Foreign direct investment and the rule of law in Africa in the context of legal integration
| Jurisdiction | South Africa |
| Pages | 75-95 |
| Published date | 19 December 2019 |
| Author | Mancuso, S. |
| Citation | 2018 Acta Juridica 75 |
| Date | 19 December 2019 |
75
Foreign direct investment and the rule
of law in Africa in the context of legal
integration*
SALVATORE MANCUSO† AND SARA RIGAZIO‡
This essay focuses on the relationship between foreign direct investment
(FDI) and the rule of law in the context of legal integration in Africa,
outside of the AfCFTA agreement. Specically, the essay investigates
the concept of the rule of law, taking into account its ‘dynamic’ side,
that is the power to shape and model the structure of a state using
the example of OHADA. The OHADA framework shows that the
relationship between foreign direct investment (FDI) and the rule of
law is not unilateral but a ‘two-way mutual’ relationship where both
actors contribute to the success of the system, adapting to each other
in order to achieve their respective goals.
I Introduction
This essay discusses the relationship between the rule of law and
corporate foreign direct investment (FDI) decision-making with
specic reference to the Organisation for the Harmonisation of
Business Law (OHADA). Although the link between the rule of law
and FDI has been explored for some time now, it remains a critical
matter in the international community, given the vast number of
studies, research articles and ocial policy documents that have
been published on the subject in only the last few years.1
* Sara Rigazio is the author of sections I, II and III; Salvatore Mancuso is the
author of sections IV and V. Both authors wrote section VI.
† Professor of Comparative Law and African Law, University of Palermo.
‡ Adjunct Professor of Conict of Laws, University of Palermo.
1 For example, a number of UN documents contain clear statements about the
relationship between FDI and the rule of law. See Report of the UN Secretary
General ‘The rule of law and transitional justice in conict and post-conict societies’
UN Doc No S/2004/616 para 6; Report of the UN Secretary General ‘A life of
dignity for all: Accelerating progress towards the Millennium Development Goals
and advancing the United Nations development agenda beyond 2015’ UN Doc No
A/68/202; ‘Background note: The President of the General Assembly’s high-level
event on the contributions of human rights and the rule of law in the post-2015
development agenda’, June 2014, 6-8. Other documents are reviewed in L-A Berg &
2018 Acta Juridica 75
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76 FOREIGN DIRECT INVESTMENT AND THE LAW
Global ows of FDI increased more than 9900 per cent between
1970 and 2013, but dropped a substantial 23 per cent in 2017. This
gure becomes even more signicant when considering developing
economies where, according to the last United Nations Conference
on Trade and Development (UNCTAD) report of April 2018, there
will be no growth in the short term or in the long term, causing
major concerns among experts since international investment is
clearly critical to the industrial development of these countries.2
Meaningful variation has diverse reasons, one of which is the
new economic age and technological advancement that led to a
profound reinterpretation of the traditional industrial structures.
In this context, while many countries, even the emerging ones,
are taking advantage of the new situation and are on the verge of
becoming leaders in this new sector, developing and least developed
countries (LDCs) still face many challenges.
Notably, companies look for stability and lenience when
conducting their business and entering a new market. Arguably, this
means that the more accessible the system, the more investment
it will be able to attract. Consequently, stakeholders very clearly
refer to concepts such as transparency of the rule-making processes,
absence of corruption, and the independence and impartiality
of the judicial system as the key factors for successful economic
operations.3 In fact, these are precisely (some of) the indicators that
studies refer to as forming part of the so-called rule of law. At the
same time, however, when the same stakeholders are asked about the
D Desai Background Paper: Overview on the Rule of Law and Sustainable Development for
the Global Dialogue on Rule of Law and the Post-2015 Development Agenda (2013) 81-3.
2 According to the World Investment Report 2018: Investment and New Industrial
Policies UNCTAD/WIR/2018, April 2018, the negative trend in FDI was
caused in part by a 22 per cent decrease in the value of cross-border mergers
and acquisitions (M&As). Generally speaking, the loss in FDI in 2017 has been
signicant, considering that investments dropped dramatically in Africa (down
21 per cent from 2016), remained stable in developing Asia, and rose in Latin
America and in the Caribbean. Overall, FDI remained fragile. Considering cross-
border M&As, a 29percent decrease was registered. According to the Report,
projections for global FDI for 2018 show a very fragile growth. See Report of the
UN Secretary General ‘The rule of law and transitional justice in conict and post-
conict societies’ (n 1) paras 2, 3.
3 These factors are known as the ‘three red ags’, according to the report by the
Bingham Centre for the Rule of Law, in Risk and Return: Foreign Direct Investment
and the Rule of Law (2015) 6.
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