Picture: THINKSTOCK
Picture: THINKSTOCK

European Union officials and business leaders are "disappointed" and "very concerned" about South Africa's decision to cancel investment protection agreements with the EU, the source of more than 80% of foreign direct investment in South Africa.

Last week South Africa terminated an investment treaty with Belgium and Luxembourg when it expired. In total, South Africa has 13 agreements with EU member states, which will all be cancelled as they come up for renewal.

Existing investments will enjoy the same protection for a sunset period of 10 years, but new investments will not be covered by the agreements, which guarantee compensation should expropriation or damage be suffered by investors.

"South Africa's timing couldn't be worse in the light of the Marikana situation. Also, one cannot help but wonder whether these agreements are being cancelled in case South Africa decides to nationalise certain key sectors in the economy," one European businessman said on the sidelines of the SA/EU summit in Brussels this week.

Karel de Gucht, EU trade commissioner, said he was "disappointed" that the treaties were being terminated without having new ones in place.

"It certainly will affect the investment climate," he said at the summit. "It is difficult to argue that the present investment agreements haven't worked very well. The EU is by far the biggest investor in South Africa."

Trade and Industry Minister Rob Davies said South Africa was getting "plenty of investments" from countries such as the US without having bilateral investment treaties in place.

However, European business leaders said they require bilateral agreements to get affordable insurance needed to raise capital for ventures abroad.

"It does matter for investors," said Adrian van den Hoven, director at industry body BusinessEurope.

The economic crisis in Europe and Africa's status as a new growth frontier, makes South Africa an attractive market for European CEOs, Davies said.

"If there are investors who stay away because they feel that we don't have old-style, dated, antiquated bilateral investment treaties in place, I can assure you there are plenty of other investors from other parts of the world who are happy to come and don't insist on this.

''And, if they want to make that decision [to stay away], well, they'll be keeping themselves out of an economy which is part of a growing continent and that's their choice," he said.

South Africa has been reviewing its investment protection framework and a new regime is likely to take the form of legislation, which should be in place in less than five years, Davies said.

The review was sparked by a long-running lawsuit brought by Italian mining investors in 2006.

They argued that a new mining law, which requires 26% black ownership, caused damage to their investment and that they should be paid compensation in terms of investment treaties between South Africa, Italy and Luxembourg. The case was settled in 2010.

European business leaders attending the summit expressed concern over the delays in South Africa's renewable energy bid process, the lack of a trade agreement covering services and the lack of co-ordination between government departments, which hampers infrastructure roll-out programmes.

EU businesses see significant opportunity for investment in broadband, energy, shale gas, roads and other infrastructure programmes, Van den Hoven said.

With the exception of ArcelorMittal, no European mining companies attended the summit. Telecommunications, oil and gas, renewable energy, food and agriculture and pharmaceutical companies dominated the list of European attendees.

South African sugar and canned fruit industry bodies urged EU officials to improve access to the EU market for agricultural products.

Bongani Linda, chairman of the SA Sugar Association, said the country is losing sugar jobs and investment to other countries in the region, such as Mozambique, which enjoy duty-free and quota-free access to the EU.

* Marais attended the SA/EU summit as a guest of the EU delegation in Pretoria

* This article was first published in Sunday Times: Business Times