Upheaval and uncertainty in mineral regulation in parts of Africa: resurgence of resource nationalism highlights the importance of investment treaty protections

The last few months have seen significant changes to mining regulations in various African states, giving rise to a concern that a regional trend of resource nationalism may be (re-)emerging. In this context it is important for companies associated with the mining sector to be aware of the protection international investment treaties may provide against the impact of resource nationalism on their assets, and how to maximise that protection before risks materialise.  This bulletin briefly considers some of the last few months’ developments, before discussing how companies can use investment treaties to protect themselves against the risks they pose.

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New dispute resolution rules for foreign investors in South Africa

South Africa’s draft regulations for investor-state mediation require refinement to work effectively with international arbitration.

Interested parties have until 28 February 2017 to comment on draft Regulations on Mediation Rules (Regulations) published by South Africa’s Department of Trade and Industry (DTI) on 30 December 2016, under the Protection of Investment Act, 2015 (Act).

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EU trade agreement enters into effect with five southern African countries

On 10 June 2016 the EU signed an Economic Partnership Agreement (EPA) with the Southern Africa Development Community EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland (the SADC EPA).

On 10 October 2016 that agreement entered into effect between the EU and five of those countries: with Mozambique in the process of ratifying the agreement and due to join immediately thereafter.

The SADC EPA represents the latest agreement in a scheme to create a free trade area between the EU and the African, Caribbean and Pacific Group of States (ACP).  Like previous EPAs, a key objective is to support the conditions for increasing investment and economic growth in the SADC EPA states. The EU is the SADC EPA Group’s largest trading partner. Export products from the SADC region include, notably, diamonds (from South Africa, Botswana, Lesotho and Namibia) as well as agricultural products, oil and metals. Manufactured goods, wine and food products are exported from South Africa, the largest EU trading partner in the region. EU imports to the SADC EPA Group include vehicles, machinery, electrical equipment, pharmaceuticals and processed food.

The key provisions of the SADC EPA are discussed below.

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Dawn of a new era for investment protection in South Africa – draft investment law to replace protections offered under investment treaties published for public comment

On 1 November 2013, the South African Department of Trade and Industry (DTI) has released its new “Promotion and Protection of Investment” bill (PPI Bill) for public comment (for a copy of the PPI Bill, see here).

The PPI Bill follows South Africa’s publicised plans to review its bilateral investment treaties (BITs), in particular those entered into right after the end of the apartheid era. The majority of those BITs have been, or are in the process of being, terminated by the South African government. As part of the DTI review, the South African Government has already issued cancellation notices to various European countries, in respect of its BITs with, amongst others, Belgium, Luxembourg and Spain (to see our previous blog post on this, see here), and most recently, Germany and Switzerland. Existing investors are still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period between 10 to 20 years after the BITs termination, depending on the relevant BITs sunset clause.

The PPI Bill, when passed as law, is intended to regulate the protection of all investments in South Africa in place of BITs.

The following key provisions in the PPI Bill and their implications are discussed further below.

  • Definition of an “investment”.
  • Absence of a fair and equitable treatment (FET) provision.
  • Definition of “expropriation” and new principles of compensation for expropriation.
  • Dispute resolution mechanism.

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South Africa terminates its bilateral investment treaty with Spain: Second BIT terminated, as part of South Africa’s planned review of its investment treaties.

On 23 June 2013, South Africa served a notice of termination in respect of its BIT with Spain, thus ensuring that the investment treaty will terminate on 23 December 2013. Pursuant to Article XII of the BIT, the treaty entered into force for a period of 10 years from 23 December 1999, and thereafter for consecutive 2 year periods, unless terminated by 6 months’ notice before the date of expiry.

Investments made or acquired prior to 23 December 2013 will, however, continue to benefit from protection until 23 December 2023, by virtue of the survival clause in the BIT.

Those wishing to invest in South Africa should include contractual investment protection mechanisms, consider carefully how their investment is structured, and keep appraised of developments further to South Africa’s redistributive Black Economic Empowerment policy.

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