Is there a positive relationship between investment policies and inward foreign direct investment flows? A study of Nigeria and Guinea-Bissau

• Jurisdiction: South Africa
• Citation: 2018 Acta Juridica 97
• Date: 19 December 2019
• Published date: 19 December 2019
• Pages: 97-112

97

Is there a positive relationship between

investment policies and inward foreign

direct investment ows? A study of

Nigeria and Guinea-Bissau

SINIKIWE MZEZEWA* AND LUCK MAVHURU†

In recent years foreign direct investment (FDI) has been identied as an

important tool for economic development in Africa. Most countries on

the continent have put various measures in place, including legislation,

to ensure that they attract FDI. Given the role that FDI plays in

development, it is important to understand why some countries attract

more FDI than others. While there are several factors that explain this

disparity, this essay examines the role played by a country’s investment

policies and regulatory environment in attracting FDI, paying particular

attention to Nigeria and Guinea-Bissau.

I INTRODUCTION

Foreign direct investment (FDI) is considered one of the cornerstones

of fostering economic growth and, accordingly, governments create

policies that are conducive to FDI by multi-national corporations

(MNCs). Furthermore, countries enter regional trade groupings

premised on the idea that the harmonised policies of the trade

grouping will eventually lead to economic growth for all partner

states. Against this background, this essay will consider the impact

of the investment policies and regulations of two countries,

namely Nigeria and Guinea-Bissau, which are both members of

same regional trade group, Economic Community of West Africa

(ECOWAS), with a particular focus on why Nigeria attracts more

inward FDI than Guinea-Bissau does.

In considering the impact of and the reason for Nigeria attracting

more FDI than Guinea-Bissau, the essay will contextualise the

theory that holds that government regulations increase FDI inows

and will describe the investment laws provided by ECOWAS.

* LLB (UNIVEN) LLM Inter national Trade Law (UCT); PhD candidate UCT.

† LLB (Wits) LLM Inter national Trade Law (UCT); PhD candidate UCT.

2018 Acta Juridica 97

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98 FOREIGN DIRECT INVESTMENT AND THE LAW

The essay will then shift its focus to the domestic investment policies

of Nigeria and Guinea-Bissau, the implementation of the policies,

and FDI inows to Nigeria and Guinea-Bissau using data obtained

from the United Nations Conference on Trade and Development

(UNCTAD). It is important to note the limitations of this essay:

rst, econometrics models were not used to determine the link

between FDI policies and FDI trends in Nigeria and Guinea-Bissau

and, second, there is a dearth of literature on Guinea-Bissau.

II INVESTMENT POLICIES AS A DETERMINANT OF

FOREIGN DIRECT INVESTMENT

Studies have shown that the FDI determinants include geographical

locations, host country advantages, policy frameworks, business

facilitation measures, business conditions and economic deter-

minants.1 Other authors refer to these determinants as theories of

FDI, which assume perfect and imperfect markets, and theories

based on other variables.2 One of the determinants identied by

Moosa are government regulations which encourage inward FDI by

oering incentives and disincentives in the form of restrictions for

MNCs.3 Most authors refer to policy framework as ‘other’ denoting

an impression that policy frameworks are insignicant.4 However,

this does not explain Africa’s continuous eorts to change their

policies in anticipation of fast-tracking more FDI. The UNCTAD

survey showed that Indian rms considered regulations, incentives,

appropriate competition and inward policies as being important.5

Policy is only as eective as its implementation, and in this regard

it is necessary to investigate the rule of law. The rule of law, although

often understood within the concept of public law, also plays a role

in enforcing contracts and individual rights.6 Dicey dened the

1 UNCTAD World Investment Report: FDI from Developing and Transition

Economies: Implications for Development (2006) 143.

2 See, eg, JP Agarwal ‘Determinants of foreign direct investment: A survey’

(1980) Weltwirtschaftliches Archiv Bd 116, H & IA Moosa Foreign Direct Investment:

Theory, Practice and Evidence (2002).

3 Moosa (n2) 55.

4 Agarwal (n 2) 758 classies policy frameworks as other determinant

frameworks; Moosa (n2) 50 categorises government regulations as ‘theories based

on other factors’.

5 UNCTAD World Investment Report (n 1) 157.

6 A Nwabuzor ‘Corruption and development: New initiatives in economic

openness and strengthened rule of law’ (2005) J of Business Ethics 126.

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