The link between good governance and foreign investment promotion
By Chisom Obiudo.
With the rise of globalisation and the reduction of trade barriers worldwide, the last 30 years have seen a growing inclination to promote foreign investment as part of a country’s development strategy.
Such investment, whether through foreign participation in domestic companies or the establishment of foreign and multinational enterprises in a host country, is now a cornerstone of most countries’ strategies to increase economic development, create jobs and improve scientific and technical competence.
Namibia boasts of favourable conditions for attracting foreign direct investment (FDI): political stability, a functioning democracy, adequate infrastructure, and low crime levels. The legal and regulatory regimes are, to a great extent, transparent and well documented.
Due to increased emphasis placed on securing and maintaining investment “at home”, countries compete by promoting the benefits of investing in their territory instead of another. Investment promotion, mainly through specialised investment promotion agencies (IPAs), has become central to many countries’ attempts to foster economic development.
On 16 March 2020, His Excellency President Dr. Hage Geingob formed the Namibia Investment Promotion and Development Board (NIPDB). The new board aims to encourage a prosperous business environment and market Namibia as a favourable investment destination.
In light of this, governments and investment promotion agencies worldwide focused on attracting foreign direct investment. However, less attention was directed towards improving good governance in the context of promoting foreign direct investment.
A focused approach on governance-related issues that affect investors may be required in countries where the attraction of foreign investment is a priority. Good governance is the government’s power in managing a country’s economic and social resources for development. Therefore, investment promotion agencies and their role in improving good governance in the public and private sector deserve special attention.
The following rudiments of good governance in investment promotion are the following:
Predictability. Predictability refers to the law’s consistent application and its supporting policies, rules, and investment regulations. Investors evaluate new projects by, among other things, the risks involved; thus, a high degree of uncertainty can easily be a deterrent.
To be predictable, laws and regulations should also set out the criteria by which government officials make decisions. Therefore, the clearer the application standards, the greater the degree of predictability and the smaller the investment risk.
In cases where good governance principles in formulating the legal and regulatory framework are not strictly adhered to, negative investment promotion consequences begin to unfold.
Firstly, there will be disrespect for the rule of law and increased corruption. Laws deemed too costly to comply with or too complicated to understand could encourage the parties on both sides of the fence to take risky shortcuts.
Secondly, as stated above, the increased uncertainty will affect the decision to invest. Thirdly, there would be a misallocation of resources, as time and energy are diverted from productive business activities to costly efforts to comply with cumbersome regulations.
Accountability requires establishing norms and standards to evaluate the achievement of an institution’s mission. Therefore, by setting performance standards and monitoring, the government official’s accountability and effectiveness increase while cases of corruption reduce.
In order to address the government institution’s accountability and their employees who interact with investors, it is essential to identify for what and to whom these civil servants are accountable.
Civil servants as part of their investment promotion mandate are legally bound and accountable for applying and enforcing specific laws, regulations and policies. To ensure that these tasks are performed correctly and prevent corruption, it is necessary not only to have clear application standards but also to have adequate sanctions and means to detect offences.
This could for example be achieved by sensitising all the NIPDB staff on Namibia’s anti-corruption legislation such as the Anti-Corruption Act, 2003 (Act No.8 of 2003), including mechanisms to inspect reported cases.
Apart from legal accountability, another significant aspect of accountability is attitude. Many civil servants in ministries and other government organs who interact with investors still don’t regard investors as parties to whom they are accountable for the prompt, competent and impartial performance of their duties.
Accountability problems also arise when it is not clear who is responsible for making the final decision. An investor’s common complaint is that they are given “the run around” and sent from “pillar to post” with no one willing to address their concerns.
Thus, it is recommended that the NIPDB, as the new investment promotion agency, develop a client service charter to showcase its commitment to investors to uphold stipulated procedure times and requirements and not partake in illicit or unethical activity. These charters can be standard legal clauses within investment agreements or informal documents to be acted on in good faith.
In addition, establishing an effective mechanism to resolve investment disputes outside the formal court system should be set out in the legal framework. This saves investors a lot of time, effort and money, and makes an investment location more appealing.
Information of laws, policies and regulations, and their changes should be readily available for investors. The interface between government and investors is most effective when there is timely disclosure of information, accessibility of information and a helpdesk for investors.
Transparency would facilitate greater openness to the media and the public on investment policies and practices, whereas a secretive investment climate increases the risk of attracting the wrong sort of foreign investors, such as those involved in the Fishrot saga.
There is a need for regular public and private sector dialogues to improve Namibia’s investment environment. For the government, consultations with the private sector about policies, laws and processes can be an important part of their investment promotion efforts. It keeps the government informed of investors’ needs and reassures the business community of an open and investor-friendly government.
Likewise, given the critical role that civil society can play in promoting good governance, its role in investment promotion cannot be underestimated. There should be consultations with civil society on legislative and regulatory changes that will influence businesses. By establishing various forums, including consultative committees, through which civil society and business groups can provide inputs, the government will ensure that its policies and programmes reflect Namibia’s development goals and stakeholders’ interest.
Finally, as Namibia embarks on its journey to becoming a global investment destination and Logistics Hub, it is imperative to note that public governance not only helps build investor trust and confidence, but provides rules and stability needed for planning investment in the medium and long term. It facilitates a smooth and productive interaction between the state and the general public, no longer based on rigid traditional control and command approaches, but on flexibility, guidance, communication and persuasion.
It has been demonstrated that promoting good public governance by increasing transparency and predictability of laws and regulations and consistency in their enforcement; contributes to a better regulatory environment for business and the attractiveness of an investment location.
*Chisom Obiudo is an admitted legal practitioner, employed as a Senior Legal Officer at the Namibian Law Reform and Development Commission. She holds a Masters degree in commercial law, with a focus on corporate governance and holds specialised certificates in compliance and legislative drafting. She writes in her personal capacity.