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NAME: GAZA FAITH DUZA
COURSE: LAW OF FINANCE AND FOREIGN INVESTMENT IN EMERGING
ECONOMIES.
“Development was long seen as a function of economics and engineering…. For
development to be truly sustained, however, it has to be a comprehensive process in which
all disciplines and professions fully participate. Law, in particular, as the formal
instrument of orderly change in society, plays a pivotal role, even though this role has not
always been readily recognized.”(Ibrahim Shihata, General Counsel of the World Bank
1999).
The above excerpt suggests that a holistic approach is needed for the sustenance of
development, in other words, all the disciplines and professions must not stand aloof but all
come together and fully participate in the process. This holistic approach to sustenance of
development can be illustrated with a body with many parts each part having their distinct
function, however they all work towards a mutual goal. Similarly, the different disciplines
and professions are those parts of a developed society. The Engineers who help with the
construction of the infrastructure, the Lawyers who help with the legal aspect, the medical
Doctors doing carrying out their own duties and all the other disciplines doing what they have
been designated to do. One of the factors that can help the different disciplines/professions
carry out their duties and functions peacefully, orderly and without unnecessary interruption
or conflict is the availability and enforcement of the ‘rule of law’.
The Rule of Law as a concept in its crude state spells out that no one is above the law.
The most important application of the rule of law is the principle that governmental authority
is legitimately exercised only in accordance with written, publicly disclosed laws adopted and
enforced in accordance with established procedural steps that are referred to as due process.
The principle is intended to be a safeguard against arbitrary governance, whether by a
totalitarian leader or by mob rule. Thus, the rule of law is hostile both to dictatorship and to
anarchy. According to Lord Bingham, “the principle of the rule of law means that all persons
and authorities within the state, whether public or private, should be bound by and entitled to
the benefit of laws publicly and prospectively promulgated and publicly administered in the
courts”. For the rule of law to be sustainable, law must be accessible, intelligible, clear and
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predictable, adjudicative procedures must be fair, means for resolving disputes must be
provided, adequate protection of human rights must be guaranteed, exercise of powers within
limits conferred, equality before the law, where law and not discretion is used and the
compliance of the state with international law.
There have been many academic research on the relationship between the “rule of law” and
the concept of economic growth development and how relevant one is to the other.
Economists, after the “Washington consensus” crumbled (this was an economic orthodoxy in
the 1980’s which advocated that the best way for countries to grow was to get the policies
right), having investigated concluded that the institutional setting of policy making especially
the rule of law is of paramount importance. Various examples in different countries have
supported this argument, for example events in the former Soviet Union and Ukraine. In the
long run, Economists continuously found that the better the rule of law, the richer the nation
became.
In as much as nations try to grow and establish their government premised on the rule of law,
the problem of knowledge rises at every level. The public needs to understand the importance
of the rule of law and their reliance on it, rather than on interpersonal relations, political or
social influence, nepotism or sheer corruption to carry out their transactions. According to Mr
Carothers, “aid organizations always look forward to the next project rather than back to the
lessons of experience and the lawyers who help in carrying out the work (on reforms, policy
making) are not much interested in development. In other words, there should be a general
awareness of what the rule of law is and its importance, this can be done through campaigns
by the different sectors.
Underlying the legal framework for a market economy is the basic objective to create a
business environment where those involved in investment and trade can readily predict the
vagaries of the future and be reasonably assured of continued free competition. These are
basic elements of the confidence in the system without which large, long term new
investment, both local and foreign, cannot be expected to take place. In essence, the
sustenance of rule of law in a country serves as a guarantee for investors especially for
foreign direct investment (FDI). It is worthy of note that the achievement of these basic
elements essential to the rule of law and good governance is dependant largely on peculiar
circumstances prevailing in each country and its position in the global economy.
