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Legal Protection of Foreign Direct Investment. A Critical Assessment with Focus on South Africa and Zimbabwe

©2016 Textbook 240 Pages

Summary

This study undertakes a critical assessment of the legal protection of foreign direct investments (FDI) in South Africa and Zimbabwe by determining their compliance with the international minimum standards, norms and/or best practices on the legal protection of FDI by host states. Firstly, the study argues that foreign investment is much needed in South Africa and Zimbabwe to improve economic growth and development, to create jobs, and to increase their competitiveness. However, these benefits are not accrued automatically but rather host states need to create an enabling environment to receive such benefits. Thus, host states need to put an investment scheme into operation to guarantee the legal protection of foreign investments. South Africa and Zimbabwe have at large crafted and implemented investment laws and related policies which tend to be hostile towards foreign investments. Therefore, similar investment laws and related policies in both jurisdictions are analysed. This study will also offer recommendations for a legal investment which is not only flexible, friendly, and favourable to foreign investment in South Africa and Zimbabwe but also advances their local economic policies.

Excerpt

Table Of Contents


TABLE OF CONTENTS
ABSTRACT ... i
DEDICATION ... ii
ACKNOWLEDGEMENTS ... iii
TABLE OF CONTENTS ... iv
ABBREVIATIONS ... xi
CHAPTER 1
Introduction and overview of the study ... 1
1 1
INTRODUCTION ... 1
1 2
DEFINITIONS OF FDI ... 5
1 2 1
FDI definition by international organisations ... 5
1 2 2 IIAs' FDI definition ... 6
1 2 3
Forms of FDI ... 9
1 2 3 1 M&As investment ... 9
1 2 3 2 Greenfield investment ... 10
1 2 3 3 Brownfield investment ... 11
1 2 3 4 Joint venture investment ... 11
1 2 4
Distinction between FDI and Foreign Portfolio Investment (FPI) ... 12
1 3
RESEARCH PROBLEM ... 13
1 4
OBJECTIVES OF THE STUDY ... 13
1 5
RESEARCH QUESTIONS ... 14
1 6
DELIMITATION ... 14
1 7
SIGNIFICANCE OF THE STUDY... 14
1 8
RESEARCH METHODOLOGY... 16
1 9
CHAPTER OUTLINE ... 16
1 10 REFERENCING STYLE... 17
iv

1 11 ETHICAL IMPLICATIONS OF THE STUDY ... 17
CHAPTER 2
Historical origin of foreign direct investment protection ... 18
2 1
INTRODUCTION ... 18
2 2
HISTORICAL ORIGIN OF FDI PROTECTION ... 18
2 2 1
Foreign investment protection pre-Havana Charter ... 20
2 2 2
Position under the Havana Charter... 22
2 2 3
Investment protection under the WTO ... 25
2 3
FDI AS A NECESSITY... 27
2 3 1
Economic growth and development ... 29
2 3 2
Technology transfer and development ... 31
2 3 3
Employment creation ... 33
2 3 4
National competitiveness ... 34
2 3 5
Infrastructure improvement ... 35
2 4
RISKS FACED BY FDI ... 36
2 4 1
Political risks ... 37
2 4 1 1 Expropriation of investments without compensation ... 37
2 4 1 2 Political instability and corruption ... 39
2 4 2
Fiscal risks ... 39
2 4 3
Legal risks ... 40
2 4 3 1 Investor-state dispute settlement mechanisms ... 41
2 4 3 2 Breach of investment contracts ... 42
2 4 3 3 Performance requirements... 43
2 4 3 4 Discrimination ... 44
2 5
CONCLUSION ... 45
CHAPTER 3
International standards on foreign investment protection ... 48
v

3 1
INTRODUCTION ... 48
3 2
INTERNATIONAL PRACTICES ON ADMISSION OF FOREIGN
INVESTMENTS... 51
3 2 1
International treaty models on admission of investment ... 54
3 2 1 1 Investment control ... 55
3 2 1 2 Selective liberalisation ... 55
3 2 1 3 Regional industrialisation programme ... 56
3 2 1 4 Mutual NT ... 56
3 2 1 5 Combined NT and MFN treatment ... 57
3 3
INTERNATIONAL LAW RULES ON EXPROPRIATION ... 59
3 3 1
Origins of international standards of expropriation ... 61
3 3 2
International minimum standards of expropriation ... 63
3 3 2 1 Public purpose ... 63
3 3 2 2 Due process ... 64
3 3 2 3 Non-discrimination ... 65
3 3 2 4 Compensation ... 67
3 4
INTERNATIONAL RULES ON PERFORMANCE REQUIREMENTS ... 70
3 4 1
Joint venture and local equity requirements ... 72
3 4 1 1 International standards and norms ... 73
3 4 2
Employment and training requirements ... 74
3 4 2 1 International law on employment and training requirements ... 75
3 5
INTERNATIONAL TREATMENT STANDARDS ... 76
3 5 1
Non-discrimination principle ... 79
3 5 1 1 NT standard ... 80
3 5 1 2 MFN standard ... 81
3 5 2
FET standard... 82
3 5 2 1 Plain meaning approach ... 84
vi

3 5 2 2 International minimum standard approach ... 85
3 5 2 3 Content of FET ... 87
3 6
INTERNATIONAL RULES OF INVESTMENT DISPUTES SETTLEMENT ... 88
3 6 1
International law practices on investment dispute resolution ... 89
3 6 1 1 Institutional fora ... 89
3 6 1 2 Consent requirement ... 93
3 6 1 3 Independence and impartiality ... 94
3 6 1 4 Enforcement of awards ... 97
3 7
CONCLUSION ... 99
CHAPTER 4
The legal protection of foreign investment in South Africa ... 103
4 1
INTRODUCTION ... 103
4 2
NATIONAL INVESTMENT LEGISLATION ... 108
4 2 1
Background of the Investment Bill ... 109
4 2 2
Nature of the challenging provisions of the Investment Bill ... 110
4 2 2 1 Expropriation ... 110
4 2 2 2 Access to international arbitration ... 111
4 2 3
Compliance of the Investment Bill with minimum international norms ... 112
4 3
ECONOMIC EMPOWERMENT POLICIES ... 116
4 3 1
BEE laws of South Africa ... 116
4 3 2
Elements of BEE policies frustrating FDI... 119
4 3 2 1 Domestic equity participation ... 120
4 3 2 2 Employment and training requirements... 121
4 3 3
Conformity of the BEE laws with minimum international standards ... 122
4 4
LAND REFORM AND OWNERSHIP LAWS IN SOUTH AFRICA ... 123
4 4 1
Redistribution of farm land ... 126
4 4 2
Expropriation Bill ... 127
vii

4 4 3
Conformity of the proposed farm land redistribution policy and Expropriation
Bill with minimum international norms. ... 128
4 5
ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN SOUTH AFRICA ... 129
4 5 1
International law practice on the recognition and enforcement of foreign arbitral
awards...133
4 6
CONCLUSION ... 133
CHAPTER 5
The legal protection of foreign investment in Zimbabwe ... 137
5 1
INTRODUCTION ... 137
5 2
THE ZIA ACT ... 144
5 2 1
Investment establishment, registration and licensing processes ... 145
5 2 2
Monitoring compliance with the ZIA Act ... 146
5 2 3
Offences and penalties ... 146
5 2 4
Compliance of the ZIA Act with international norms on investment protection ... 147
5 3
THE LAND REFORM POLICY ... 148
5 3 1
Effect of Zimbabwe's land reform on foreign investment protection ... 152
5 3 1 1 Funnekotter v. Zimbabwe ... 153
5 3 1 2 Campbell v. Zimbabwe... 154
5 3 2
Conformity of the land reform policy with international norms on FDI protection155
5 4
THE INDIGENISATION POLICY ... 157
5 4 1
The nature of the Indigenisation Act ... 159
5 4 1 1 Ownership threshold ... 160
5 4 2
Compliance of the indigenisation policy with minimum international norms ... 162
5 5
ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN ZIMBABWE ... 162
5 5 1
Refusal of recognition and enforcement of foreign arbitral awards in Zimbabwe . 164
5 5 1 1 Public policy ... 164
5 5 1 2 Jurisdiction ... 165
5 5 1 3 State immunity ... 166
viii

5 5 2
Conformity of Zimbabwe's regime on the enforcement of arbitral awards with
international norms ... 167
5 6
CONCLUSION ... 168
CHAPTER 6
Conclusions and Recommendations ... 173
6 1
INTRODUCTION ... 173
6 2
CONCLUSIONS... 176
6 2 1 South Africa ... 177
6 2 1 1 Investment Bill ... 177
6 2 1 2 BEE laws ... 178
6 2 1 3 Land ownership and reform laws ... 178
6 2 1 4 Recognition and enforcement of foreign arbitral awards... 179
6 2 2
Zimbabwe ... 180
6 2 2 1 ZIA Act ... 180
6 2 2 2 Land reform policy ... 181
6 2 2 3 Indigenisation policy ... 182
6 2 2 4 Recognition and enforcement of foreign arbitral awards... 183
6 3
RECOMMENDATIONS ... 184
6 3 1
National investment legislations ... 184
6 3 2
Economic empowerment laws ... 186
6 3 3
Land reform and ownership laws ... 187
6 3 4
Enforcement of foreign arbitral awards ... 189
6 4
CONCLUDING REMARKS ... 190
BIBLIOGRAPHY ... 192
Books ... 192
Book chapters... 195
Journal Articles ... 198
ix

International instruments ... 207
National Instruments: ... 209
Case law ... 210
Reports ... 216
Papers ... 217
Internet sources and newspaper articles ... 219
x

ABBREVIATIONS
ACHPR
African Charter on Human and Peoples Rights
AfDB
African
Development
Bank
AgriB-BBEE
Agricultural Broad-Based Black Economic Empowerment
ANC
African
National
Congress
ASEAN
Association of South East Asian Nations
B-BBEE
Broad-Based Black Economic Empowerment
BEE
Black
Economic
Empowerment
BITs
Bilateral
Investment
Treaties
CARICOM
Caribbean Community
CIL
Customary
International
Law
COMESA
Community Market for East African States
CU
Customs
Union
DLA
Department
of
Land
Affairs
DTI
Department of Trade and Industry
EC
European
Community
ECCAS
Economic Community of Central African States
ECHR
European Convention on Human Rights
ECtHR
European Court of Human Rights
ECT
Energy
Charter
Treaty
EEA
Employment
Equity
Act
EFF
Economic
Freedom
Fighters
EIP
Enterprise
Investment
Program
EPZs
Exporting
Processing
Zones
EU
European
Union
FC
Freedom
Charter
FCN
Friendship, Commerce and Navigation
FDI
Foreign
Direct
Investment
FDICI
Foreign
Direct
Investment
Confidence
Index
xi

FIRA
Foreign
Investment
Review
Act
FPI
Foreign
Portfolio
Investment
FSIA
Foreign
States
Immunities
Act
FTA
Free
Trade
Area
GA
General
Assembly
GATS
General Agreement on Trade in Services
GATT
General Agreement on Tariffs and Trade
GDP
Gross
Domestic
Product
GEAR
Growth,
Employment
and
Redistribution
HDIs
Historically
Disadvantaged
Individuals
IBA
International
Bar
Association
IBRD
International Bank for Reconstruction and Development
ICC
International Chamber of Commerce
ICC
International
Criminal
Court
ICJ
International Court of Justice
ICSID
International Centre for Settlement of Investment Disputes
IDZs
Industrial Development Zones
IIAs
International
Investment
Agreements
IIED
International
Institute for Economic Development
IISD
International
Institute for Sustainable Development
ILO
International
Labour
Organisation
IMF
International
Monetary
Fund
IPILRA
Interim Protection of Informal Land Rights Act
ISDS
Investor-State
Disputes
Settlement
ITO
International
Trade
Organisation
LAA
Land
Acquisition
Act
LCIA
Labour Court for International Arbitration
M&As
Mergers and Acquisitions
MAI
Multilateral
Agreement
on
Investment
xii

MFN
Most
Favoured
Nation
MIGA
Multilateral
Investment
Guarantee
Agency
MNCs
Multinational
Corporations
MNEs
Multinational
Enterprises
MPRDA
Minerals and Petroleum Resources Development Act
NAFTA
North American Free Trade Agreement
NEFA
National
Empowerment
Fund
Act
NGOs
Non-Governmental
Organisation
NIEO
New
International
Economic
Order
NDP
National
Development
Plan
NT
National
Treatment
OECD
Organisation for Economic Co-operation and Development
OPIC
Overseas Private Investment Corporation
PCA
Permanent
Court of Arbitration
PEPUDA
Promotion of Equality and Prevention of Unfair Discrimination Act
PPPFA
Preferential Procurement Policy Framework Act
PSNRR
Permanent Sovereignty over Natural Resources Resolution
RDP
Reconstruction
and Distribution Programme
REFAAA
Recognition and Enforcement of Foreign Arbitral Award Act
RRI
Regulatory
Restrictiveness
Index
RSA
Republic of South Africa
SADC
Southern African Development Community
SADC FIP
Southern African Development Community Protocol on Finance and
Investment
SALC
South
African
Law
Commission
SCA
Supreme Court of Appeal
SDA
Skills
Development
Act
SETAs
Sectoral Education and Training Authorities
SEZs
Special
Economic
Zones
xiii

SSA
Sub-Saharan
Africa
TISA
Trade
and
Investment
South
Africa
TRALAC
Trade Law Centre
TRIMs
Trade-Related Investment Measures
TRIPs
Trade-Related
Intellectual
Property
Rights
UDHR
Universal Declaration Human Rights
UK
United
Kingdom
UNCITRAL
United Nations Commission on International Trade Law
UNCTAD
United Nations Conference on Trade and Development
UNCTC
United Nations Centre on. Transnational Corporations
US
United
State
USA
United States of America
VCLT
Vienna Convention on the Law of Treaties
WEF
World
Economic
Forum
WTO
World
Trade
Organisation
WW II
Second World War
Zim Asset
Zimbabwe Agenda for Sustainable Socio-Economic Transformation
ZMDC
Zimbabwe Mining Development Corporation
xiv

CHAPTER 1
Introduction and overview of the study
1 1
INTRODUCTION
Foreign Direct Investment (FDI) also known as foreign commercial property has emerged as
one of the most contentious issues in global economic negotiations.
1
On the one hand,
developing countries are more conservative in maintaining trade-restrictive investment
measures based on the presumptions that FDI does not foster economic or technological
development in host countries and that it has adverse effects on national sovereignty and
autonomy.
2
For these reasons, South Africa and Zimbabwe, among other developing countries,
have undertaken a number of policy initiatives aimed at regulating and limiting the legal rights
of foreign investors. It should be noted that these concerns of Multinational Corporations'
(MNCs) capacity to influence economic and political affairs is motivated by the colonial
experience of developing countries.
3
On the other hand, developed countries, among other
things, are looking forward to a global investment regime that will protect and promote their
investment interests and increase the space for them to shape their international operations.
4
With this objective, developed countries seek to develop a liberalised foreign investment
system through the reduction of trade-restrictive investment measures that impede flexible
establishment of foreign commercial property in countries.
5
Be that as it may, foreign investment is generally considered as a vehicle for economic
integration of developing countries into the globalisation process that characterises the world
economy.
6
For that reason, various developing countries and emerging economies are
1
At the Doha Ministerial Conference of the World Trade Organisation (WTO), November 2001, the finalisation
of the draft Declaration was held up because of the differences and conflicts between the developed and
developing countries on investment issues, among others. The Doha Declaration provided for the launch of
negotiations on trade and investment after the Fifth Ministerial Conference on the basis of a decision taken by
explicit consensus at that session on the modalities of negotiations. Furthermore, the failure of the attempt to adopt
a Multilateral Agreement on Investment (MAI) by the Organisation for Economic Co-operation and Development
(OECD) Ministers in December 1998 attests to this. See Schill The Multilateralisation of International Investment
Law (2009) 52-58; Trebilock and Howse The Regulation of International Trade 3 ed 457-461; and Geiger
"Multilateral Approaches to Investment: The Way Forward" in Alvarez and Sauvant (eds) The Evolving
International Investment Regime (2011) 153.
2
Kumar Globalisation and Quality of Foreign Direct Investment (2002) 14.
3
In fact, FDI is widely viewed as a form of economic colonialism and exploitation by developed countries of
developing countries and emerging economies. See Trakman "Foreign Direct Investment: Hazard or
Opportunity?" 2009 George Washington International Law Review 10.
4
Correa and Kumar Protecting Foreign Investment: Implications of a WTO Regime and Policy Options (2003)
xi.
5
Ibid.
6
Lall and Narula "Foreign Direct Investment and its Role in Economic Development: Do We Need a New
Agenda?" 2004 The European Journal of Development Research 447.
1

particularly eager to attract FDI to enhance sustainable economic growth and development.
The contemporary rapid growth of FDI flows into developing countries is a consequence of the
changes in world economic politics predominantly the far-reaching liberalisation of policies
towards FDI and other policy reforms to improve the investment climate.
7
In the developing
world, FDI is one of the most important driving forces of utilising the resources of MNCs for
industrialisation.
8
Contrary to the area of international trade where the General Agreement on Tariffs and Trade
(GATT)
9
and the other WTO Agreements provide the general legal framework for world trade
regulation, there is no comprehensive global agreement on foreign investment.
10
Nevertheless,
there is a plethora of specialised multilateral investment treaties mainly adopted within the
framework of GATT/WTO, Organisation for Economic Co-operation and Development
(OECD) and the World Bank. These multilateral investment treaties include, among others, the
Agreement on Trade-Related Investment Measures (TRIMs Agreement),
11
the General
Agreement on Trade in Services (GATS),
12
the Agreement on Trade-Related Intellectual
Property Rights (TRIPs Agreement),
13
the International Centre for Settlement of Investment
Disputes (ICSID) Convention,
14
the Convention Establishing the Multilateral Investment
Guarantee Agency (MIGA)
15
and the Arbitration Rules of the United Nations Commission on
International Trade Law (UNCITRAL) which focus on certain aspects of FDI. It is also
7
UNCTAD Investment Policy Monitor 2014.
8
African Development Bank (AfDB) "Regional Integration Brief" 2013
http://www.afdb.org/admin/uploads/afdb/documents/publication/regional_intergation_brief_intrad-sadc_cross-
borader_investments.pdf (accessed 25-05-2014).
9
General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World
Trade Organisation, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade
Negotiations 17 (1999), 1867 U.N.T.S 187, 33 ILM 1153 (1994) (hereafter "GATT").
10
Leal-Arcas International Trade and Investment Law: Multilateral, Regional and Bilateral Governance (2010)
180. See also Sauvé "Multilateral Rules on Investment: Is Forward Movement Possible?" 2006 Journal of
International Economic Law 325-355 and Buthe and Milner "Politics of Foreign Direct Investment into
Developing Countries: Increasing FDI through International Trade Agreements?" 2008 52 American Journal of
Political Science 741.
11
Agreement on Trade-Related Investment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the
World Trade Organisation, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade
Negotiations 143 (1999), 1868 U.N.T.S 186 (hereafter "TRIMs Agreement").
12
General Agreement on Trade in Services, April 15, 1994, Marrakesh Agreement Establishing the World Trade
Organisation, Annex 1B, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations
284 (1999), 1869 U.N.T.S 183, 33 ILM 1167 (1994) (hereafter "GATS").
13
Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Marrakesh Agreement
Establishing the World Trade Organisation, Annex l C, Legal Instruments - Results Of The Uruguay Round Vol.
31, 33 I.L.M. 1197 (1994) (hereafter "TRIPs Agreement").
14
Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965
(hereafter "Washington or ICSID Convention").
15
Convention Establishing the Multilateral Investment Guarantee Agency was established on 11 November 1985
at Seoul and it entered into force on 12 April 1988 T.I.A.S. 12089, 1508 U.N.T.S (hereafter "MIGA Convention").
2

important to recognise that there is an array of International Investment Agreements (IIAs) at
regional
16
and bilateral levels. Consequently, this multi-layered international investment
regime is diverse and creates uncertainty and inconsistency in investment laws in that the
treaties differ in legal character, scope and subject matter.
17
Nonetheless, from a legal perspective it is fundamental to have a cohesive and binding
multilateral investment framework because it ensures the existence of a consistent and
comprehensive international investment regime.
18
It must be noted that this does not suggest
that the existing Bilateral Investment Treaties (BITs) and regional investment agreements
should be replaced. Notably, empirical studies have proved that developing countries fear a
multilateral framework on investment negotiated within a single undertaking.
19
This is because
it may curtail their ability to regulate the operations of MNCs or foreign investments in
harmony with their development policy objectives and that it will not serve their interests but
those of the developed countries.
20
The role of a host country is essential to the domestic protection and regulation of foreign
investment. In this context, the host country's legal framework is not the only important
component in protecting and regulating FDI. Thus, there are other fundamental components in
the domestic framework for protecting of FDI and these include quality of political, economic
and financial policies and regulatory processes as well as physical and institutional
infrastructure.
21
In this respect, Article 3 of the SADC FIP mandates all the state parties to co-
ordinate their investment regimes and to co-operate in creating a favourable investment climate
in the region.
22
Foreign investors must have certainty in the domestic framework to enable
them to make sound investment decisions. For instance, South Africa has signed a BIT with
16
For example, the Southern African Development Community Protocol on Finance and Investment (hereafter
"SADC FIP") which seeks to harmonise the investment policies and laws of the SADC member states.
17
In 2013, United Nations Conference on Trade and Development (UNCTAD) highlighted that an unusual
number of foreign investors have challenged a wide range of government investment measures that have trade-
distortive effect on investment, unilateral cancellation or breaches of contracts, arbitrary expropriation, unfair
taxation and revocation of licences, among others. See UNCTAD "Towards a New Generation of International
Investment Policies: UNCTAD's Fresh Approach to Multilateral Investment Policy-Making" 2013 International
Investment Agreement Issues Note http://unctad.org/en/publicationslibrary/webdiaepcb2013d6_en.pdf (accessed
10-04-2014).
18
Leal-Arcas 237.
19
Ibid 178.
20
Ibid.
21
Investment Climate Advisory Services of the World Bank Group Investment Law Reform: A Handbook for
Development Practitioners (2010) 1.
22
See also Annex 1 of the SADC FIP.
3

Zimbabwe as a mechanism to promote and protect South African investments in Zimbabwe.
23
This BIT applies to all investments except property rights or interests compulsorily acquired
by either party in its own territory before the entry into force of the treaty.
24
Apparently, government policies and bureaucratic procedures governing and regulating
investments are still a major problem in most developing economies.
25
Additionally, the
legislation regulating investments, property rights and company laws are archaic and not
suitable for modern business.
26
Recently there have been serious concerns raised about the
present government policies of South Africa
27
and Zimbabwe
28
with particular reference to FDI
protection.
The 2014 Foreign Direct Investment Confidence Index (FDICI) indicates that South Africa is
ranked the thirteenth most attractive FDI destination globally.
29
However, South Africa, despite
its said contentious investment protection laws, has improved from last year's FDIC rankings
30
and is the only African country among the world's top 25 most preferred FDI destinations. It
is worth noting that this index rating is not solely dependent on the investment regulatory
system. Rather, it also depends on several aspects such as political, economic and business
environments that affect FDI inflows.
31
Traditionally, developing countries are considered to
23
Agreement between the Government of the Republic of South Africa and the Government of the Republic of
Zimbabwe for the Promotion and Reciprocal Protection of Investments, signed on November 27, 2009 (hereafter
"South Africa-Zimbabwe BIT").
24
Ibid.
25
World Economic Forum (WEF) Africa Competitive Report 2013 101.
26
Ibid.
27
South Africa's most debated Promotion and Protection of Investment Bill (Investment Bill), 2013 which is
intended to unilaterally terminate its BITs with the European Union (EU) countries and other non-European
countries, has been contested in relation to its consequences on the protection and promotion of foreign
investment. See Roux "South Africa's Revocation of its Bilateral Investment Treaties: Beware of Strangers
Bringing Money, Especially if you need it" 2015 South African Institute of International Affairs
http://www.saiia.org.za/opinion-analysis/south-africas-revocation-of-its-bilateral-investment-treaties-beware-of-
strangers-bringing-money-especially-if-you-need-it (accessed 05-05-2015) and South African Institute of
International Affairs "FDI in South Africa: Promotion and Protection of Investors... and the Public Interest" 2014
http://www.saiia.org.za/opinion-analysis/fdi-in-south-africa-promotion-and-protection-of-investors-and-the-
public-interest (accessed 05-05-2015).
28
In particular, Zimbabwe's investment legislation, the Zimbabwe Investment Authority Act (ZIA Act) 4 of 2006
and related policies including the Indigenisation and Economic Empowerment Act (Indigenisation Act) 14 of
2007, land reform policy, the much-touted economic blueprint, the Zimbabwe Agenda for Sustainable Socio-
Economic Transformation (Zim Asset), have been debated extensively as constraints to the country's ability to
promote and protect foreign investment. See generally Fedderke and De Kadt "Measuring Institutions: Indicators
of Property Rights, Political Rights and Political Instability in Zimbabwe" (2008) Economics Research Southern
Africa (ERSA) Working Paper 112.
29
AT Kearney Foreign Direct Investment Confidence Index 2014 also available at
http://www.atkearney.com/gbpc/foreign-direct-investment-confidence-index (accessed 06-06-2014).
30
In 2013, South Africa was ranked the fifteenth most preferred FDI destination, see AT Kearney Foreign Direct
Investment Confidence Index 2013.
31
AT Kearney Foreign Direct Investment Confidence Index 2014.
4

be inherently risky due to investment regulatory barriers, economic instability and political
volatility.
32
In particular, Zimbabwe is among the least attractive economies.
33
Its FDI inflows
have seen a dramatic decrease in the past decade.
34
This decrease is attributed to a number of
factors chief among them being the land reform policy, indigenisation policy as well as
investment policy uncertainty and inconsistency.
35
1 2
DEFINITIONS OF FDI
The absence of a generally accepted legal definition of foreign investment indicates that
perhaps FDI is one of the most critical and controversial issues.
36
However, it is important to
note that the meaning of FDI differs according to the object and purpose of different investment
instruments.
37
Hence this part of the Chapter attempts to develop a harmonised definition of
the term FDI using a holistic approach. In this regard, focus will be on the various definitions
adopted by international organisations, IIAs concluded at multilateral, regional and bilateral
levels as well as the jurisprudence arising out of the interpretation of FDI related instruments.
In addition, it discusses the distinction between FDI and foreign portfolio investment.
1 2 1 FDI definition by international organisations
According to the WTO, "FDI occurs when an investor based in one country (home country)
acquires an asset in another country (host country) with the intent to manage that asset."
38
The
International Monetary Fund (IMF) defines FDI as "an investment that is made to acquire a
lasting interest in an enterprise operating in an economy other than that of an investor, the
investor's purpose being to have an effective voice in the management of the enterprise."
39
The
IMF reiterates this definition and states that it is "the category of international investment that
reflects the objective of a resident entity in one economy obtaining a lasting interest in an
enterprise resident in another country."
40
In addition, the UNCTAD defines FDI as:
32
See generally Kearney FDIC "Back to Business: Optimism amid Uncertainty" 2013 also available at
http://www.atkearney.com/documents.
33
Invictus Securities Zimbabwe "March 2014 Equities Market Review and Strategy Outlook" as cited in
Mangudhla "Bad Policies Hindering Investment" Zimbabwe Independent, 15 March 2014
http://www.theindependent.co.zw/2014/03/15/bad-policies-hindering-investment/ (accessed 06-06-2014).
34
Ibid.
35
Ibid.
36
Correa and Kumar 146.
37
Ibid.
38
Phelps and Alden (eds) Foreign Direct Investment and the Global Economy: Corporate and Institutional
Dynamics of Global-Localisation (1999) 46.
39
IMF Balance of Payment Manual 4 ed (1977) 136. See also McAlister "Classification of Corporate Enterprises"
in Galbis (ed) The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National
Accounts (1991) 176.
40
IMF Balance of Payment Manual 5 ed (1993) 86.
5

an investment made by a resident of one economy in another economy...is of a long-term nature ...the
investor has a `significant degree of influence' on the management of the enterprise...10 per cent of the
voting shares or voting power is the level of ownership necessary for a direct investment interest to
exist.
41
The OECD indicates that foreign investment arises when an enterprise
42
has a direct investment
that is a subsidiary or associate in another country other than its home country.
43
The OECD
benchmark definition of FDI describes it as:
a category of cross-border investment made by a resident in one economy (the direct investor) with the
objective of establishing a lasting interest in an enterprise resident in an economy other than that of the
investor (the direct investment enterprise). The motivation of the direct investor is a strategic long-term
relationship between the direct investment and the enterprise which allows a significant degree of
influence by the direct investor in the management of the direct investment enterprise. The lasting interest
is evidenced where the direct investor owns at least 10 per cent of the voting power of the direct
investment enterprise.
44
FDI entails the transfer of funds into another country to purchase a service or open a new
business.
45
The World Bank states that FDI:
is a foreign investment that establishes a lasting interest in or effective management or control over an
enterprise ... can include buying shares of an enterprise in another country, re-investing earnings of a
foreign enterprise in the country where it is located, and parent firms extending loans to their foreign
affiliates
.
46
1 2 2 IIAs' FDI definition
47
A number of IIAs contain an asset-based definition of foreign investment.
48
IIAs are treaties
which govern the relationship between host states and foreign firms based in the signatory
countries.
49
The MAI Draft broadly defines foreign investment in terms of assets.
50
Its
interpretative note mentions that for an asset to qualify as an investment under the MAI it must
41
UNCTAD Training Manual on Statistics for FDI and the Operations of TNCs (2009) 35.
42
An enterprise comprises of an "individual, an incorporated or unincorporated public or private enterprise, a
government, a group of related individuals or a group of related incorporated and/or unincorporated enterprises".
See OECD Towards Multilateral Investment Rules (1996) 165.
43
Ibid.
44
OECD OECD Benchmark Definition of Foreign Investment (Draft) 4 ed (2008) 17.
45
Leal-Arcas 166.
46
Soubbotina and Sheram Beyond Economic Growth: Meeting the Challenges of Global Development (2000) 97.
47
For more information on the definition of foreign investment in investment treaties, see Sornarajah The
International Law on Foreign Investment 3 ed (2010 10.
48
It is worth noting that assets, in terms of foreign investment exclude the property or assets not acquired for the
purpose of economic benefit or business. See Haslam "The Evolution of the Foreign Direct Investment Regime
in the Americas" 2010 31 Third World Quarterly 1187.
49
Ibid.
50
Article II (2) of the Multilateral Agreement on Investment Draft, 1998.
6

have the features of an investment such as the commitment of capital or other resources, the
expectation of gain or profit or the assumption of risk.
51
However, the MAI did not come into
existence.
The ICSID Convention does not provide a definition of foreign investment. Hence this has
given rise to significant case law. The absence of FDI definition in this Convention has led to
fundamental issues of interpretation as the ICSID Tribunals have sought to arrive at an
understanding of how the term should be properly understood for the purposes of the ICSID
Convention. In Salini Costruttori spa v. Morocco,
52
the leading ICSID case, the tribunal opined
that the following must exist for there to be an investment: substantial duration; regularity of
profit and return; assumption of risk by both parties; substantial commitment of money and
significant contribution to the development of the host state. Since this case there has been a
move towards a more flexible definition of investment in the ICSID arbitration tribunals.
53
Article 1 (6) of the Energy Charter Treaty (ECT) describes investment in terms of all kinds of
assets and any investment associated with an economic activity in the energy sector. The ECT
contains investment-related provisions that are self-implementing such as ensuring the
protection of foreign energy investments based on the non-discrimination principle (NT and
MFN) and seeks to create an appropriate investment climate, among other investment issues.
In Petrobart v Kyrgyz Republic
54
the legal issue was whether a contract for the sale of gas
condensate without transferring money or property as capital in the business constituted
investment under the ECT.
55
The UNCITRAL Tribunal found that investment is capital or
property used as a financial source for a company or business activity with the aim to produce
revenue or income.
56
It also added that the term investment should be interpreted in the context
of each particular treaty in which the term is used. This is in accord with Article 31 (1) of the
Vienna Convention on the Law of Treaties
57
which stipulates that a treaty shall be interpreted
in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in
their context and in the light of its object and purpose. FDI is also defined under the North
American Free Trade Agreement (NAFTA) to include direct investment, "portfolio investment,
51
Ibid.
52
Salini Costruttori spa v. Morocco ICSID Case No. ARB/00/4.
53
See Biwater Gauff (Tanzania) Ltd v. United Republic of Tanzania ICSID Case No. ARB/05/22; RSM Production
Corporation v. Grenada ICSID Case No. ARB/05/14 and Phoenix Action Ltd v. Czech Republic ICSID Case No.
ARB/06/05.
54
Petrobart v. Kyrgyz Republic, Stockholm Chamber Case No. 126/2003, Final Award (29 March 2005).
55
Ibid.
56
Ibid.
57
Vienna Convention on the Law of Treaties, 1969.
7

equity securities, partnership and other interests and tangible and intangible property acquired
in the expectation ... of economic benefit".
58
In addition, Article 2 (II) of the SADC Model
BIT considers investment as an enterprise in one country acquired or expanded by a foreign
investor through a constitution or acquisition of a juridical person or the acquisition of shares,
debentures or other ownership instruments of such an enterprise.
59
Foreign investment is also defined in BITs. These treaties define FDI in broad and open-ended
terms and sometimes adopt the asset-based approach definition. BITs commonly define foreign
investment so as to determine the object and scope to which the rules of the treaties shall
apply.
60
For instance, the Republic of South Africa-Ethiopia BIT provides that investment
entails the "assets invested or acquired through total ownership of enterprise or participation in
ownership of an enterprise which give a significant grade of influence to the investor in the
management of the asset."
61
Within the South African context, FDI entails investment by
foreign nationals in South Africa in which they acquire at least 10 percent of the voting rights.
62
In Salini Costruttori Spa & Italstrade Spa v Morocco
63
the arbitrators
decided that an
investment is constituted when the following elements can be found: (i) some contributions in
capital, cash or kind; (ii) a certain lapse of time of performance; (iii) participation by the
investors in the risks related to the investments and (iv) a contribution to the economic
development of the host country.
64
Though the abovementioned international organisations, IIAs and jurisprudence define FDI in
different terms, it should be noted that there are essential similarities in their definitions. In this
respect, FDI is commonly accepted as an investment made or acquired by an investor of one
country into the territory of another. On the whole, these definitions require that an investor
(natural or juristic person)
65
acquires control over a commercial enterprise in a foreign
58
North American Free Trade Agreement, 1994.
59
South African Development Community Model Bilateral Investment Treaty Template, 2012.
60
DTI "Bilateral Investment Treaty Policy Framework Review" 2009.
61
South Africa-Ethiopia BIT, 2008.
62
UNCTAD "Country Investment Profiles: South Africa" 2012
http://unctad.org/en/PublicationsLibrary/webdiaeia2012d4_en.pdf (accessed 21-05-2014).
63
Salini Costruttori Spa & Italstrade Spa v. Morocco, Decision of 23 July 2001, also available in International
Legal Materials 2003 609.
64
Ibid.
65
See Article II (I) of the MAI Draft; Article 2 of the SADC Model BIT Template; OECD Towards Multilateral
Investment Rules (1996) 165; and DTI "Bilateral Investment Treaty Policy Framework Review" 2009 30.
8

country.
66
Additionally, the definitions contain the aspect of at least 10 percent ownership or
more of the total stock issued or comparable ownership stake.
1 2 3 Forms of FDI
This Part discusses the most common forms of FDI such as cross-border mergers and
acquisitions (M&As), Greenfield, Brownfield and Joint venture investments.
1 2 3 1
M&As investment
M&As investment occurs when assets and operations of local firms are transferred to foreign
firms or when assets and operations of firms from different countries are merged to form one
new legal entity.
67
This form of investment has become a primary form of international
investment.
68
M&As investment accounts for approximately 60% of the world's FDI.
69
It is
common in South Africa.
70
In 2011, Zimbabwe's FDI from M&As stood at US$27 million of
the world's US$526 billion.
71
This form of FDI increases certainty for foreign investors and
domestic companies seeking to consolidate and expand their market positions through
international partnerships.
72
The reform of global industry through M&As enables local firms
to advance their market position and enhance their competitiveness on the regional as well as
international market.
73
For example, in 2010 US-based retailer Wal-Mart Stores Inc. merged
with the South African-based retailer Massmart.
74
Other notable international mergers include
the 1999 Rothmans of Pall Mall/British American Tobacco merger between British American
Tobacco of United Kingdom (UK), Rothmans International and Rothmans of Pall Mall Limited
of Zimbabwe and the 2001 Portland Holdings/ Pretoria Portland Cement merger between
Portland Holdings Limited of Zimbabwe and Pretoria Portland Cement Limited of South
Africa.
66
Foreign investors acquire control indirectly or directly through acquisitions, mergers, subsidiaries, assets,
shares, agencies or branches, among other means, see Slaughter and May "Legal Regimes Governing Foreign
Direct Investment (FDI) in Host Countries" 2012
http://a4id.org/sites/default/files/user/documents/FDI%20Legal%20Guide.pdf (accessed 18-05-2014).
67
See also the South African Competition Act 89 of 1998.
68
Leal-Arcas 169.
69
Ibid.
70
Muradzikwa "Foreign Investment in SADC" (2002) Development Policy Research Unit (DPRU) Working
Paper 02/67 also available at http://www.uct.ac.za/depts/dpru.
71
Musarurwa "Zimbabwe Greenfield Projects Stall" The Herald (Zimbabwe), 10 July 2012
http://www.herald.co.zw/zim-greenfield-projects-stall/ (accessed 21-05-2014).
72
Ibid.
73
Correa and Kumar 28.
74
South African Competition Tribunal "Reasons for Decision in the Massmart/Walmart Merger" 2011
http://www.comptrib.co.za/assets/uploads/wal-mart-and-massmart-decision/73lmnov10-reasons-order.pdf
(accessed 01-05-2014).
9

M&As are however likely to benefit the foreign investors' country and result in the destruction
of the host country's industry.
75
In addition, they lead to job losses, particularly when the
domestic firm is acquired by a foreign firm.
76
Against this background, most governments,
including South Africa and Zimbabwe have implemented domestic policies to regulate
M&As.
77
These policies seek to create a level playing field for both local and foreign firms by
offsetting the monopolistic power of foreign firms.
78
In South Africa, there is no formal
distinction between cross-border and domestic M&As.
79
Cross-border M&As are therefore
subject to screening and approval under the Competition Act in South Africa.
1 2 3 2
Greenfield investment
A Greenfield investment is typically a horizontal form of investment that involves
establishment of a new company, enterprise or business.
80
This form of investment is a
significant target of a host nation's promotional efforts because it facilitates creation of new
production capacity, employment and transfer of technology.
81
However, on the contrary, a
Greenfield investment is said to crowd out the host industry and does not contribute
meaningfully to the economic growth of the host country.
82
This is because the profits from
Greenfield investment production are not channelled into the host economy, but rather
siphoned out of the host country to the investor's home economy.
83
It thus provides to the
investor more autonomy and possession of the new enterprise's capital.
84
In Zimbabwe,
Greenfield form of FDI is prominent in manufacturing, mining or other physical company
related structures where no previous facilities exist.
85
In 2012, the UNCTAD estimated
Zimbabwe's Greenfield investment to be US$5.8 billion.
86
Conversely, in South Africa,
Greenfield FDI is relatively uncommon as most international investments are capital-intensive
75
UNCTAD World Investment Report 2000.
76
Ernst "The FDI ­ Employment Link in a Globalising World: The Case of Argentina, Brazil and Mexico." (2005)
Employment Strategy Paper 17.
77
For South Africa, see South African Competition Tribunal "Reasons for Decision in the Massmart/Walmart
merger" 2011; Competition Act. For Zimbabwe, see the Competition 7 of Act 1998 (Chapter 14:28) (as amended);
British American Tobacco Zimbabwe (Holding) Limited (BAT) v Cut Rag Processors (Pvt) Limited (Cigarette
Distribution case).
78
Ibid.
79
South Africa Competition Tribunal "Reasons for Decision in the Massmart/Walmart Merger" 2011.
80
Freenstra and Taylor International Trade (2008) 162.
81
Ibid.
82
Ibid.
83
Ibid.
84
Ibid.
85
Musarurwa "Zimbabwe Greenfield Projects Stall" The Herald (Zimbabwe), 10 July 2012.
86
UNCTAD World Investment Report 2012.
10

and directed towards existing sectors such as services and manufacturing.
87
According to
UNCTAD, the benefits
88
of M&As are lower than the risks of negative effects when compared
to Greenfield investment.
89
In the first half of 2013, global Greenfield investment remained at
a similar level to 2012, dropping by only 4 percent.
90
1 2 3 3
Brownfield investment
As opposed to Greenfield investment, this is a vertical form of investment directed towards
buying or expansion of an existing local company, enterprise or business.
91
Essentially, a
domestic firm is integrated into the foreign parent company or re-domiciled.
92
Brownfield FDI
is the purchase of a previously constructed factory or other facility in order to use it for new
activity.
93
Globally it accounts for 30 percent of FDI.
94
Be that as it may, it is submitted that in
the acquisition of existing domestic business, the benefits of foreign investment must be
balanced against possible risks for local employment and production. In addition, broader
economic concerns that may arise from a shift in ownership and control of successful local
firms are considered.
95
1 2 3 4
Joint venture investment
Joint venture investment occurs when two or more companies come together to form a third or
separate entity and hold agreed portions of the share capital.
96
Each partner thus actively
participates in the decision-making and substantially contributes to the assets and operation of
the newly formed entity.
97
Joint venture investment is usually formed to reduce financial risks
in pursuing a new product or production.
98
This form of investment is dominant in Zimbabwe
following the Indigenisation and Economic Empowerment Act (Indigenisation Act).
99
87
Wood and Wentworth "FDI in South Africa: Promotion and Protection of Investors... and the Public Interest"
The Trade Beat, 4 March 2014 http://www.thetradebeat.com/opinion-analysis/fdi-in-south-african-promotion-
and-protection-of-investors-and-the-public-interest (accessed 01-05-2014).
88
The benefits include production of capital stock, transfer of technology and employment creation, and others.
See the UNCTAD World Investment Report 2000.
89
Ibid.
90
UNCTAD "Global Investment Trends Monitor: Developing and Transition Economies Absorbed More Than
60 Percent of Global FDI Inflows - A Record Share - in the First Half of 2013" UNCTAD Working Paper (2013)
13.
91
Freenstra and Taylor 161.
92
Ibid.
93
Samuel "The Dark Side of Foreign Direct Investment: A South Africa Perspective" South Africa Institute of
International Affairs Occasional Paper 167 (2013) 7.
94
UNCTAD World Investment Report 2013.
95
Ibid.
96
Rao and Guru Joint Ventures in International Business (2009) 4.
97
Ibid.
98
Ibid.
99
Indigenisation and Economic Empowerment Act 14 of 2007.
11

Recently, the Zimbabwe Investment Authority (the Authority) has reserved a number of sectors
of the economy
100
for local investors and any potential foreign investors interested in
participating in these reserved sectors must enter into a joint venture with a Zimbabwean
citizen. However, foreign investors are allowed to take up to 35 percent shareholding of the
venture.
101
An important example of a joint venture in South Africa is the International
Automobile Components-Feltex between South Africa-based Feltex and Luxembourg-based
IAC. In Zimbabwe, the Anjin Investments enterprise between Zimbabwe-based Matt Bronze
Limited and China-based Anhui Foreign Economic Construction Group and the failed Sino-
Zimbabwe Diamonds deal between Chinese-investors and the government affiliated Zimbabwe
Mining Development Corporation (ZMDC), are among the prominent joint venture
investments. Recently the gazetted Joint Ventures Bill seeks to provide for the implementation
of joint venture agreements between contracting authorities and counterparties; and establish a
set of rules governing public-private procurement.
102
1 2 4 Distinction between FDI and Foreign Portfolio Investment (FPI)
103
Another way to define FDI is to identify what it is not.
104
FDI does not include portfolio
investment and trade. Portfolio investment, as opposed to direct investment, is understood as
the minority holding of shares, bonds and other securities or equity instruments.
105
It is also
known as FPI or indirect investment.
106
The main differences between FDI and FPI lie in the
amount or control of the investment, the time period of investment and risk assessment. In
terms of amount of investment, FPI constitutes less than 10 percent of the shares of the
enterprise or otherwise does not give the portfolio investor the possibility to exercise effective
management of the investment.
107
Whereas, FDI constitutes at least 10 percent of the voting
power of the enterprise.
108
Thus in FDI an investor directly or indirectly controls the enterprise,
100
These reserved economic sectors include the following: agricultural production of food and cash crops;
transport (buses, taxis and car hire services); retail and wholesale trade; barbershops; hairdressing and beauty
salons; employment agencies; estate agencies; valet services; grain milling; bakeries; tobacco grading and
packaging; tobacco processing; advertising agencies; milk processing; provision of local arts; marketing and
distribution. See http://www.nieeb.co.zw/index.php/sectors/reserved-sectors (accessed 02-05-2015).
101
Ibid.
102
Mandizha "Govt gazettes Joint Ventures Bill" News Day, 29 April 2015
https://www.newsday.co.zw/2015/04/29/govt-gazettes-joint-ventures-bill/ (accessed 29-04-2015).
103
For a detailed account on the distinction between portfolio investment and foreign direct investment, see
Sornarajah 8.
104
Phelps and Alden (eds) Foreign Direct Investment and the Global Economy: Corporate and Institutional
Dynamics of Global-Localisation (1999) 46. See also Hymer The International Operations of National Firms: A
Study of Direct Investment (PhD-thesis, Massachusetts Institute of Technology, 1960) 68I.
105
Leal-Arcas 167.
106
Ibid.
107
Goode Dictionary of Trade Policy Terms 5 ed (2007) 336. See also Article 2 of the SADC Model BIT Template.
108
UNCTAD Training Manual on Statistics for FDI and the Operations of TNCs (2009) 35.
12

whereas in portfolio investment the investor does not control it.
109
In respect of risk assessment,
portfolio investors are more likely to accept high levels of risk whilst in direct investment high
levels of risk deter the investors.
110
In regard to time period, FPI pursues short-term gains,
while FDI seeks a long-term interest in the investment.
111
1 3
RESEARCH PROBLEM
Trade-restrictive policies are regarded as a significant impediment to the effective protection
of foreign investment in developing countries.
112
In addition, investment regulatory regimes of
various developing countries are still lagging behind in the protection of FDI.
113
Accordingly,
this study seeks to critically interrogate the foreign investment regulation regimes of South
Africa and Zimbabwe. For that purpose, the research problem to be addressed is whether the
relevant investment laws and related policies serve the purposes for which they were adopted
while simultaneously providing FDI with a level of protection consistent with minimum
international standards.
1 4
OBJECTIVES OF THE STUDY
The principal objective of this study is to examine and assess the existing investment policy
framework of South Africa and Zimbabwe for regulating FDI. It will attempt to identify some
shortcomings of the two jurisdictions' investment regimes that undermine the objective of FDI
protection.
It is also the goal of this study to explore the norms, standards and/or best practices of the
existing international investment frameworks. Consequently, it will examine aspects of the
relevant international investment instruments concluded at multilateral, regional and bilateral
levels. In the process, the study will assess the established and emerging international
standards, if any, of foreign investment protection. It will also ascertain some of the obligations
of South Africa and Zimbabwe and the rights of foreign investors in international investment
law.
109
Hymer (PhD-thesis, Massachusetts Institute of Technology, 1960) 68I.
110
Leal-Arcas 167.
111
See generally CUTS Centre for Competition Investment and Economic Regulation Investment Policy in South
Africa ­Performance and Perceptions (2003).
112
WEF Africa Competitive Report 2013.
113
Ibid.
13

Lastly, it is also the objective of this study to make recommendations to the policy-makers both
in South Africa and Zimbabwe for strategic refinements of the pertinent laws and related
policies in order to protect and promote FDI in their respective countries.
1 5
RESEARCH QUESTIONS
The study will address the following questions:
x Whether South Africa and Zimbabwe's investment regulatory frameworks provide
sufficient protection for FDI?
x What are the existing international regulatory regimes of FDI and what norms,
standards and/or best practices do these international investment legal mechanisms
create? And
x What are the international, regional as well as domestic obligations on South Africa
and Zimbabwe in terms of the protection and regulation of foreign investment?
1 6
DELIMITATION
The study will not deal with the entire FDI legal regime of South Africa and Zimbabwe. Rather,
it will focus mainly on comparable investment laws and relevant policies of South Africa and
Zimbabwe. In particular, the national investment legislations (South Africa's proposed
Investment Bill of 2013 and Zimbabwe Investment Authority Act); economic empowerment
policies (BEE laws of South Africa and Indigenisation laws of Zimbabwe); land reform and
ownership laws; as well as the recognition and enforcement of foreign arbitral awards in both
jurisdictions.
Although a periodical overview of FDI inflow trends will be explored, it should be noted that
this study will not discuss in detail the relevant economic statistics as the study is mainly
focused on the legal protection of FDI. However, this must not be taken to imply that economic
statistics connected to FDI inflows will not be referred to at all; where necessary, especially
advancing a particular argument they may be referred to.
1 7
SIGNIFICANCE OF THE STUDY
Historically, under colonial domination, the people of South Africa as well as Zimbabwe were
unjustifiably dispossessed of their land and other resources without compensation.
114
Given
114
Makwiramiti "In The Name of Economic Empowerment: A Case for South Africa and Zimbabwe" 2011
http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=674:in-the-name-of
14

that fact, the need for economic empowerment policies in both jurisdictions emanates from the
historical marginalisation of the people in the colonial era.
115
Consequently, there have been
significant legislative and policy changes in these countries to address the said past injustices.
In Zimbabwe, the land reform policy was implemented as an effort to redress the imbalances
in the land holding system.
116
Though this policy was justified in the public interest, it violated
property rights contained in the now defunct Lancaster House Constitution
117
as well as other
international and regional instruments.
118
This policy was systematically accommodated in the
design and content of relevant laws and policies through constitutional amendments. The
reason was to give the government a right to acquire land from foreign owners without
compensation.
119
In addition, in 2007, the Indigenisation Act was passed into law and it
mandates all companies with a capital share above US$500 000 operating in Zimbabwe to cede
51 percent of their shares or interest therein to indigenous Zimbabweans.
120
Similarly, in 2003, South Africa introduced the Black Economic Empowerment (BEE) Act
121
as an attempt to address the exclusion of black South Africans from the main stream economic
activities during under the apartheid era.
122
The aim of the BEE programme is to moderate
economic imbalances among and within races at the same time increasing black management
and control of business in the economy.
123
Another important legislative measure in South
Africa is the proposed Investment Bill.
Be that as it may, the legislative and policy changes discussed above have created increasing
uncertainty in the protection of FDI.
124
It is submitted that these policies directly and indirectly
affect the existing level of FDI protection. For instance, among the Investment Bill's
problematic provisions are the reduction in compensation for expropriation and removal of
economic-empowermentacaseforsouthafricaandzimbabwe&catid=87:africanfinanceaeconomy&Itemid=294
(accessed 06-06-2014).
115
Ibid.
116
See the Communal Land Act 20 of 1982 (Chapter 20:04) (as amended) and the Land Acquisition Act 3 of 1992
(Chapter 20:10) (as amended).
117
Chapter 3 of the Bill of Rights of the Lancaster House Constitution, 1979.
118
Article 17 of the Universal Declaration on Human Rights (UDHR), 1948 and Article 14 African Charter on
Human and Peoples' Rights (ACHPR), 1981.
119
See the Constitution of Zimbabwe Amendment (No. 11) of 1990, Constitution of Zimbabwe Amendment (No.
12) of 1993 and Constitution of Zimbabwe Amendment (No. 14) of 1994.
120
Section 3 of the Indigenisation Act.
121
Black Economic Empowerment Act of 2003.
122
Makwiramiti "In The Name of Economic Empowerment: A Case for South Africa and Zimbabwe" 2011.
123
DTI, South Africa "Rationale for BEE" 2008 http://www.thedti.gov.za (accessed 06-06-2014).
124
Makwiramiti "In The Name of Economic Empowerment: A Case for South Africa and Zimbabwe" 2011.
15

government's obligation to submit to international arbitration.
125
In Zimbabwe, despite the said
relevant laws and policies aimed at redressing the economic imbalances of the past, they
unintentionally deter foreign investors.
126
It is not the purpose of this study to condemn or
oppose these laws and policies per se. Rather, it will suggest that these laws and policies should
be implemented in a rational and fair manner that compliments foreign investment protection.
The significance of this study lies in its attempt to examine the FDI regime resulting from the
said policy and legislative changes with a view to determining their compliance with the
applicable international legal standards. Its crux further lies in its attempt to assess the impact
of these changes on the quality of legal protection of FDI in the two jurisdictions. The study
will propose possible refinements to the relevant existing investment laws and policies in South
Africa and Zimbabwe that could enhance FDI protection.
1 8
RESEARCH METHODOLOGY
This is a desktop-based qualitative study. It will utilise both primary and secondary sources.
Primary materials will be in the form of international instruments, national legislations and
decided international and national case law on foreign investment. Secondary sources will
include textbooks, journal articles, reports, newspaper articles, critical reviews and internet
sources pertinent to the subject of foreign investment regulation.
1 9
CHAPTER OUTLINE
This study is divided into six Chapters.
Chapter 1 provides a succinct overview of the nature and regulation of FDI as well as related
issues. It discusses the definition of the concept of FDI from various IIAs, international
organisations and jurisprudence in the interpretation of foreign investment given that it is not
defined in any international instrument. This Chapter also discusses the common types of FDI.
It will outline the research problem, significance, objectives, methodology and delimitation.
125
See Le Roux "South Africa's Revocation of its Bilateral Investment Treaties: Beware of Strangers Bringing
Money, Especially if you need it" 2015 South African Institute of International Affair and South African Institute
of International Affairs "FDI in South Africa: Promotion and Protection of Investors... and the Public Interest"
2014.
126
Magure "Foreign Investment, Black Economic Empowerment and Militarised Patronage Politics in
Zimbabwe" 2012 Journal of Contemporary African Studies 67-82. See also Chinamasa The Human Right to Land
in Zimbabwe: The Legal and Extra-legal Resettlement Processes (LLM-dissertation, Makerere University, 2001)
Chapter 1.
16

Chapter 2 will discuss the historical background of FDI and its protection. It will also discuss
foreign investment as a necessity for developing host countries. This Chapter will conclude by
discussing the risks and challenges faced by FDI pre and post establishment in host states.
Chapter 3 will explore the existing international investment legal framework with a focus on
identifying the international norms and minimum standards on FDI protection. Those
international minimum standards will be discussed as standards for assessing domestic
investment laws and related policies.
Chapter 4 will critically examine selected investment laws and related policies of South Africa
with regard to the regulation and protection of FDI. These laws and policies include the
Promotion and Protection of Investment Bill, BEE laws, land reform policies and rules
pertaining to recognition and enforcement of foreign arbitral awards.
Chapter 5 will critically examine selected investment laws and related policies of Zimbabwe
with regard to the protection and regulation of FDI. These laws and policies include the
Zimbabwe Investment Authority Act, indigenisation laws, land reform and ownership policies
as well as recognition and enforcement of foreign arbitral awards.
Lastly, Chapter 6 will sum up the key issues and findings of the study in relation to the
objectives of the study. It will make recommendations to the policy-makers in South Africa
and Zimbabwe for policy refinements and modernisation of their investment policy framework
in line with international norms and standards.
1 10 REFERENCING STYLE
The referencing style employed is that of Speculum Juris, an accredited Law journal published
by the Nelson R. Mandela School of Law, University of Fort Hare. The study will not have any
intellectual property implications in terms of copyright law as all works used will be
acknowledged.
1 11 ETHICAL IMPLICATIONS OF THE STUDY
This study will not involve any ethical implications as questionnaires or interviews will not
form part of the study.
17

CHAPTER 2
Historical origin of foreign direct investment protection
2 1
INTRODUCTION
This Chapter is divided into three parts. The first part briefly explores the historical evolution
of Foreign Direct Investment (FDI) as well as its regulation and protection. The second part
makes a case that foreign investment is, in fact, a necessity for developing countries enabling
sustainable economic growth and development, employment creation, technology
advancement and infrastructure improvement. To that end, the second part explores major
socio-economic benefits of FDI. Lastly, part three analyses the subject of FDI regulation from
economic, legal, development and political perspectives in order to ground a discussion as to
why there is a need for foreign investment protection in the new millennium. Significantly, this
chapter adopts an interdisciplinary approach to the analysis of law, international political
economy and international relations, hence, slightly departs from a textual-formalistic reading
and interpretation of law.
2 2
HISTORICAL ORIGIN OF FDI PROTECTION
The origin and legal protection of FDI has a long history.
127
Providing a concise but reasonably
comprehensive account of the historical origin of foreign investment protection is thus a
difficult task. This is because there are so many events that occurred as a result of FDI
evolution. The existence of such events has given rise to a large body of jurisprudence,
particularly of a legal nature.
128
The approach followed by this Chapter is to describe the
topical events that established the basic framework of FDI legal protection. In this regard, a
brief reference will be made to the legal protection of foreign investment pre-Havana Charter,
under the Havana Charter and under the World Trade Organisation (WTO) framework.
The development of the foreign investment field was stimulated over time by a number of
considerations including, among others, cross-border capital transfers or international activities
of Multinational Companies (MNCs).
129
The historical evolution of foreign investment was
also ascribed to MNCs' exploration for new markets (market-seeking investment), cheap
127
Schefer International Investment Law: Text, Cases and Materials (2013) 363.
128
Ibid.
129
See Wilkins "The History of the Multinational Enterprises" in Rugman (ed) The Oxford Handbook of
International Business 2 ed (2008) 5 and Buthe and Milner "The Politics of Foreign Direct Investment into
Developing Countries: Increasing FDI through International Trade Agreements?" 2008 52 American Journal of
Political Science 741.
18

labour and low production costs, exploitation of natural resources as well as the need to secure
sources of supply of raw materials, among others.
130
Though scholarly attention to investment
law was in abeyance for much of the 20
th
century, there are centuries of development that have
gone into investment law and a millennium during which laws pertinent to foreign investment
activities have existed.
131
Bishop, Crawford and Reisman note the probability of investment in
ancient (pharaohs) Egypt, the Mediterranean empires as well as the ancient empires of what is
presently China, India and the Middle East.
132
In the 1600s, the British East India Company
and the Dutch East India Company were identified as the first enterprises to invest abroad
133
followed by the American plants set up by Colt Firearms and Ford in the 1700s.
134
In addition,
in the 1800s, the Scottish Singer Sewing Machines ventured abroad and expanded rapidly due
to low labour costs and favourable foreign investment policies.
135
In the early 19
th
century,
portfolio investment
136
was more significant than direct investment, from an economic and
political point of view.
137
At the time, FDI was regarded as an alternative to international trade
in global production.
138
In the mid-19
th
century, investment became increasingly important and
took its present form.
139
This was stimulated by a rapidly-increasing rate of technological
invention and the growth of corporations and other forms of business association as members
as raising, accumulating and deploying capital.
140
It is important to note that in the early 19
th
century, the existing FDI was mainly concerned with the exploitation of natural resources such
130
Ibid.
131
Schefer 5.
132
Bishop, Crawford and Reisman (eds) Foreign Investment Disputes, Cases, Materials and Commentary (2005)
2. For a brief history of foreign investment, see Bishop et al 2-7.
133
Ibid. In the 1600s and 1700s, the Dutch East India Company and British East India Company invested in
several parts of Asia, the Indies and America. Ricken and Malcotsis The Competitive Advantage of Reigns and
Nations: Technology Transfer through Foreign Direct Investment (2011) 47.
134
Adewale Policy Determinants for FDIs in South Africa (Master of Commerce-thesis, University of South
Africa, 2008) 24.
135
Ibid.
136
Portfolio investment occurs in many ways including securities funds or private equity and also refers to loans
and the floating of government bonds. See Leal-Arcas International Trade and Investment Law: Multilateral,
Regional and Bilateral Governance (2010) 167.
137
Riesenfeld "Foreign Investments" in Biglieri and Prati (eds) Enclyclopedia of Public International Law (1985)
246. See also Nurse "Period Analysis and Inventory Cycles" Oxford Economic Papers 6 (1954) 203.
138
For the complementarity and substitutability of FDI and international trade, see generally Fontagné "Foreign
Direct Investment and International Trade: Complements or Substitutes?" Directorate for Science, Technology
and Industry Working Papers (1999).
139
Bishop et al 2. During this period FDI or MNC's activities became of great significance in international
production surpassing growth in international trade. Dent The European Economy: The Global Context (1997)
234.
140
Bishop et al 2. See also Schefer 5.
19

as minerals and plantations and, occasionally, operation of public utilities.
141
Immediately
thereafter FDI was targeted towards infrastructure.
142
2 2 1 Foreign investment protection pre-Havana Charter
The historical development of laws protecting investors mainly relies on looking at how the
law treated foreigners.
143
The early stages of FDI witnessed low levels of investor protection
and a significant absence of investment-related regulation and policy flexibility.
144
State
investment laws and policies were restrictive towards foreign investment.
145
These restrictions
included limits on foreign ownership, performance requirements on exports, technology
transfer or local procurement, insistence on joint ventures with local firms as well as barriers
to brownfield investments through mergers and acquisitions.
146
For instance, in the 1880s, the
United States (US) government authorised restrictions on foreign investment in land and
mining.
147
The development of foreign investment protection was attributed to the
consequences of the conflict between MNCs as foreign investors and host countries.
148
Thus,
on the one hand, foreign investors sought ownership of FDI, no restrictions on profit
repatriation or capital controls, adequate protection on technology transfer, and well-defined
property rights.
149
Whilst on the other hand, host countries sought to maximise benefits to their
economies through the retention of MNCs' profits within the host economy.
150
The
development of foreign investment regulation was attributed to the fear that international
investors' domination of host country's economic sectors would diminish domestic firms'
competitiveness.
151
Notwithstanding national sovereignty or autonomy, foreign investors were
considered as a threat to the domestic firms since domestic firms were unable to compete
against the foreign firms with massive capital expenditures.
152
141
Leal-Arcas 181.
142
Bishop et al 2.
143
Tiburcio The Human Rights of Aliens under International and Comparative Law (2001) 23.
144
Haslam "The Evolution of Foreign Direct Investment Regime in the Americas" 2010 Third World Quarterly
1187.
145
Wilkins The History of Foreign Investment in the United States to 1914 (1989) 45.
146
Ibid.
147
Ibid.
148
Goldberg and Kindleberger "Toward a GATT for Investment: A Proposal for Supervision of the International
Corporation" 1970 Law and Policy in International Business 295.
149
Correa and Kumar Protecting Foreign Investment: Implications of a WTO Regime and Policy Options (2003)
xi.
150
Ibid.
151
Developing countries viewed FDI from their colonial rulers as a threat to new found political independence
and was seen as an instrument for perpetuating the economic dependence of the third world. See Hansen and
Aranda "An Emerging International Framework for Transnational Corporations" 1990/1991 Fordham
International Law Journal 881.
152
Ibid.
20

During this period, FDI protection was only to be found in municipal laws except for cases
where international law had to address investment issues.
153
The Barcelona Traction case
154
reflected the absence of international investment law in this era. In this case the ICJ observed
that when a state admitted foreign investments into its territory it was bound to extend legal
protection to them.
155
The ICJ also stated that in the field diplomatic protection, international
law was in continuous evolution and it had to refer to those rules generally accepted by
municipal systems.
156
Investor-state disputes were resolved under relevant domestic laws,
regulations, administrative decrees and others.
157
International law was applied to investment
issues in the treatment of foreigners' property by the host state, the international responsibility
of states for acts in violation of international law and the exercise of diplomatic protection by
an investor's national state.
158
In 1907, an initial attempt was made to negotiate investment
rules on a global level through the Hague Convention Respecting the Limitation of the
Employment of Force for the Recovery of Contract Debts.
159
The Drago-Porter Convention
restricted the use of armed force for the recovery of debt.
160
In addition, this era was
characterised by a series of progressive nationalisation and expropriation of foreign-owned
property as well as discrimination against foreign investors. In respect of discrimination, host
states treated domestic investors more favourably than foreign investors.
161
During the first half of the 20
th
century, issues involving FDI became more complex to solve
on the basis of international law rules due to changes in host governments' measures affecting
property.
162
Foreign commercial property became the subject of expropriation and
nationalisation.
163
Notable here are the historical events of the Mexican revolution, land reform
and nationalisation as well as the Central and Eastern European land reform. From the period
1934 to 1940, the Mexican government authorised a land redistribution policy through which
153
Leal-Arcas 181.
154
Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain) Second Phase, International Court
of Justice (ICJ), 5 February 1970 (hereafter "Barcelona Traction case"). See also Sonarajah International Law on
Foreign Investment 2 ed (2004) 213.
155
Barcelona Traction case paras 32-201.
156
Ibid.
157
Leal-Arcas 181.
158
Ibid.
159
The Hague Convention II of 1907 Respecting the Limitation of the Employment of Force for the Recovery of
Contract Debts was an international Convention adopted by the Second International Hague Conference October
1907 (hereafter "Drago-Porter Convention").
160
The Drago-Porter Convention prohibited the recourse to armed force for the recovery of contract debts claimed
from the government of one state by another government on behalf of its nationals.
161
See generally Donald The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy
(1955).
162
Ibid.
163
Ibid.
21

foreign-owned land was nationalised and expropriated.
164
Mexico also expropriated all foreign
oil companies in its territory.
165
The US-Mexican Agrarian dispute saw the establishment of
the Hull Rule.
166
In terms of this rule, "no government is entitled to expropriate private
property, for whatever purpose, without provisions for prompt, adequate and effective payment
therefor."
167
Similarly, after the Second World War (WW II) the indigenous people of the
Central and Eastern European countries demanded the nationalisation and expropriation of all
agrarian land and properties owned by foreign nationals.
168
2 2 2 Position under the Havana Charter
The end of WW II marked the beginning of international initiatives to protect foreign
investment.
169
It is noteworthy that following WW II, property rights were enshrined in the
Universal Declaration of Human Rights,
170
the European Convention on Human Rights
171
and
its protocols,
172
the International Covenant on Economic, Social and Cultural Rights,
173
the
American Human Rights Convention
174
as well as in the constitutions of many countries. The
Havana Charter
175
of the now defunct International Trade Organisation contained provisions
on the treatment of foreign investment but mainly dealt with international trade aspects.
164
Dwyer "Diplomatic Weapons of the Weak: Mexican Policymaking during the U.S Mexican Agrarian Dispute,
1934" 2002 Diplomatic History 375.
165
Ibid.
166
Dwyer US-Mexican Agrarian Dispute: The Expropriation of American-Owned Rural Land in
Postrevolutionary Mexico (2008). See also Smith "The Agrarian Dispute: The Expropriation of American-Owned
Rural Land in Postrevolutionary Mexico (review)" 2010 Journal of World History 347.
167
Guzman "Explaining the Popularity of Bilateral Investment Treaties: Why LDCs Sign Treaties that Hunt
Them?" 1998 Virginia Journal of International Law 639.
168
Hungary "Land Restitutions and Compensation Procedures in Central Eastern Europe" 2002 FIG Commission
7 Annual Meeting http://www.fig.net/commission7/pretori_2007/papers/sym_lr_pretoria_paper_ossko.pdf
(accessed 19-04-2014).
169
Leal-Arcas 183.
170
In particular, Articles 2 and 17 of the UN General Assembly, Universal Declaration of Human Rights, 10
December 1948, 217 A (III) (hereafter UDHR). The UDHR was proclaimed by the United Nations General
Assembly in Paris on December 10, 1948 by the General Assembly Resolution 217 A (III) as a common standard
of achievements for all peoples and all nations and it sets out fundamental human rights to be universally protected.
171
Convention for the Protection of Human Rights and Fundamental Freedoms was adopted by the Council of
Europe on November 4, 1950 to guard fundamental freedoms and human rights in Europe.
172
See, for example, Article 1 of the Protocol to the Convention for the Protection of Human Rights and
Fundamental Freedoms Paris, 20.III.1952.
173
Article 2 (2) of the International Covenant on Economic, Social and Cultural Rights, United Nations, Treaty
Series 993 3 (hereafter ICESCR). The ICESCR was adopted by the by General Assembly Resolution 2200A
(XXI) on December 16, 1966 and entered into force on January 3, 1976.
174
In particular, Article 21 of the American Convention on Human Rights "Pact of San Jose, Costa Rica" OAS
Treaty Series No. 36; 1144 U.N.T.S 123; 9 ILM 99 (1969) (hereafter the "ACHR"). The ACHR was signed by
many countries on November 22, 1969 in San Jose, Costa Rica.
175
The Havana Charter, formerly the Final Act of the United Nations Conference on Trade and Employment was
signed on March 24, 1948. See Havana Charter for an International Trade Organisation, 24 March 1948, UN
Conference on Trade and Employment, UN.DOC.E/CONF.2/78 Sale No. 1948.II.D.4. For more information on
the Havana Charter, see Newcombe and Paradell Law and Practice of Investment Treaties: Standards of
Treatment (2009) 19.
22

Articles 11 and 12 of the Havana Charter addressed aspects of FDI protection. In particular,
Article 11 (1) (b) of the Charter provided that "no member shall take unreasonable or
unjustifiable action within its territory injurious to the rights or interests of nationals of other
members in the enterprise, skills, capital, arts or technology which they have supplied." Article
12 of the Charter stated that members "...undertake to give due regard to the desirability of
avoiding discrimination as between foreign investments." There was a conflict between a US
proposal for the protection of foreign investors and developing countries' proposal for the
inclusion of their right to expropriate foreign investment.
176
Consequently, the period
immediately after WW II saw massive nationalisation and expropriation of foreign-owned
properties.
177
For instance, the case of Saudi Arabia v. Arabian American Oil Company
(Aramco)
178
and the so-called "Libyan cases" which originated from the nationalisation of
foreign investments in the oil sector after 1971.
In addition, the Anglo-Iranian Oil Co case (United Kingdom v. Iran)
179
was a dispute
concerning the expropriation of oil production in 1951. During this period, fears of foreign
investment security heightened because of the decolonisation of the developing world and the
spread of communism.
180
Nevertheless, provisions on foreign commercial property in the failed
Havana Charter were incorporated into the General Agreement on Tariffs and Trade
(GATT).
181
In 1947, world leaders representing 44 countries converged at Bretton Woods to
establish the GATT, the International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD) also called the World Bank. In 1955, the GATT
contracting parties adopted a Resolution on International Investment for Economic
Development
182
in which they, inter alia, urged countries to conclude bilateral agreements to
provide protection and security for foreign investment.
183
In the 1960s and early 1970s, there were several international initiatives which had a profound
influence on the development of international investment law. Despite substantial attempts by
176
Wilcox A Charter for World Trade 145-146 (1949, reprinted 1972).
177
Fatouros 1996 OECD Document 49. This led to the creation of a "New International Economic Order" a
campaign by developing countries to control MNCs, see Goode Dictionary of Trade Policy 5 ed (2007) 301.
178
Saudi Arabia v. Arabian American Oil Company (Aramco), (ILM 27 (1958)). See also Lowenfeld International
Economic Law 2 ed (2008) 475-481.
179
Anglo-Iranian Oil Co. (United Kingdom vs. Iran), ICJ Reports 1952. Other notable events are the expropriation
of Lilamco's concessions in Libya in 1955 and the nationalisation of the Suez by Egypt in 1966.
180
Lauterpatcht "International Law and Private Foreign Investment" 1997 Indiana Journal Global Legal Studies
266.
181
See General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194.
182
Resolution on International Investment for Economic Development, 1955.
183
WTO "Trade and Investment: Agreement on Trade Related Investment Measures"
https://www.wto.org/english/tratop_e/invest_e/invest_info_e.htm (accessed 17-05-2014).
23

learned societies and individuals to codify rules which govern the international responsibility
of the host state,
184
the final Draft Convention on the International Responsibility of States for
Injuries to Aliens was only published in 1961 by Harvard Law School.
185
The 1961 Draft
Convention had a significant effect on the development of international investment legal
principles.
186
In 1962, the United Nations General Assembly (GA) adopted Resolution 1803
(XVII) labelled Permanent Sovereignty over Natural Resources, recognising the right of states
to expropriate investments in their natural resources, provided "appropriate compensation" was
paid to the foreign investors whose property was nationalised.
187
Shortly thereafter the
provision was repeated in subsequent GA Resolutions though slightly amended, particularly
the payment of compensation requirement.
188
There is a general consensus that paragraph 4 of
Resolution 1803 (XVII) constitutes customary international law.
189
Moreover, in 1965, the Washington Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (Washington Convention) was adopted and came
into effect in 1966.
190
Article 1 (1) of the Washington Convention created the International
Centre for Settlement of Investment Disputes (ICSID), an international arbitration institution
which facilitates resolution of investment disputes between international investors and host
countries themselves.
191
In 1967, the OECD had approved the Draft Convention on the
Protection of Foreign Property. Articles 1 (a) and 3 of the Draft Convention reflected minimum
184
For a literature review of the attempts to codify rules on international responsibility, see Rosenne
"Introduction" in International Law Commission (ed) The International Law Commission's Draft Articles on State
Responsibility (1991). See also First Report on State Responsibility by R Ago, Special Rapporteur, Review of
Previous Work on Codification of the Topic of the International Responsibility of States (May 1969)
A/CN.4/217 and Corr.1 and Add.1 Chapter 1 and International Law Commission Articles on State Responsibility:
Introduction, Text and Commentaries (2002).
185
See Harvard Law School "Draft Convention on the International Responsibility of States for Injuries to Aliens"
1961 55 American Journal of International Law 548-584.
186
Bishop et al 5.
187
Paragraph 4 of the GA Res. 1803 (XVII) 1-5, UN Documents A/RES/1803), (December 14, 1962).
188
GA Res 3171, UN GAOR, 28
th
Sess. Supp. No. 30, UN. Doc. A/9559 (1974), (1974) 13 ILM 328; GA Res.
3201, UN GAOR, 29
th
Sess. Supp. No. 1, UN Doc. A/9550 (1974), (1974) 13 ILM 715 (Declaration on the
Establishment of a New International Economic Order); GA Res. 3281, UN GAOR, 29
th
Sess. Supp. No.1 UN.
Doc. A/9631 (1974), (1975) 14 ILM 251 (Charter of the Economic Rights and Duties of States).
189
See Weston "`Constructive Takings under International Law: A Modest Foray into the Problem of `Creeping
Expropriation'" 1975 16 Virginia Journal of International Law 103; Dolzer "Expropriation" in Bernhardt (ed)
Encyclopaedia of Public International Law (1985) 214; Dolzer "Indirect Expropriation of Alien Property" 1986
1 ICSID Review 41; Asante "International Law and Foreign Investment: A Reappraisal" 1988 37 International
and Comparative Law Quarterly 588; Sornarajah (1994); and Higgins The Taking of Property by the State: Recent
Developments in International Law (1982). Customary international law as represented by paragraph 4 of
Resolution 1803 (XVII) is discussed in Chapter 3.
190
Convention on the Settlement of Investment Disputes between States and Nationals of Other States 575
U.N.T.S 159 / (1991) ATS 23 / 4 ILM 532 (1965) / UKTS 25 (1967) (hereafter the "Washington Convention")
was adopted by the World Bank on March 18, 1965 and came into effect on October 14, 1966.
191
Article 1 (2) of the Washington Convention.
24

standards of investor treatment.
192
However, this OECD Draft Convention did not receive
sufficient support from the OECD countries.
193
Additionally, in 1974 the United Nations
Economic and Social Council adopted the Transnational Corporations Code of Conduct
targeted towards addressing Transnational Corporations' activities. Similar to the OECD Draft
Convention it suffered strong criticism from developed countries.
194
Post WW II, Bilateral Investment Treaties (BITs) became the most significant source of
investment protection laws.
195
BITs were typically between developed and developing
countries which established the rights and protection for investors as well as a system to enforce
those rights.
196
In addition, these treaties reinforced international principles and practices
regarding FDI.
197
These investment treaties offered foreign investors higher standards of legal
protection and guarantees for foreign investments than those available under national and
international investment laws.
198
A range of BITs under the auspices of the IMF and the World
Bank were enacted in order to provide protection for foreign investors.
199
BITs later spread to
Eastern and Central Europe, Asia, Africa and South America as countries in these regions were
in pursuit of foreign capital.
2 2 3 Investment protection under the WTO
Prior to the Uruguay Round investment-related issues received minimal attention.
200
Thus
GATT 1947 did not clearly address investment issues. However, despite the marginalisation
of investment issues in the GATT, the case of USA v. Canada Foreign International Review
192
See also Lowenfeld International Economic Law 2 ed (2008) 475-481.
193
UNCTC "Bilateral Investment Treaties" 1988 United Nations (Doc. No. ST/CTC/65) New York 7.
194
See generally Norbert (ed) Legal Problems of Codes of Conduct for Multinational Enterprises (1980).
195
Leal-Arcas 187. See also Buthe and Milner Bilateral Investment Treaties and Foreign Direct Investment: A
Political Analysis (2009) and Buthe and Milner "Bilateral Investment Treaties and Foreign Direct Investment: A
Political Analysis" in Sauvant and Sachs (eds) The Effect of Treaties on Foreign Direct Investment: Bilateral
Investment Treaties, Double Taxation Treaties, and Investment Flows (2009) 171.
196
See also Buthe and Milner "The Politics of Foreign Direct Investment into Developing Countries: Increasing
FDI through International Trade Agreements?" 2008 52 American Journal of Political Science 741­762 and Buthe
and Milner "Bilateral Investment Treaties and Foreign Direct Investment: A Political Analysis" in Sauvant and
Sachs (eds) The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation
Treaties, and Investment Flows (2009) 172. Buthe and Milner maintain that, after WW II investment protection
rules were developed to protect investors from expropriation of property by host states.
197
Schultz, in a transmission letter to the President, argued that BITs were designed "to protect investment not
only by treaty but also by reinforcing traditional international legal principles and practice regarding foreign direct
investment." Schultz "Transmission Letter to the President Recommending Transmission of the US-Turkey BIT,
1985 http://ankara.uembassy.gov/IRC/treaty/1985BIT.HTM (accessed 09-06-2014).
198
Leal-Arcas 187.
199
Haslam 2010 Third World Quarterly 1187.
200
Rugman "New Rules of International Investment: The Case of a Multilateral Agreement on Investment (MAI)
at the WTO" in Milner and Read (eds) Trade Liberalisation, Competition and the WTO (2002) 176.
25

Act (FIRA) arose.
201
In this case, the US argued, among other issues, that Canada's
requirements under the FIRA which obliges foreign investors subject to the Act to purchase
goods of Canadian origin in preference to imported goods or in specified amounts or
proportions, or to purchase goods from Canadian sources and to manufacture in Canada goods
which could be imported were inconsistent with Articles III (4), III (5), XI and XVII (1) (c) of
the GATT.
202
The GATT Panel found that Canada's practice of local content requirements was
inconsistent with GATT Article III: 4 on National Treatment (NT).
203
The FIRA case confirmed
that the existing obligations under the GATT were applicable to requirements imposed by
governments in an investment context in so far as such requirements discriminated between
imported and domestic goods.
204
During the Uruguay Round negotiations (1986-1994), the US proposed the application of NT
and Most Favoured Nation (MFN) principles to foreign investment.
205
The proposal received
strong support from developed countries, but robust opposition from developing countries.
206
Despite these conflicts, it is worth mentioning that the Uruguay Round gave birth to the
Agreement on Trade-Related Investment Measures (TRIMs)
207
and the General Agreement on
Trade in Service (GATS)
208
in the WTO context. It is important to note that the WTO does not
directly deal with investment. Rather, foreign investment is negotiated to a certain extent in the
WTO Agreements in the context of the GATT,
209
TRIMs Agreement,
210
GATS Agreement
211
and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs
Agreement).
212
The GATS is not an investment agreement per se, but covers investment in the
201
Canada - Administration of the Foreign Investment Review Act (FIRA), Report of the Panel adopted on 7
February 1984 (L/5504 - 30S/140).
202
Ibid.
203
Ibid paras 5.4 - 5.12.
204
WTO "Trade and Investment: Agreement on Trade Related Investment Measures".
205
Amarasinha and Kokott "Multilateral Investment Rules" in Muchlinski, Ortino and Schreuer (eds) The Oxford
Handbook of International Investment Law (2008) 125.
206
Ibid.
207
Agreement on Trade-Related Investment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the
World Trade Organisation, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade
Negotiations 143 (1999), 1868 U.N.T.S 186 (hereafter "TRIMs Agreement").
208
General Agreement on Trade in Services, April 15, 1994, Marrakesh Agreement Establishing the World Trade
Organisation, Annex 1B, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations
284 (1999), 1869 U.N.T.S 183, 33 ILM 1167 (1994) (hereafter "GATS").
209
Article I and III of the GATT, read together with Canada - Administration of the Foreign Investment Review
Act (FIRA), Report of the Panel adopted on 7 February 1984 (L/5504 - 30S/140).
210
TRIMs are a subset of the incentives and regulations designed to influence FDI, see the Illustrative List in the
Annex of TRIMs. See also Canada ­ FIRA case; Appellate Body Report, India ­ Measures Affecting the
Automotive Sector, WT/DS146/AB/R, WT/DS175/AB/R, adopted 5 April 2002, DSR 2002:V, 1821
211
Article II and XVII of the GATS Agreement.
212
Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Marrakesh Agreement
Establishing the World Trade Organisation, Annex l C, Legal Instruments - Results Of The Uruguay Round Vol.
31, 33 ILM 1197 (1994) (hereafter "TRIPs Agreement"). TRIPs Agreement encourages investors to undertake
26

services trade context. Notably, Article 1 (2) of GATS differentiates trade in services into four
modes: Mode 1 deals with cross-border supply of a service; Mode 2 provision implies the
movement of the consumer to the location of the supplier; Mode 3 concerns services sold in
the territory of a member by entities that have established a presence there but originate in the
territory of another member; and Mode 4 deals with provision of services requiring the
temporary movement of natural persons. Article 1 of the TRIMs Agreement explicitly states
that the Agreement "applies only to investment measures related to trade in goods." In 1995,
the US pushed for the adoption of a Multilateral Agreement on Investment (MAI) Draft within
the OECD framework.
213
The MAI was intended to ensure a comprehensive, uniform and
systematic protection and regulation of investment at the international level.
214
Following the
international Non-Governmental Organisations (NGOs) campaign against the MAI, it did not
come into existence.
215
The TRIMs reaffirmed some of the FIRA case arguments and the GATS
reiterated a number of issues on the agenda of the MAI.
216
Current foreign investment
protection rules and norms are to be found in customary international law, soft law, and
bilateral, regional and international investment agreements. The contemporary international
investment protection regime will be discussed in Chapter 3 of this study.
2 3
FDI AS A NECESSITY
Research on the effects of FDI has produced contradictory results.
217
Some scholars have
shown that FDI spurs economic growth in the host countries while others show no such
projects focusing on technology distribution rather than local production, see Smarzynska "Composition of
Foreign Direct Investment and Protection of Intellectual Property Rights: Evidence from Transition Economies"
(2002) World Bank Policy Research Working Paper 2786.
213
Salacus "Towards a Global Treaty on Foreign Investment: The Search for a Grand Bargain" in Horn (ed)
Arbitrating Foreign Investment Disputes (2004) 51.
214
Ibid.
215
The campaign was undertaken by a large coalition of international NGOs and developing countries'
governments protesting against the negotiations of the MAI. These international NGOs and governments feared
that the MAI would give the foreign investors power to directly challenge government policies. See Khor "NGOs
in OECD Countries Protest against MAI" http://www.twnside.org.sg/title/oecd-cn.htm (accessed 19-05-2014).
For more information on the reasons why the MAI failed see Muchlinski "The Rise and Fall of the Multilateral
Agreement on Investment: Where Now?" 2000 International Law 1033.
216
See generally Wallach Public Citizen Pocket Trade Lawyer: The Alphabet Soup of Globalisation (2005).
217
For surveys of the literature on FDI spillovers, see generally Farole and Winkler Making Foreign Direct
Investment Work for Sub-Saharan Africa: Local Spillovers and Competitiveness in Global Value Chains (2014);
Colen, Maertens and Swinnen "Foreign Direct Investment as an Engine for Economic Growth and Human
Development: A Review of the Arguments and Empirical Evidence" in De Schutter, Swinnen and Wouters (eds)
Foreign Direct Investment and Human Development: The Law and Economics of International Investment
Agreements (2013); Moran, Graham and Blomstrom (eds) Does Foreign Direct Investment Promote
Development? (2005); and Blomstrom and Kotto "Multinational Corporations and Spillovers" 1998 12 Journal
of Economic Surveys 247-277.
27

effect.
218
On the one hand, the substantial foreign ownership gives rise to concerns about the
loss of sovereignty and compromise over national security.
219
The controversies over FDI
revolve around its substantial environmental damage and negative impact on working
conditions.
220
For example, in Namibia, Ramatex investment had adverse effects on working
conditions.
221
On the other hand, FDI has developmental impact on the host economy such as
employment creation,
222
economic growth and development,
223
advanced technology
transfer,
224
managerial skills
225
and national competitiveness.
226
It is these and other reasons
that FDI is much needed in emerging economies such as South Africa and Zimbabwe.
227
It is submitted that the shortcomings of FDI are exceeded by its developmental effects. The
approach followed in this study is to describe the developmental impacts of FDI. To that effect,
an account of developmental and growth impacts of FDI is provided. It is noteworthy that the
objectives of the SADC Model BIT, SADC Finance and Investment Protocol (FIP) and other
SADC instruments aim to ensure that FDI contributes to the "sustainable development" of the
SADC region. The opportunity to stimulate growth and development through FDI in Sub-
Saharan Africa (SSA) has been limited, perhaps due to various determinants of FDI
218
See Lipsey and Sjoholm "The Impact of Inward FDI on Host Countries: Why Such Different Answers?" in
Moran, Graham and Blostrom (eds) Does Foreign Direct Investment Promote Development? (2005) 23-44 and
Buthe and Milner "Bilateral Investment Treaties and Foreign Direct Investment: A Political Analysis" in Sauvant
and Sachs (eds) The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double
Taxation Treaties, and Investment Flows (2009) 171.
219
Buthe and Milner "Bilateral Treaties and Foreign Direct Investment: A Political Analysis" in Sauvant and
Sachs (eds) The Effect of Treaties on Foreign Direct Investment: Bilateral Treaties, Double Taxation Treaties,
and Investment Flows (2009). See also Leal-Arcas 178; Moosa Foreign Direct Investment: Theory, Evidence and
Practice (2002) 3.
220
Herman, Chisholm and Leavell "FDI and the Effects on Society" Proceedings of the Academy for Studies in
International Business (2004) 4.
221
Such adverse effects include, among others, forced pregnancy test for women applicants, non-payment for
workers on sick leave; very low wages and no benefits; insufficient health and safety measures; no compensation
in accidents; abuse by supervisors; open hostility towards trade unions, see Gaucho "Globalisation and its Victims:
The Case of the Malaysian Textile Company Ramatex in Namibia" 2010 http://vivaworkers.org/wp-
content/uploads/2013/02/Ramatex-article-2010.pdf (accessed 22-07-2014).
222
On the correlation between employment and FDI, see Leibrecht "How Important is Employment Protection
Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?" 2009 17 Economics
of Transition 275-295.
223
See Farole and Winkler 1; Mann "Reconceptualising International Investment Law: Its Role in Sustainable
Development" 2013 17 Lewis and Clark Law Review 521; and Ho and Rashid "Macroeconomic and Country
Specific Determinants of FDI" 2011 The Business Review 219.
224
For a detailed analysis of the impact of FDI on technology advancement, see Borensztein, De Gregorio and
Lee "How Does Foreign Direct Investment Affect Economic Growth" 1998 Journal of International Economics
115. See also Blomstrom Foreign Investment and Spillovers: A Study of Technology Transfer to Mexico (1989).
225
See Fu "Foreign Direct Investment and Managerial Knowledge Spillovers through the Difussion of
Management Practices" 2012 49 Journal of Management Studies 970-999.
226
See generally Porter The Competitive Advantages of Nations (1998).
227
For more information on why FDI is needed in developing countries, see Farole and Winkler 7-10.
28

spillovers.
228
Nonetheless, benefits of FDI do not accrue automatically to the host economy
because not all foreign investments deliver spillovers.
229
It is important to note that the FDI
growth-enhancing effect depends on the degree of complementarity between FDI and domestic
industry.
230
The increasing investment gap and recession in foreign aid has made developing countries to
turn to FDI as a mechanism to circumvent development financing constraints.
231
There is
empirical evidence that countries are engaging in a race to the bottom or "beggar-thy-
neighbour" investment incentive competition in an effort to lure investors.
232
This is a strategy
to increase FDI inflows by removing all investment and trade restrictions thereby attracting
investors out of neighbouring countries.
233
It is widely accepted for governments to provide
incentives to entice foreign investment into their countries. It is submitted that FDI is necessary
in developing economies to accelerate growth and development because these countries cannot
achieve these goals from domestic investment.
234
As a result of the FDI developmental impacts,
most developing countries have facilitated FDI inflows into their domestic industry in order to
benefit the local economy.
235
This study makes a case that South Africa and Zimbabwe need
FDI as a means to facilitate economic growth and development, create employment, improve
infrastructure as well as to promote the transfer of managerial skills and advanced technology.
2 3 1 Economic growth and development
FDI is widely viewed as one of the major contributors to economic growth.
236
However, the
economic growth impact of FDI is underexplored by legal and policy-oriented studies. Gross
228
The determinants include spillover potential foreign investors, the absorptive capacity of local agents (workers
and firms) and how these two factors interact within specific host country institutional environment as well as the
transmission channels, among others; see Farole and Winkler 31. See also Cleeve "How Effective are Fiscal
Incentives to Attract FDI to Sub-Saharan Africa" 2008 42 The Journal of Developing Areas 135-153.
229
Correa and Kumar 16.
230
Ibid.
231
Musila and Sigue´ "Accelerating Foreign Direct Investment Flow to Africa: From Policy Statements to
Successful Strategies" 2006 32 Managerial Finance 577. See also Mallampally and Sauvant "Foreign Direct
Investment in Developing Countries" 1999 Finance and Development 36.
232
It is generally assumed that foreign investors invest in countries with lower regulatory standards and that
countries competitively undercut each other's standards in order to attract foreign investment. See Olney "A Race
to the Bottom? Employment Protection and Foreign Direct Investment" 2013 91 Journal of International
Economics 191. For instance, the Namibian government undercut the South African standards in order to attract
Ramatex.
233
Ibid.
234
See also "Africa Needs Investment Not Aid" 2014 http://www.capitalfm.co.ke/business/2014/04/africa-needs-
investment-not-aid-says-equity-boss/ (accessed 02-05-2014).
235
UNCTAD World Investment Report 2006.
236
Leal-Arcas 170. See also Trakman "Foreign Direct Investment: Hazard or Opportunity?" 2009 George
Washington International Law Review 12; Hoekman and Kostecki The Political Economy of the World Trading
System: The WTO and Beyond 3 ed (2009) 14; and Correa and Kumar xi.
29

Domestic Product (GDP) is the most commonly used tool to measure a country's economic
growth.
237
GDP is the total value of goods and services produced in an economy within a
certain period of time and can be measured by adding up all of the economy's income,
investment, government purchases and net exports.
238
The IMF has revised down South
Africa's economic growth outlook for 2014 to 2.3 percent from the earlier forecasts of 2.8
percent due to the multiple strikes, policy uncertainty and investment constraints prevalent in
South Africa during the year.
239
Zimbabwe's economy remains unstable with an unsustainably
high external debt, massive deindustrialisation and lack of investment.
240
To make matters
worse, Zimbabwe's real GDP decelerated to 3.7 percent from an estimated 4.4 percent in
2012.
241
The New Partnership for African Development (NEPAD) seeks to achieve and sustain
an average GDP growth rate of at least 7 percent per annum in order to reduce the share of
Africans living in extreme poverty by half and attain other United Nations (UN) Millennium
Development Goals (MDGs) by the year 2015.
242
In order to achieve this goal, Africa would
need huge investment injections in various sectors of Africa's economies including agriculture,
industry, education, and health. Notwithstanding the substantive initiatives, African
governments lack adequate financing capacity to meet this goal and protect the gains recorded
in the past years in terms of growth and poverty reduction.
243
Given that, FDI is much needed and recently it has become one of the major sources of finance
for developing countries.
244
At the international level, foreign investment is regarded as one of
the main drivers of economic growth and development and complements scarce financial
resources.
245
FDI is regarded as a means to acquire additional funding and achieve economic
growth as well as alleviate poverty.
246
FDI presence in the host economy typically increases
237
Musila and Sigue 2006 Managerial Finance 28.
238
See Statistics South Africa (Stats SA) "Measuring South Africa's Economic Growth"
http://www.statssa.gov.za/articles/15%20measuring%20gdp.pdf (accessed 02-06-2014).
239
IMF World Economic Outlook (2014) 68.
240
Company closures have soared in recent years in the wake of growing economic problems. See generally
African Economic Outlook Report 2014.
241
Ibid.
242
The eight UN MDGs are as follows: halve extreme poverty rates, achieve full and productive employment for
all, halt the spread of HIV/AIDS or reduce child mortality, promote gender equality and empower women, achieve
universal primary education, ensure environmental sustainability, develop a global partnership for development
and improve maternal health, also available at http://mdgs.un.org.
243
UN The Millennium Development Goals Report (2013) 7.
244
Trakman 12.
245
Ibid.
246
It is argued that FDI significantly contributes to poverty alleviation when it is targeted at labour intensive
industries and when interactions with local firms can create spillovers. Colen and Guariso "What Type of Foreign
Direct Investment is Attracted by Bilateral Investment Treaties?" in Moran, Graham and Blomstrom (eds) Does
Foreign Direct Investment Promote Development? (2005) 139.
30

Details

Pages
Type of Edition
Erstausgabe
Publication Year
2016
ISBN (PDF)
9783960675501
ISBN (Softcover)
9783960670506
File size
1.5 MB
Language
English
Publication date
2016 (June)
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Keywords
New Millennium South Africa Zimbabwe Foreign Direct Investment Legal Protection
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