Should International Investment Agreements be redesigned to enhance positive FDI growth impacts?
Foreign Direct Investment (FDI) has been associated with various economic benefits to host countries through technological transfers, sustainable growth, capital accumulation, etc. To attract more FDIs, developing economies seek to improve their investment climate for foreign investment. Efforts towards this among others involves signing International Trade Agreements (IIAs). As at November 2020, 2,901 Bilateral Investment Treaties (BITs) have been signed, out of which 2,343 are in force. Also, a total of 391 Treaties with Investment Promotions (TIPs) have been signed out of which 321 are in force (UNCTAD). IIAs are treaties signed between countries to govern the relationship between host economies and firms, spelling out the duties of the host economy towards the foreign investor.
The impact of FDI in the growth and development of economies has been an area of concern for many economic researchers. Data provided by the United Nations Conference on Trade and Investment (UNCTAD) has shown a rapid increase in FDIs to developing countries over the years. However, there is a lack of consensus regarding the impact of FDI on developing countries. Some empirical analyses have shown a negative growth nexus between FDI and economic growth, an indication that developing countries should rethink their strategies to leverage FDI to enhance growth.
A paper by J. Dixon and P.A. Haslam (2015) shows that host countries with stronger IIAs attracts more FDIs. Likewise, it can also be argued that IIAs with favorable conditions for host countries could influence growth. Thus, IIAs could be designed to influence increased economic growth in the host economy. This leaves a big question, are the IIAs signed between host countries and the investing parties favorable to both the host country and foreign investors or does it seek to protect the interest of the investor alone at the expense of the host country?
An assessment of samples of IIAs signed between Nigeria and other countries shows that IIAs are divided into fourteen (14) sections/articles. An analysis of these sections indicates no provision of a section/article(s) that addresses the gains from the agreement to the host country. A larger proportion of the articles contained in the IIAs addresses the protection of the interest of the foreign investor, allowing for a free transfer of payments in connection with the investment, in particular the principal and additional amounts to maintain or increase the investment, the returns, the repayment of loans, etc. However, there is no indication of the responsibility of the investor in contributing to the growth and development of the host economy.
In light of the above, should IIAs only seek to address the protection and security of the investors and their investments? Or should the interest of the host country be captured in IIAs as well? Developing countries and the UNCTAD would need to reconsider this in developing strategies to leverage FDI for positive growth. While, IIAs in itself may be insufficient to harness positive impacts of FDIs, it provides a binding agreement on which investors could be committed to promoting growth in the host country.