Picture: JOHN FEDELE
Picture: JOHN FEDELE

Department of trade & industry officials have warned against expropriating land owned by foreign nationals, saying  it contravenes existing bilateral investment treaties.

Doing so could also result in SA being denied access to key markets such as the US.

The country has 22 such bilateral agreements, but the cabinet decided in 2010 to terminate the arrangements following concerns that the treaties were unbalanced in favour of the  investors.

Some of the treaties were said to be inconsistent with SA’s constitution, including its transformation objectives.

While SA recently started terminating these treaties the pacts contain a “survival clause” that guarantees that investment protections continue for between 10 and 20 years.

Lawful expropriation of foreign investment should be for a public purpose, on a nondiscriminatory basis, under due process of the law, and based on the payment of prompt, adequate and effective compensation, department officials told MPs on Wednesday.

The officials were briefing the ad hoc committee tasked with redrafting section 25 of the constitution, or the property clause. Investors are increasingly worried about the government’s proposals to expropriate foreign land without compensation.

Commentators have warned that wholesale expropriation without compensation will discourage investment, threaten food security and hurt economic activity and job creation. SA is battling to address low growth and high unemployment.

Legal experts have also warned that expropriation of foreign-owned property without compensation constitutes a violation of international law and several treaties to which the country is a party. 

In an opinion piece in 2018, Peter Leon, Hannah Ambrose and Ernst Müller of international law firm Herbert Smith Freehills, wrote that a country cannot simply implement domestic legislation while avoiding its international law obligations.

The department officials also warned of challenges if the new legislation was considered detrimental to the value of  foreign owned land. Some of the jurisprudence on investment treaties has referenced a standard of “legitimate expectation” regarding return on investment.

“It may be useful to draw attention to the relevant eligibility requirement set out in the US General System of Preferences [GSP],” said Xavier Carim, the deputy director-general responsible for the international trade & economic development division.

Carim said that while it does not constitute an international obligation for SA it does set a standard to benefit from preferential access provided under the GSP to the US market.

“The relevant criterion reads: ‘A beneficiary may not have nationalised, expropriated or otherwise seized property of US citizens or corporations without providing or taking steps to provide prompt, adequate and effective compensation, or submitting such issues to a mutually agreed forum for arbitration’.

“The main motivation for entering into bilateral investment treaties is that they encourage inward FDI (foreign direct investment) flows. The review showed there was no clear relationship between [such treaties] and increased FDI flows. SA  does not receive significant inflows of FDI from many partners with whom we have [such treaties], and we continue to receive significant investment from jurisdictions with which we have no [treaties]. International evidence shows the same,” Carim said.

phakathib@businesslive.co.za