Can countries legislate to attract more investment?
June 19, 2015 Editor 0
The effectiveness of legislating to address investment policy shortcomings is a recurrent debate in development circles. More specifically, do countries need a singular investment law? Should governments expend the political capital required to put in place a law if the likelihood of its implementation is questionable from the outset? Is it not better to work on more implementation-focused activities? And: If countries do undergo the reform process, what should it entail?
Revising or enacting investment laws is one of the first steps that many developing countries take to achieve its objectives for Foreign Direct Investment (FDI). In some cases, the purpose is to signal political will to reform; in other cases, changes are more substantial and seek to profoundly increase legal certainty and improve the value proposition for investors. Reforms may also arise from obligations that countries adopt under international investment agreements.
Investor certainty can bring substantial payoffs to host countries. Foreign investors want to be clear, among other things, about market access; about the requirements for business operation; about their rights and obligations; and about the accessibility and enforcement of dispute resolution.
Lack of certainty can have dire consequences. According to the 2013 Political Risk Survey by the Multilateral Investment Guarantee Agency (MIGA), almost 10 percent of investment plans were cancelled or existing investments were withdrawn due to various adverse regulatory changes in the preceding year. The value of such lost investment, coupled with the cost of international disputes that may arise from it, could climb to tens of millions of dollars for a single case.
But, this does not mean that enacting an FDI law is a guarantee of more investment. Effective reform requires, first, policy based on good practice and, second, implementation (legal, regulatory and administrative) through institutions that are up to the task. An investment framework should be implementable locally while remaining consistent with good practice.
Ideally, an investment law should be a part of a broader set of reforms dedicated to achieving specific objectives, such as more exports, jobs, productivity and other forms of value addition. All stages of investment should be addressed, including attraction, retention and linkage to the local economy.
- Experience design is shaping our future
- Give Impact Investing Time and Space to Develop
- How new multinational businesses can transform poverty–and be profitable
- Obama’s new fix-Africa-toolbox includes one shiny new tool: private investment
- How To Really Measure a Company’s Innovation Prowess
- How to increase investment in the Middle East and North Africa
Categories: World Bank PSD
Subscribe to our stories
- SL Crowd Green Solutions September 21, 2020
- Digital transformation in the banking sector: surveys exploration and analytics August 3, 2020
- Why Let Others Disrupt You? Take the Smart Self-Disruption Journey! August 3, 2020
- 5 Tips for Crowdfunding During the Pandemic August 3, 2020
- innovation + africa; +639 new citations August 3, 2020