Towards an Effective Legal Scrutiny of Foreign Direct Investments (FDIS) in Africa: Revisiting the Example of Ramatex in Namibia

Abstract

Over the past decade, African and most developing countries have witnessed an increase in foreign direct investments (FDI). This has been due in part to the globalization and liberalization processes that began after the end of the cold war. Globalisation is understood here as the closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and people across borders. Globalization has been accompanied by the creation of new institutions such as the World Trade Organization’s (WTO) that have joined with existing ones such as the International Monetary Fund (IMF) and the World Bank to work across borders. The WTO, for example, has as cardinal principles, trade liberalisation and non-discrimination. This has made countries to open up previously closed sectors like state own enterprises through privatisation. In order not to miss the globalisation bandwagon, some African countries have put in place pieces of legislation, which have the goal of attracting investors. Others have signed bilateral investment treaties with developed countries, which amongst other things, contain provisions on nationalisation, compensation, national treatment and most favoured nation principles.

In order not to miss out on investors as well as the globalisation bandwagon, Namibia enacted the Foreign Investment Act and the Export Processing Zone (EPZ) Act in 1990 and 1995 respectively. These pieces of legislation were aimed at providing certain incentives to would-be investors. One of the companies that benefited from these initiatives was Ramatex Textile and Garment Factory, a Malaysian company. Few years after its coming into force; questions were raised by the media and civil society organizations (CSOs) about the company’s commitments towards uplifting the living standards of Namibians as well as contributing to the country’s economic development. At the time, the government dismissed these concerns stating that the company had significant bearing on the future course of the Namibian economic growth in terms of employment creation, skills development and foreign exchange. This, however, did not come to fruition as seven years later; Ramatex controversially closed its operations in Namibia.

The aim of this paper is to examine the Ramatex saga in the light of the sustainability of foreign direct investments in developing countries and least developing countries (LDCs) in general and African countries in particular. The paper explores the need for effective legal scrutiny of foreign direct investment in Africa especially why it should be done. The argument is sometimes made that certain multinational companies from developed countries, especially Shell often fail to respect environmental and other standards in developing countries, standards which they would have respected if and when they operate in developed countries. This paper looks at investment from a developing country to another one and shows whether this pale in comparison to investments from developed to developing countries are the same. The paper concludes by proffering ways through which such legal scrutiny might be achieved.