Are foreign direct investments benefiting EAC citizens?

By Billy Rwothungeyo                                            

East African Community (EAC) member states continue to post impressive Foreign Direct Investment (FDI) figures, according to the 2015 World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD).

The regional bloc attracted FDI inflow of $7.09b in 2014, up from $6.2b in 2013, with Tanzania leading the way again. East Africa’s largest country was the highest recipient of FDI in the region, recording $2.14b last year, up from $2.13b in 2013.

Uganda was in second position, attracting $1.14b in FDI. Kenya, Rwanda, and Burundi received foreign investment worth $989m, $267.7m and $6m respectively.


So much FDI, where are the jobs?

Despite the rise in FDI figures that politicians and technocrats in EAC member state governments’ chest thump about, there is no little evidence to suggest that the rise in these foreign investments are having a positive impact on the day-to-day lives of ordinary East Africans.

These investments have largely not lived up to the promise of adequate job creation, transfer of skills and technologies to the local populations.

For example, Uganda saw a 7% decline in planned jobs to 60,197 jobs in 2013/14 from 64,403 jobs in 2012/13 across all investments in the country, according to figures from the Uganda Investment Authority.

Foreign companies delivered a paltry 3,398 actual jobs, a far cry from the 41,458 planned jobs in 2013/14.

The same report also indicates that in 2013/14, planned jobs among foreign projects recorded a 12% decline to 41,458 planned jobs in 2013/14 from 47,115 planned jobs in 2012/13.

 In Kenya, despite investments in the last quarter of 2011 rising from ksh47.1b to ksh53.5b, fewer jobs were created in the same period.

Figures from the Kenya Investment Authority (KenInvest) indicated that 3,039 new jobs were created for Kenyans in the last three months of 2011 compared to 3,651 in the same period in the previous year.

According to the Tanzania Investment Centre data, FDI into East Africa’s largest country had projected to create 103,958 in 2007. That figure dropped significantly to 79,101 in 2011.

Trade and investment analyst Nathan Irumba, a former Ugandan ambassador to the World Trade Organisation, argues that one of the reasons why investments have not created as many jobs as anticipated is because the FDI we are attracting have limited job creation potential.

Irumba reasons that if investments were directed into the agricultural value chain, a sector that employs the majority of East Africans, then more jobs would be created.

“If we get more investors in agriculture, especially in the value addition, we would be able to create linkages between what the farmers do on the land and agro processing,” he says.

“I would not mind if young people were moving from villages and freeing up land for commercial farming and getting employment in industries in the urban centres, but that is not the case.”


Call for pro-development investment policies

Although FDIs have boosted the treasuries of EAC member states, some people have suffered as a result of their activities.  A 2015 report titled: “Foreign Direct Investments (FDIs) in Uganda: Impact on people’s economic, social and cultural rights” authored by Southern and Eastern African Trade Information and Negotiation Institute (SEATINI) says foreign investments have not necessarily brought a smile on everyone’s face.

“Most citizens have not been given consultative rights prior to the establishment of investments in their traditional lands, despite profound livelihood changes that accompany FDI projects which include; loss of farmland, environmental degradation, and in some cases, resettlement,” the report says.

“While compensation is given in the form of cash payments, these are often small and do not always compensate adequately the loss of livelihoods experienced by those who do not directly gain from these investments.”

The report was written after SEATINI undertook a research to examine how BIDCO’s activities in Kalangala district on Lake Victoria, Sugar Allied Industries Limited (SAIL) in Kaliro and Namanve Industrial Park on the fringes of Kampala are affecting the people nearest to these establishments.

It is on the backdrop of such impacts that stakeholders are now calling upon the region to formulate trade and investments that are in line with the development aspirations of the citizens in the EAC countries.

Doris Asembo, the country director of SEATINI Kenya argues that investors coming into East Africa should be able to help transform the socio-economic welfare of the citizens.

“If an investor violates all our national laws, we cannot sue them yet they can take our governments to court for compensation, they have tax holidays of ten years, they expatriate all their profits, they never allow a portion of their profits to develop the host country, are these pro-people investors?” she says.

To start with, Asembo argues that EAC member states must formulate development benchmarks that are non-existent today.

 “At what point to do you comes to a conclusion that development has been realized in Uganda as a result of investment. What we need as a region first is a concrete yardstick to evaluate these investors.”

It has been argued that some investors do not live up to their promises because of factors beyond their control like such as delays in the resettlement of squatters and land compensation, delays by authorities to approve building plans among others.

According to the Uganda Investment Authority, some investors cited challenges related to poor infrastructure mainly roads leading to their premises, power outages and limited land for expansion for their failure to commence operations in 2013/2014.

Godefroid Manirankunda, of the Burundi based Action for Development and Regional Integration says the region has to step up on infrastructure development so that the EAC can attract more serious investors.

“In East Africa, we do not have adequate infrastructure in transport; roads, railways, and yet air transport is very expensive. Energy, if there is not enough energy, we shall not attract investment as a region,” he says.

 “When investors come, they find that even the basic infrastructure does not exist, so they are put away. Others will use that (inadequate infrastructure) as an excuse when they fail to deliver on what they promised.”

Fredrick Njehu, a programme advisor for Trade, Justice, Economic and Social Rights Programme at the Kenya Human Rights Commission more should be done to produce candidates with relevant skills needed by investors, especially in oil and gas, and mining sectors.

One of the key drivers of FDI in the region has been the recent discoveries of natural resources such as oil and gas.

 “Knowledge sharing and technology transfer does not come automatically. People have to be trained. If East African countries want to have their citizens fully take part in the oil and gas extractive industries, they need to step up,”

“Foreigners will come in because they have been trained. If we do not do the same, we shall be left with the job of wiping machines,”


The EAC Framework and Investment Model Treaty

The EAC Framework and Investment Model Treaty is still in draft form, but some stakeholders want some issues to be ironed out in the draft form to make investments in the region pro-development.

The right of entry and establishment for an investor is absent in the draft. Stakeholders want this provision to be included in the treaty so that EAC member states are able to regulate investors with more authority.

Stakeholders also want the draft to include an article on obligations of states on environment, human rights and labour standards.

“When a foreign comes and at the end of two years, the river next to it where the community gets water from is polluted, is that pro-people development? If a company employs people and pays them less than a dollar a day, is that pro-people development?” argues Asembo.

Njehu agrees: “Investors should respect the environment, the labour laws of the country. We should also look at the accountability mechanisms.

Performance Requirements on foreign investors such as job creation, use of local inputs, transfer technology, promotion of joint ventures are also missing in the draft model, which stakeholders want to see included in the draft.

There is also unease among certain circles on the issue of fair and equitable treatment of both local and foreign investors in the draft proposes.

Mulengani Bernard, a Member of Parliament at the East African Legislative Assembly (EALA) says when the treaty is finally ratified by member states; a lot should be done to implement it.

 “The biggest challenge we have is that implementation is not as par the schedules, and this has dragged our performance. At the assembly, we have passed laws that are aimed at improving the environment and performance as a region, but implementation is slow at the national levels,” he says.

Mulengani also cautions against the sovereignty syndrome which could compel member states to overlook the treaty and seek their own concessions with investors.


Need to renegotiate BITs

EAC member states have several Bilateral Investment Treaties (BITs) which many argue do not rhyme with the development aspirations of the East African people.

For example, Uganda’s treaty with Denmark, which came into force in 2005, states that investors are free to ship their capital and returns from Uganda at will.

In 2004, Uganda’s agreement with France came into force. In Article four, it states that investors from France should be accorded the same treatment like local indigenous companies.

“Each Contracting Party shall apply on its territory and in its maritime area to the nationals and companies of the other Party, with respect to their investments and activities related to the investments, a treatment not less favorable than that granted to its nationals or companies, or the treatment granted to the nationals or companies of the most favored nation, if the latter is more favorable,” it says

Irumba argues that EAC member states undertake bold reforms like South Africa, which in the recent past has cancelled Bilateral Investment Treaties (BITs) with many a European country.

South Africa embarked on revising her treaties after three Italian mining companies filed a suit against Africa’s second biggest economy at an international court. The companies were protesting against South Africa's minerals law, which were passed as part of her Black Economic Empowerment (BEE) policy.

In place of these treaties, the South African government has come up with a general legislation—the Promotion and Protection of Investment Bill. Thriving Asian economies such as Indonesia, Malaysia and Singapore have taken such measures in the past.

At the fifth Thabo Mbeki Foundation Africa Day Lecture in May 2014, Prof Mandla Makhanya, the Vice Chancellor of the University of South Africa shared similar sentiments.

 “African governments and citizens need to interrogate whether this FDI is assisting their own individual needs in the areas of science education, agriculture, poverty eradication and other developmental programmes.

"The true marker of Africa’s development will be how we are able to implement a socioeconomic narrative that has the continent ending the 21st century as a success story,” he said.