South Africa has one of the most advanced economies on the African continent. It boasts modern infrastructure, an independent judiciary and close links to the sub-Saharan markets. It has long attracted foreign investment in the banking, manufacturing, mining, real estate, telecommunications and tourism sectors.

However, pervasive crime, corruption and security issues, alongside slow economic growth and limited privatisation prospects, create concerns for foreign investors. This is compounded by uncertainties surrounding black economic empowerment policy and a shift in governmental policy regulating foreign investment in recently enacted laws. A new draft international arbitration bill is currently awaiting approval. Despite the creation of special economic zones with tax incentives to attract foreign investment, the South African government is evidently seeking to retain control over key sectors of the economy.

In December 2015, the president of South Africa gave his assent to a foreign investment law but this is not, at the time of writing, in force.

The new investment law was designed to replace a plethora of BITs (Bilateral Investment Treaties), following the Foresti case that was brought by a group of Italian investors (and a Luxembourg corporation that they owned) who alleged that local black economic empowerment legislation expropriated indirect interests they held in the South African granite-quarrying sector.

Although the arbitration proceedings were discontinued, Foresti nonetheless prompted a change in approach to foreign investment protection in South Africa. The new investment law is intended to codify the more limited protections South Africa now chooses to afford investors, replacing the protections previously afforded under its BITs.

The law requires disputes in respect of actions taken by the state that affect a foreign investor’s investment to be dealt with by mediation in the first instance, although the investor is not precluded from approaching any competent South African court, independent tribunal or statutory body to resolve the dispute. The government ‘may consent’ to international arbitration subject to the exhaustion of domestic remedies. Unusually, any such arbitration proceedings will not be between the investor and South Africa but between the investor’s home state and South Africa.

A draft expropriation law, introduced in 2015, provides for the compulsory purchase of land in the public interest, subject to ‘just and equitable compensation’. This has caused some consternation among investors and political opposition alike. However, the bill has not yet been signed by President Zuma.