South Africa, in its attempt to encourage foreign investment by enthusiastically embracing bilateral investment treaties (BITs), encountered a conflict between two policy objectives: the establishment of a conducive legal framework for attracting direct foreign investment and the pursuit of economic justice for all South Africans.
After 1994, at the dawn of democracy in South Africa, the country eagerly endorsed the idea of entering into BITs, none of which had been concluded by the apartheid government. By 2012, South Africa had concluded 48 foreign investment protection and promotion treaties. This rush to treaty must be placed into context.
When the African National Congress (ANC) came to power, it was anxious to ensure that the international community regarded the country as a sound investment destination. Foreign investors were concerned about the legacy of the history of postcolonial African states, which had embarked on a course of economic nationalization together with a proclamation of redistribution of economic growth. With this history in mind, the British government, under the leadership of the then prime minister, John Major, who was concerned that the ANC might expropriate British assets in South Africa, was the first to approach the newly installed South African government with a BIT proposal.
This initiative was launched during a BIT-signing frenzy in which more than 3,600 treaties were concluded worldwide during the following decade. At the very moment that democracy dawned in South Africa, the Washington Consensus macroeconomic model propagated by the World Bank and the International Monetary Fund had achieved hegemonic status. This consensus encouraged developing countries to enter into BITs with capital-exporting countries as a means to incorporate key economic values into developing countries’ economic development. This aimed to ensure that the national regulatory system of developing countries was congruent with a transnational legal and policy regime. At the same time, the Washington Consensus induced the belief that the conclusion of BITs would attract foreign direct investment, which was seen as an important component of government policy at the time. It was assumed that the attraction of foreign investment would significantly boost developing countries’ manufacturing and export industries.