ‘sunset clauses’.

This means that those protections are still governed by the international treaties from which they arise.

Land expropriation 

These treaties are particularly important in the context of South Africa’s new plans for land expropriation without compensation.

At the beginning of December, the Department of Trade and Industry’s (DTI) deputy director-general of International Trade and Economic Development, Xavier Carrim, briefed parliament on the possible impact of land expropriation without compensation on foreign investors from countries that have bilateral investment treaties in place with South Africa.

Carrim noted that if the land was expropriated from a foreign investor who was based in a country that had a bilateral investment treaty in place with South Africa, the investor could invoke a legal challenge against the government under the treaty, if they believed the compensation amount was not fair, Webber Wentzel said.

The DTI also indicated its understanding that international treaties trump the law of the land and government cannot invoke internal law as a justification not to meet international treaty obligations.

“The termination of a number of South Africa’s bilateral investment treaties commenced in 2013, but the treaties terminated each contain a sunset clause,” said Webber Wentzel.

“Following formal termination, already existing investments were protected under those bilateral investment treaties for a period of time varying from 10 to 20 years.”

Carrim confirmed that government has formally terminated 12 agreements, including those with European Union countries and Argentina and intends to deal with four of its remaining treaties concluded with African countries – Nigeria, Zimbabwe, Mauritius and Senegal – through the African Continental Free Trade Agreement.

It is still in discussions regarding its agreements with China and Russia. Two agreements – with Cuba and South Korea – are awaiting permission from Parliament to be terminated.

“In addition to bilateral investment treaties, investors could be covered under international law by regional treaties, such as the Southern African Development Community’s Finance and Investment Protocol,” Webber Wentzel.

The committee confirmed that Parliament intends to finalise an amendment to section 25 of the Constitution at the end of March.

There is likely to be extensive public engagement on the matter.

Read: Here is South Africa’s new land expropriation without compensation bill