South Africa: Implications And Ramifications Of Zimbabwe/SA Agreement On Investment Protection

Last Updated: 4 March 2010
Article by John Brand and Mieke Krynauw

On 27 November 2009 the governments of South Africa and Zimbabwe signed a Bilateral Agreement for the Promotion and Reciprocal Protection of Investments (BIPPA) in Harare.

In terms of the agreement's preamble, the two countries entered into the agreement because they desire to create favourable conditions for greater investment by South African investors in Zimbabwe, and Zimbabwean investors in South Africa.

The agreement was driven by the belief of both governments that the BIPPA would itself encourage investment, and that this stimulation of individual business initiative will increase prosperity in both Zimbabwe and South Africa. Through signing the BIPPA, both governments aim to signal to investors that investment is encouraged and that both governments recognise the need for internationally recognised protection of investors and investments.

Negotiations relating to the content of a bilateral agreement between Zimbabwe and South Africa have been ongoing since 2002. Although theoretically a reciprocal agreement, the BIPPA was signed largely to make provision for the South African business community's interest in investment opportunities in Zimbabwe, particularly in the agro-processing sector, telecommunications, mining and infrastructure.

South African investors, who remain Zimbabwe's largest African trading partner, have in the past been anxious about investing in Zimbabwe because of the high levels of uncertainty about the protection of their investments, particularly the protection of property rights. The BIPPA aims to allay this uncertainty.

The Department of Trade and Industry also made it clear that a driving factor behind South Africa aiding Zimbabwe's economy recovery was to alleviate the burden placed on the South African Government resources by Zimbabwean immigrants.

The agreement can also be used by Zimbabwean investors to invest in South Africa. At face value this may seem unlikely but a possible unintended consequence is that foreign investors from anywhere in the world can use Zimbabwe as a conduit to invest in South Africa and South Africa as a conduit to invest in Zimbabwe under the protection of the agreement.

That's because juristic persons are included in the definition of 'investor' in the agreement without requiring that the juristic person has effective economic activity in the country of incorporation.

Arthur Mutambara, Zimbabwe's Deputy Prime Minister, said that the agreement had worldwide significance and application and represented a bill of investment guarantees to any willing investor.

Further: "Zimbabwe has signed the BIPPA, not with South Africa, but with the world. The BIPPA lays out the fundamental conditions that we are also going to offer the rest of the world."

The agreement was to be signed in March 2009 but was delayed by disagreement over a clause which dealt with the security of previous South African investments in Zimbabwe, particularly property rights. Article 11 of the BIPPA, titled the 'Scope of the Agreement', was the contentious clause.

On 13 November 2009 it was reported that Rob Davies, South Africa's Minister of Trade and Industry, had indicated that a compromise had been reached which provided security of tenure for all existing and new South African investments in Zimbabwe but excluded historical claims arising from the land reform process in Zimbabwe. This land reform process included expropriation by the state without compensation for large numbers of farms, including farms belonging to South Africans.

According to Davies the aim of the BIPPA was to provide security for any South African investor in any sector, including agriculture. This security would create certainty for investors in Zimbabwe to boost economic recovery and stabilisation, thereby contributing to political stability.

However, the BIPPA's aim was not to 'reopen old wounds' which is why, said Davies, it was impossible for South Africa to negotiate a retrospective property rights clause.

The outcome did not meet with unanimous South African approval. Although organisations such as AgriSA supported the idea of an investment protection agreement, it believed that the lack of proper consultation by the South African Government jeopardised the legitimacy and legality of any proposed bilateral agreement. The Zimbabwean Commercial Farmers Union maintained that it had 'serious flaws'.

Prior to the scheduled signing of the agreement on 27 November 2009, AfriForum, a South African civil society organisation, brought an urgent application in the North Gauteng High Court to prevent the South African government from signing the agreement. The application was brought by AfriForum on behalf of Louis Fick, a South African farmer who owned a confiscated farm in Zimbabwe.

The applicants argued that the so-called 'exclusion clause' was discriminatory and therefore unlawful and the proposed agreement was in contravention of the South African Constitution, international law and the rulings of the Southern Africa Development Community (SADC) Tribunal, specifically Mike Campbell (Pvt) Ltd and Others v Republic of Zimbabwe [2008] SADC (T) 02/2007 (28 November 2008) and William Michael Campbell and Another v The Republic of Zimbabwe [2009] SADC (T) 03/2009 (05 June 2009).

The Zimbabwean Government does not recognize either of these SADC Tribunal rulings, which held that:

  • Zimbabwe's expropriation process had discriminated against the applicants on the ground of race;
  • Fair compensation was payable to the applicants for the properties which had been compulsorily acquired; and
  • Zimbabwe was in breach of a number of its SADC Treaty obligations.

The second ruling held Zimbabwe in contempt of the first ruling.

An out of court settlement was reached between the parties and this agreement was then submitted to the Court, which made it an order of Court. In terms of the order, the aim of the BIPPA is to create legal and other remedies for South African citizens 'over and above existing remedies in terms of international law'.

Furthermore the South African Government and Minister of Trade and Industry gave their assurance that the BIPPA 'does not affect existing rights or remedies in terms of other sources of international law, in particular those in terms of the Treaty of the Southern African Development Community (SADC)'.

Lastly, the order notes that:

  • The SADC Tribunal rulings are not affected by the BIPPA;
  • The South African Government respects the rulings and orders of the SADC Tribunal; and
  • It undertakes to honour the rulings in terms of its own obligations under the SADC Treaty.

The outcome of the settlement was that the matter was removed from the roll with no order as to costs and the signing ceremony scheduled for 27 November 2009 went ahead.

The signed agreement applies to 'all investments, whether made before or after the date of entry into force of [the] Agreement, but shall not apply to any property right or interest compulsorily acquired by either Party in its own territory before the entry into force of this Agreement'.

The BIPPA's contents are otherwise largely standard. This is surprising, as in a government position paper on BITs in 2009 the South African government had proposed major changes to BITs in the future to make them less biased in favour of investors.

The BIPPA will come into force 30 days after the last notification by both Governments that their respective constitutional requirements for entry into force have been fulfilled. It will then remain in force for ten years and will thereafter remain in force until written notification of termination by either government, and 12 months after such written notification has elapsed.

Neither Government has yet made public that its constitutional requirements for entry into force have been fulfilled. Thus the BIPPA currently remains unenforceable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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