Towards a Better Understanding of the Role of Foreign Direct Investment in Developing Countries with Special Focus on the 2012 Ethiopian Investment Law

Although foreign direct investment (FDI) is a household term, its role in bringing about development is one of the most controversial and divisive issues that has generated a great deal of debate not only among scholars but also among politicians, the business community and even ordinary people. It is widely argued by the supporters of FDI that there is no growth, creation of wealth and prosperity without foreign investment. However, the precise definition, scope, characteristics, and role of FDI and its role to bring about development in general and sustainable development in particular in developing countries lack clarity and often tend to create confusion and controversy. Thus, it can be argued that FDI is still one of the most sensitive, complex as well as ideologically controversial issues in both academic and non-academic circles. There is a uniform understanding neither of its definition, scope and content nor about its effectiveness in alleviating or substantially reducing poverty in developing countries in general and Ethiopia in particular. One of the principal aims of this article is to highlight and clarify the concept and content as well as the roles of FDI in developing countries with a special focus on the Ethiopian Investment Proclamation 769 of 2012 (herein cited as EIP 2012) and the Regulation issued related thereto. The article also briefly examines the tax incentives that are being used to attract foreign direct investment for the purpose of promoting manufacturing and highlights the administrative organs mandated to implement the new investment law. The article also gives an insight into whether the new investment law is an effective vehicle to transfer technology to Ethiopia?