Foreign Direct Investment – Does
the Rule of Law Matter?
Elias C. Chipimo
Annual LAZ Conference 2017
FDI – Does the Rule of Law Matter?
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“It depends”
In some instances the answer may be “Yes”
In certain instances the answer may be “No”
The key to determining the answer will always
lie in the vision and objectives to which a
nation has aligned itself
Introduction – Rule of Law
• Is there an objective definition of “Rule of
Law”?
• Different things to different people
– Prisoner (access to justice)
– Investor (effective enforcement of rights)
– Regular citizen (lack of accountability)
• “Why should any society seek to establish the
rule of law and how does this impact foreign
direct investment”?
Rudiments of the Rule of Law
Rudiments of the Rule of Law
• Balancing power in society – no one is above
reproach and ordinary citizens have a right to
air and have their grievances addressed
• A set of principles that provides objective
standards for applying laws so that: (1) no one
is disadvantaged by being denied access to a
known and documented set of laws and (2) no
one can circumvent laws due to wealth or
position in society
Rudiments of the Rule of Law
• Combination of three critical elements:
– Legal and regulatory regime
– Institutional framework
– Cultural context
• World Justice Project
– Established in 2006
– Created under the American Bar Association
– Established 4 principles that underpin the rule of
law
4 Universal Principles (WJP)
• 1. The government and its officials and agents
as well as individuals and private entities are
accountable under the law.
• 2. The laws are clear, publicised, stable, and
just; are applied evenly; and protect
fundamental rights, including the security of
persons and property and certain core human
rights.
4 Universal Principles (WJP)
• 3. The process by which the laws are enacted,
administered, and enforced is accessible, fair,
and efficient.
• 4. Justice is delivered timely by competent,
ethical, and independent representatives and
neutrals who are of sufficient number, have
adequate resources, and reflect the makeup
of the communities they serve.
FDI – Lessons Learned
• Recognition that legal and institutional reform
does not happen overnight
• Extensive overhaul of a country’s legal and
institutional system is not a necessary
precondition to attract large multinational
investment
• Foreign investment is a dynamic force in the
forefront of the push for reform
FDI – Lessons Learned
• Often the requirement of foreign investors is
not grand sweeping changes but mundane
specific ones
• Because of their practical approach and
specific demands, foreign investors are well
suited to articulate rule of law challenges
• FDI can facilitate effective legal and
institutional change
FDI – Does Rule of Law Matter?
Yes
• Inclusive development
• Broad-based FDI
• Economic diversification
No
• Patronage (who you know)
• Specific
• Narrow mono- economic
base
• Large, small and micro-scale • One-off big investment
investment
intention
Thank You
• Questions