III.

INVESTMENT CODES

A. INTRODUCTION

Investment Codes are Laws that seek to present in one piece of legislation the basic provisions
on investment in the country concerned. Most developing countries have them. Our investment
laws here in the Republic of Zambia are mainly covered by the Zambian Development Agency
Act. The purpose of this code is to attract foreign investment, set conditions for its entry into
Zambia, simply the investment process for the foreign investor and facilitate and promote
investment.

B. GENERAL AREAS COVERED BY THE CODES

(a) Restrictions on investment

Investment codes may restrict the type of investment or the type of investors. For example
section 7 of the Zambian Mines and Minerals Act states that a mining license cannot be granted
to a person under the age of 18 or an undischarged bankrupt. Furthermore, a company that is in
liquidation cannot be granted a mining license either (This is a restriction on who can have
mining rights or invest in the mining industry).

(b) Admission

Although there is never an unrestricted right of entry, there almost invariably is a bias in favour
of admission. Admission is in each case a matter for the local authorities to decide in the
exercise of greater or lesser degrees of discretion under law. In Zambia admission is determined
by the Zambia Development Agency which is established by section 4(1) of the Zambia
Development Agency Act. One of its functions under section 5(2)(i) is to “assist in securing from

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any State institution any permission, exemption, authorization, licence, bonded status, land and
any other thing required for the purposes of establishing or operating a business enterprise.”

The host state has to approve or disapprove a foreign investor’s proposal. This will often be in
form of a letter from the appropriate agency. The case of Egypt v Southern Pacific Properties1
illustrates that the burden of ensuring that the proper approval is granted rests with the investor.
In this case Southern Pacific Properties (SPP), a Hong Kong based Company had entered into an
agreement with the Egyptian minister of Tourism who was ostensibly representing the Egyptian
government and the Egyptian General Organisation for Tourism and Hotels (EGOTH). The idea
here was to construct a tourist complex near the site of the pyramids of Giza. There was also a
supplemental agreement which reaffirmed and explained the rights of the two parties. This
agreement also contained an arbitration clause. The supplemental agreement was signed by
EGOTH and SPP. The Minister of Tourism added the words “approved agreed and ratified” and
then his signature.
A misunderstanding arose between the two parties. In addition to this, environmentalists were
opposed to the idea of developing a tourist complex on this historical site. The government
cancelled the entire Pyramid project. SPP therefore initiated arbitration proceedings before the
ICC. They took the view that the minister’s signature on the Supplemental agreement bound
Egypt to arbitration. The International Chamber of Commerce (ICC) agreed 2. They found that
Egypt had breached its obligations and thus SPP was awarded a sum of $12.5 million.

Egypt brought a case to the Court of Appeals of Paris in order to have the award set aside. They
took the view that the signature was nothing more than the “material manifestation of approval
by the supervising authority mentioned in the statement”. Even though he granted approval, the
minister was not a party to the contract and therefore Egypt was not bound by the arbitration
clause. Cour de Cassation agreed. It was set aside.

(c) Expropriation

1
(1984) 23 ILM 1048
2
Side note: This was an arbitral award

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Generally codes provide that investments will not be expropriated except in the public interest.
Expropriations are invariably carried out in accordance with law and with payment of
compensation. Section 19 of the Zambian Development Agency Act states that:

(1) An investor’s property shall not be compulsorily acquired nor shall any interest in or
right over such property be compulsorily acquired except for public purposes under an
Act of Parliament relating to the compulsory acquisition of property which provides for
payment of compensation for such acquisition.

(2) Any compensation payable under this section shall be made promptly at the market
value and shall be fully transferable at the applicable exchange rate in the currency in
which the investment was originally made, without deduction for taxes, levies and other
duties, except where those are due.

Section 19(1) is fully congruous with Article 16 of our Constitution, which uses the word
“adequate” instead of “full”. As you will see from our discussion of compensation, the terms
adequate and full are in fact synonymous.

(d) Transfer of capital and profits

Most investment codes allow for the transfer of capital. As far as this provision goes Section 20
of the Zambia Development Agency Act states:

“Notwithstanding any other written law relating to externalization of funds, a foreign investor
may transfer out of Zambia in foreign currency and after payment of the relevant taxes:
a) Dividends or after-tax income
b) the principal and interest of any foreign loan
c) management fees, royalties and other charges in respect of any agreement; or
d) the net proceeds of sale or liquidation of a business enterprise.”

(e) Taxation and other incentives

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In order to encourage the flow of investment, developing countries provide for tax incentives in
their investment codes.

According to section 55, these incentives last for a period of 5 years from the grant of the
licence, permit or certificate (or for such a period as the Minister responsible for finance may
prescribe). You need a minimum investment of US$500,000.00, in a priority sector or product in
order to qualify for such incentives. This is as per section 56.

According to section 57, any machinery acquired by either a business enterprise operating in a
priority sector (or in respect of priority products) or a rural enterprise is exempt from paying
customs duties.

Section 58 provides that major investments of $10 million or more in new assets may be entitled
to additional incentives. There are also provisions for double taxation in section 61. This is to say
that if the corporation is taxed here, then it will not be taxed again in its home state.

(f) Dispute Settlement

Most Codes give local courts jurisdiction but allow for dispute settlement by arbitration. For
example section 21 of the Zambia Development Agency Act states that: “Any dispute arising
from the privatisation process shall be settled by arbitration in accordance with the Arbitration
Act”.

It must be added that laws regulating investment are not limited to developing countries. For
example the United States has Acts requiring foreigners to disclose investment in the agricultural
sector whereas France requires investors to obtain a merchant card. The main difference between
the laws of developed countries and the laws of developing countries is that the latter is trying to
attract investment whereas the former is merely trying to monitor it.

(g) Technology Transfer

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The Zambian Development Agency is also given the task of encouraging and promoting “the
transfer of appropriate technology and promote public understanding of matters relating to
industry development and productivity”. (See Section 5(2)(t)).

C. STATUS OF THESE CODES

Sovereignty dictates that States may amend their investment codes at any time they so wish.
However, such a move is not advisable as it might discourage investment.