You are on page 1of 15

Regulation of

Foreign Direct
Investment
PATRICK ABOKO
23.01.2019
FDI
What is it?
◦ According to the IMF and OECD definitions, Foreign Direct
Investment (FDI) reflects the aim of obtaining a lasting
interest by a resident entity of one economy (direct
investor) in an enterprise that is resident in another
economy (the direct investment enterprise).
◦ The “lasting interest” implies the existence of a long-term
relationship between the direct investor and the direct
investment enterprise and a significant degree of influence
on the management of the latter. (1)
1 Maitena Duce (2003). Definitions of Foreign Direct Investment (FDI): a methodological note; www.bis.org/publ/cgfs22bde3.pdf Accessed on 22.2019
Benefits of FDI
BENEFITS
◦ TO HOST NATION
◦ Knowledge transfer
◦ Technology Transfer
◦ Development in various industries of interest
◦ Improved standards etc
◦ Improved Productivity of local firms
◦ Adds up to country capital stock thereby raising output levels (2)
◦ Capital formation, HR development, Employment creation, expanded international trade, tax payments (3)

◦ TO INVESTOR (4)
◦ savings in transport costs (both, inputs and finished products),
◦ lower labor costs,
◦ Available infrastructure,
◦ savings in customs costs and contribution on imported goods,
◦ closer position to the customers,
◦ the possibility of quick and efficient delivery,
◦ availability of information about preferences and possibility for fast adoption of products in accordance with market requirements

2 Sarkar, Santanu. (2006). IMPACT OF INWARD FDI ON HOST COUNTRY - CASE OF INDIA. Academy of Management Annual Meeting Proceedings.
3 Akash Anand (2015). What are the positive and negative effects of foreign direct investment on the economy of a country?
www.quora.com/What-are-the-positive-and-negative-effects-of-foreign-direct-investment-on-the-economy-of-a-country accessed 20.01.2019
4 I Susic et al (2017). Foreign direct investments and their impact on the economic development of Bosnia and Herzegovina; Conference Series: Materials Science and Engineering
CHALLENGES of FDI
◦ Regulations/Laws defining rights/obligations
◦ Inadequate laws
◦ Inconsistencies between states
◦ No consensus at the global level (5)

5 Solomon Olusola Babatunde etal (2017) - Opportunities and challenges of foreign direct investment utilisation and its impact on construction sector in developing countries; Emerald Publishing Limited
Effect of Unregulated FDI
◦Loss of ownership advantage and additional costs
◦Administrative bottleneck and overdependence
◦Subsidies may lead to loss of revenue
◦Crowding-out of-national firms (1)
◦Unemployment – e.g. forcing local companies out of business
◦Corruption and Money Laundering
◦Collapse of vulnerable industries – e.g. retail market
◦Potential Conflicts
◦Reduced FDI inflows
Importance of Regulation
◦ Sanctity of contracts ensures respect for commercial rights and
obligations.
◦ prohibition against discrimination and expropriation to all enterprises. (6)
◦ Increased FDI with associated benefits
◦ Minimized Disputes and Quicker dispute resolution
◦ Protection of vulnerable industries
◦ Prevention of Money Laundering and Corruption
◦ Reduced unfair trade practices

6 Doing Business and Applicable Laws in Ghana; www.gipcghana.com/invest-in-ghana/doing-business-in-ghana/laws-regulation.html. Accessed on 22.01.2019


Regulations of FDI
◦ African countries now accommodating toward FDI
◦ Evidenced by changes in regulatory regimes
◦ Reorientation set in shift to private sector
◦ Realization that private international capital flows
are a key source of development in finance in the
future (Monterrey Consensus). (7)
7 OECD (2005). Regulatory environment for foreign direct investment; Preliminary inventory for selected African countries
Regulations of FDI
◦ International – Global/Worldwide
◦ Multilateral
◦ Bilateral
◦ Domestic/National Laws
International Regulations
◦ No Uniform binding agreement
◦ Defining rights and obligation of Investors and Host States
◦ Regulations limited to
◦ Anti-corruption conventions
◦ Regulation of state behavior towards Foreign Investments
◦ Attempts at global regulations failed due to lack of consensus
◦ Organisation of Economic Cooperation and Development (OECD) in
1995 – Multilateral Agreements on Investments (MAI) (8)
8 Esohe Okhomina Olajide (2015). International Trade Law in Africa; Mozey Publication
Multilateral and Bilateral
Agreements
◦ Incomprehensive
◦ Limited in scope
◦ Limited to signatory countries
◦ Examples
◦ North American Free Trade Agreements (NAFTA)
◦ Asian Pacific Economic Corporation (APEC)
◦ Energy Charter Treaty
◦ ECOWAS & AU
◦ Soft Law on the international front:
◦ World Bank Guidelines on Treatment of FDI -1992
◦ WTO through TRIMS – limited to trade related investments measures
◦ Others
◦ ICC International Code of Fair Treatment of FI 1949
◦ ICC Guidelines for International Investments 1972
◦ UN’s Center for Transnational Corporations 1990
◦ ILO’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy 1977
◦ World Bank’s Draft Guidelines on the Treatment of FDI 1992 (9)

9 Esohe Okhomina Olajide (2015). International Trade Law in Africa; Mozey Publication
Domestic/National Regulations
◦ Despite International Agreements every country has right to regulates FDI
Inflows/Outflows
◦ Countries observed to have favorable FDI regulations are developing countries
◦ Majority of of FDI regulations found in National Legislations (10)
◦ Legal approaches to FDI defer: (11)
◦ Open/Outward Looking approach –
◦ Restrictive Policies, Strict Controls
◦ Closed/Inward Looking approach – e.g. Nigeria/Ghana
◦ Less restriction with exceptions to protect local/host firms

NOTE
No legal regime is completely free
10 OECD (2005). Regulatory environment for foreign direct investment; Preliminary inventory for selected African countries
11 Esohe Okhomina Olajide (2015). International Trade Law in Africa; Mozey Publication
Domestic/National Regulations
Research have shown Foreign Investors in Africa/Developing (12)
Countries give favorable treatment due to:
◦ Bilateral Agreements
◦ Special Contractual Arrangements
◦ Special Legislations (13)
NOTE
All these are known to be influenced by International Instruments

12 OECD (2005). Regulatory environment for foreign direct investment; Preliminary inventory for selected African countries
13 Esohe Okhomina Olajide (2015). International Trade Law in Africa; Mozey Publication
Regulations of FDI - Ghana
1. Laws regulating and affecting FDI Include:
2. The Companies Act, 1963 (Act 179)
3. Income Tax Act, 2015 (Act 896)
4. Fisheries Act, 2002 ( Act 625)
5. Petroleum (Exploration And Production) Law 2016, (Act 919)
6. Forestry Commission Act, 1999 ( Act 571)
7. The Minerals Commission Act, 1993 (Act 450)
8. Minerals And Mining Act 2006, Act 703
9. Free Zone Act, 1995 (Act 503)
10. The Labour Act, 2003 (Act 651)
11. Foreign Exchange Act, 2006 (Act 723)
12. Ghana Revenue Authority Act 2009, (Act 791)
13. National Communications Authority Act, 2008, (Act 769)
14. Banks And Specialized Deposit Taking Institutions Act, 2016, (Act 930)
15. Environmental Protection Agency Act, 1994 ( Act 490)
16. Copyright Act, 2005 (Act 690)
17. Trade Marks Act, 2004 (Act 664)
18. Patents Act, 2003 (Act 657)
Further Reading
1. Ghana Investment Promotion Center (2019). Doing Business and Applicable Laws in Ghana;
www.gipcghana.com/invest-in-ghana/doing-business-in-ghana/laws-regulation.html
2. Sarkar, Santanu. (2006). IMPACT OF INWARD FDI ON HOST COUNTRY - CASE OF INDIA. Academy of
Management Annual Meeting Proceedings.
3. 2 Akash Anand (2015). What are the positive and negative effects of foreign direct investment on the
economy of a country?
www.quora.com/What-are-the-positive-and-negative-effects-of-foreign-direct-investment-on-the-econo
my-of-a-country
accessed 20.01.2019
4. 3 I Susic et al (2017). Foreign direct investments and their impact on the economic development of
Bosnia and Herzegovina; Conference Series: Materials Science and Engineering
5. 1 OECD (2005). Regulatory environment for foreign direct investment; Preliminary inventory for selected
African countries
Thank You
Questions