Labour standards and foreign direct investment: A perspective on the export-oriented garment sectors in selected sub-Saharan African countries

• Jurisdiction: South Africa
• Citation: 2018 Acta Juridica 183
• Pages: 183-209
• Published date: 19 December 2019
• Date: 19 December 2019

183

Labour standards and foreign direct

investment: A perspective on the export-

oriented garment sectors in selected sub-

Saharan African countries

DEBBIE COLLIER* AND SHANE GODFREY†

This essay considers the relationship between foreign direct investment

(FDI), labour markets and labour regulation. The essay discusses the

dierence between vertical (eciency-seeking) FDI and horizontal

(market-seeking) FDI, and the likely dynamics between these dierent

types of FDI and labour markets and labour relations. Lesotho and

Ethiopia are discussed as examples of how FDI interacts with labour

standards and labour market regulation in the context of sub-Saharan

Africa. The essay argues for policy orientation in developing countries

in Africa to attract a more benecial type of investment that balances the

interests of investors with those of the host country and its workforce.

The essay concludes with the observation that the development of

regional value chains in the context of the AfCTA should be pursued.

I INTRODUCTION

The relationship between foreign direct investment (FDI), labour

markets and labour regulation is complex and dynamic.1 While FDI,

particularly in manufacturing, can be an attractive and functional

means for developing countries to nance industrialisation, in turn

creating employment, promoting the transfer of skills and knowledge,

* BA LLB (Rhodes) LLM PhD (Cape Town); Attorney of the High Court,

Associate of the Institute of Development and Labour Law, Head of the Department

of Commercial Law, University of Cape Town.

† B Proc (Unisa) BA Hons MA PhD (Cape Town); Co-ordinator of the

Labour and Enterprise Policy Research Group, Department of Commercial Law,

University of Cape Town.

1 This is further compounded by the social disruption caused by the current

technological revolution. On the likely challenges for the sub-Saharan region, see

R Samans & S Zahidi ‘The future of jobs and skills in Africa: Preparing the region

for the Fourth Industrial Revolution’, available at http://www3.weforum.org/

docs/WEF_EGW_FOJ_Africa.pdf (accessed on 4 September 2019).

2018 Acta Juridica 183

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184 FOREIGN DIRECT INVESTMENT AND THE LAW

and spurring economic growth,2 it is not a homogeneous activity

with predictable consequences for the labour market. The nature

of the FDI is likely to relate to, or impact on, labour standards and

labour market institutions dierently.3

In this regard, the literature on FDI dierentiates between various

types of FDI, most notably between vertical (eciency-seeking) FDI

and horizontal (market-seeking) FDI.4 In the latter type, foreign

rms largely reproduce their activities – producing the same goods

or services – within the host country (or multiple host countries)

for supply to the domestic market of the host country.5 Vertical FDI,

on the other hand, involves the fragmentation and relocation of

production, or an aspect of production, to the host country, by a

multinational rm.6

Vertical FDI, which is attractive to industrialising countries

seeking to grow their manufacturing base,7 occurs when rms

relocate activities, either ‘upstream’ or ‘downstream’,8 in order to

2 FDI can also be oppor tunistic and dysfunctional, motivated by short-term

economic interests to the detriment of the greater public interest and sustainable

development.

3 See, eg, L Jaeck & S Kim ‘FDI deregulation versus labor market reform:

A political economy approach’ (2018) 45 Atl Econ J 73 89; and D Kucera

‘Core labour standards and foreign direct investment’ (2002) 141 International

Labour R 1 2.

4 In addition to Jaeck & Kim (n 3) and Kucera (n 3), see S Beugelsdijk,

R Smeets & R Zwinkels ‘The impact of horizontal and vertical FDI on host’s

country economic growth’ (2008) 17 International Business R 452 72.

5 Hor izontal FDI occurs predominantly, but not exclusively, in developed

countries. A good example of horizontal FDI are the global investments of the

German company, Volkswagen Aktiengessellschaft (VW), which invests in the

production and sale of its vehicles in multiple host countries, including South Africa.

6 The fragmentation of production means that the dierent stages of production

are separated, with each stage being undertaken by a dierent supplier, with the

possibility that dierent stages are undertaken in dierent countries. In the case

of global value chains, a dominant rm usually coordinates the dierent suppliers.

7 In this regard, the importance of global trade in textiles and apparel, and the

central role of the sector for industrialising countries, should not be underestimated.

See, eg, M Morris, J Barnes & M Kao Global Value Chains, Sustainable Development,

and the Apparel Industry in Lesotho (2016) and R Appelbaum ‘Assessing the impact

of the phasing-out of the Agreement on Textiles and Clothing on apparel

exports on the least developing and developing countries’ (May 2004) Centre for

Global Studies.

8 The activity is either upstream or downstream depending on whether it

occurs earlier on in the value chain (upstream) or at a later stage (downstream) in

the value chain.

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