Conditions which host countries impose on multinational enterprises requiring them to meet specified goals with respect to their business activities are one way regional countries can preserve their investment policy space.
This was at the end of a workshop Friday organised by the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)-Uganda, and Governance for Africa (GFA)-Rwanda, a non-profit with a continental mandate on aspects such as regional integration.
For three days, regional government officials responsible for investment promotion convened for a workshop meant to equip them with knowledge on historical perspectives of investment policy, among others, and how they shape current investment policy dynamics.
The need to strengthen performance requirements is based on the thought that though foreign direct investment can play an important role in development of host countries, positive impacts of FDI are not automatic because the commercial interests of companies do not always coincide with states’ development goals.
According to Faith Lumonya, a SEATINI Program Officer, one key challenge with EAC partner states’ legal frameworks – national laws, policies, and investment agreements – is the provision to do with performance requirement measures.
Performance Requirements’ measures are a range of policy instruments available to governments to optimize the impact of investments, especially FDI, she said.
“They are and have been used by developed and developing countries together with other policy instruments, such as monetary and fiscal policy, trade policy, labour policy, environment laws, screening mechanisms and incentives appraisal frameworks; and are often aligned to the host states’ development strategies,” Lumonya said.
“They stipulate what constitutes the obligations of an investor; that is, exportation, facilitate value addition and industrialization; promoting use of local content; employment creation; leads to foreign exchange inflows; fosters transfer of a particular technology and skills, among others. It can emphasize even levels at which locals should be employed including number of those to be engaged in the managerial positions.”
Fred Karemera, Division Manager One Stop Center at Rwanda Development Board, told Sunday Times that the country’s investment legal framework “has catered for that.”
Among others, Karemera who is head of RDB’s investment, promotion and facilitation department explained that – basing on the 2015 investment law – a registered investor and his or her dependents can be issued with a residence permit in accordance with relevant laws; a registered investor who invests an equivalent of at least US $250,000 may recruit three foreigners without necessarily demonstrating that their skills are lacking or insufficient on the local labor market.
Karemera said: “This implies that other than the three employees cited in the law, the recruitment of other foreigners by a registered investor will first check whether the skills and qualifications required in such jobs are not available among Rwandans. If the skills are available our labor market, then he will not be allowed to recruit foreigners.
“Again, the ministry of labor and the immigration department are always updating the availability of skills in the Rwanda labor market through ODL (Occupation Demand List) so that when an investor applies for a work permit for his foreign employees he is advised on availability of such skills on the local labor market.”
Basically, he said, this was intended to protect and enforce performance requirements as a means of ensuring that regional economies “are not cheated by foreign investors.”
“On the skills and technology transfer aspects, this is obvious as the employer (investor) needs to train his employees for better delivery of the work assigned especially the locally recruited team,” Karemera said.
Deogratius Mbarara, an EAC investment officer, said the EAC Investment Policy does not provide for the Performance Requirements. However, he explained, there are provisions on promotion of local content.
“But Partner States are allowed to impose performance requirements to promote domestic development benefits from investments,” Mbarara said.
Such requirements may include, he said, exporting a given level or percentage of goods or services, achieving a given level or percentage of domestic content, purchasing using or according to a preference to goods produced or services provided in its territory, and other measures intended to promote domestic development.
The workshop was facilitated by Burghard Ilge, an expert at Both ENDS, an organization from The Netherlands which works towards a sustainable, fair and inclusive world. Ilge told Sunday Times that the ability to have performance requirements “is the most important thing”.