THREATS TO FOREIGN DIRECT INVESTMENTS

For small open economies like Belize, foreign direct investments (FDI) are a major contributing factor to aid in a country’s economic development.  Belize’s investment policy framework is a relatively open one which allows for the easy flow of FDI through the establishment of wholly-owned foreign firms.  During the post-independence era significant levels of FDI flows into Belize contributed to the development of key sectors within the economy, with tourism, agriculture, transportation and energy sectors being the main beneficiaries.  It is important for one to note that which underpins the attractiveness for foreign investors to invest in Belize, is investor’s confidence.  This essay will examine how this most important factor is being delimited at such an alarming pace that it may result in Belize becoming an investor’s destination of last resort.   This is especially so with the most recent passage of the Supreme Court of Judicature (Amendment) Act of 2010.

In the pre and post independence era in Belize, FDI played a significant part in the development of the major industries and export sectors in Belize, namely, the sugar industry, citrus, energy and tourism sectors.  During the period 1984 to 2003 FDI inflows into Belize averaged US$21.23M per annum.  Data for the most recent years shows increases in capital and financial flows with 2008 recording US$109M, although this is inclusive of remittances from abroad.  Majority of the foreign investments have been going into the energy sector for oil exploration and drilling in addition to funds being invested in real estate and tourism oriented projects.  Nonetheless, with the onset of the global financial and economic crisis one can anticipate a reduction of inflows recorded for 2009 to decline.  Therefore, although capital formation may be challenged by the global economic environment, the national environment now plays an even more important role as Belize competes along-side other developing and emerging markets in the world.

Investor’s confidence has been waning and continues to be tested as government policies and action give rise to major concerns of how investors can engage in Belize.  In 2009 Belizean’s saw the nationalization of the Belize Telecommunications Limited (BTL) as a significant move by government in taking decisive action that did not render the public’s interest paramount, but rather exercised government’s power for its special interest.  Most recently, with all eyes and ears on the budget that was presented and passed, on March 25, 2010 government introduced a Bill to amend the Supreme Court of Judicature Act, chapter 91 of the Laws of Belize.  The swiftness and manner in which the legislative amendment was introduced, only reflects the government’s objective in attempting to ensure that the judiciary is limited by the law to such extent that it would favour government as a party to any possible dispute in the courts.

The amendments to chapter 91 addressed specifically the enhancement of and penalties for criminal contempt of court.  It is so written that in the case of natural persons or juridical persons, whether in Belize or elsewhere, can be held liable for directly or indirectly advising, facilitating or encouraging the commitment of an offence of contempt of court.  The penalties are so exorbitant that individuals found guilty of contempt can be fined a minimum of $50,000 up to $250,000 with an additional fine of $100,000 daily for each day the offence continues.  In the case of legal entities whether corporate or incorporated, fines range from a minimum of $100,000 to $500,000 with an additional fine of $300,000 daily for each day the offence continues.

A second important aspect of the amendment is the fact that for legal entities, partners, shareholders, directors, managers, advisors and secretaries can be held guilty of the offence of contempt if the legal entity was so found guilty. It is for these individuals to prove to the court that the offence was committed without their knowledge.  Thirdly, the act of contempt can be tried, judged and punished regardless if the offence was committed in Belize or outside of the country.  This provision therefore, grants the Supreme Court extra-territorial jurisdiction.  If the Court grants an injunction that restrains the continuation of commencement of any arbitral proceedings whether in Belize or outside Belize, any award made can be wholly void by the Court.

Lastly, the Act seeks to take effect retroactive to any injunction of contempt issued before these amendments.

The implications of the above noted legislative amendments are far-reaching and especially so for foreign investors that choose Belize as a destination for their investment ,due in main, to the apparent strong legal framework and rule of law that exist.  However, with such draconian measures being put in place investors may be wary of wanting to engage in economic activity and investments that can be subject to any legal challenge and by extension, liable of contempt, which can occur as a deliberate act or one of omission.

The passage of such a piece of legislation ought to have been consulted upon with stakeholders to ensure that potential investors are not now viewing Belize as a country with a strong-armed government that may stifle investment and by extension development.  The challenge is therefore, how the government rationalizes to the populace the need for such penalties and restrictions when there are far more pressing development issues that require attention.  In light of government’s limited ability to swing the pendulum of economic activity in high-gear, FDI remains a critical component that can ensure that demand is created and sustained so as to realize positive economic growth in the medium to long term.  Once again the question is really where is the captain of the ship of State taking us? Is it that Barrister Elrington may be right in saying that in the hand of this captain we are heading for a shipwreck on the reef.

Gwyneth Sydney Nah

Send comments to GwynethNah@gmail.com

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