Saturday, 17-November-2018 21:20
 
no comments in "Economy"
Economy
Sunday, 03-September-2006
by Karl P. Sauvant-Project Syndicate - World flows of foreign direct investment (FDI) have soared over the past two decades, from $40 billion in the early 1980’s to $900 billion last year. The cumulative stock of FDI has reached close to $10 trillion, making it the most important mechanism for delivery of goods and services to foreign markets: sales by foreign affiliates total roughly $19 trillion, compared to world exports of $11 trillion. At the same time, the liberalization of FDI regimes by virtually all countries has been a driving force of intra-firm trade – the lifeblood of the emerging system of integrated international production and already around one-third of world trade. But are the good times coming to an end?
FDI can bring a range of benefits, but it also can have costs. During the 1970’s, when the transnational corporations (TNC’s) undertaking such investment caught the public eye, many governments believed that the costs of FDI outweighed its benefits, so they controlled it. Led by the developed countries, the pendulum began to swing in the 1980’s. Once viewed as part of the problem, FDI became part of the solution to economic growth and development.
Nothing exemplifies this more than changes in national FDI regimes. As the United Nations Conference on Trade and Development reports, of the 2,156 changes that took place between 1991 and 2004, 93% were in the direction of creating a more hospitable environment for TNC’s. But there is a real danger that the pendulum is beginning to swing back, leading to a reversal of that liberalization process.
FDI in developed countries (and increasingly in emerging markets) often takes the form of cross-border mergers and acquisitions (M&A’s). Resistance to such M&A’s is becoming more frequent when they involve domestic firms that are regarded by politicians as “national champions” or important for national security, economic development, or cultural identity. The growing involvement of private equity groups in M&A activity implies additional controversy, as such transactions are typically regarded as being purely speculative.
In the name of “economic patriotism,” security, and other considerations, resistance to M&A’s is being codified in an increasing number of countries. For example, a United States Senate committee recently sought to block the planned liberalization of foreign takeover rules for airlines, while Europe has enacted more restrictive takeover laws. Moreover, governments are applying more strictly existing regulatory provisions concerning the vetting of takeovers by foreign firms.
This response is intertwined with a defensive reaction to the growing role of TNC’s from emerging markets, the “new kids on the block.” Established TNC’s, and their home countries, will need to adjust to this new constellation of forces and its implications for the world market. As we know from other contexts, adjustment to newcomers is not easy: compare, say, the reaction to the tie-up between France’s Alcatel and America’s Lucent to the bids by the China National Offshore Oil Corporation for Chevron or Mittal for Acelor.
Another type of defensive reaction – this time to outward FDI – may well arise once the offshoring of services gathers more speed. All indications are that offshoring has reached the tipping point, and more of it will take place through FDI. If home countries do not put in place the adjustment mechanisms to deal with the rapidly unfolding revolution in making service industry jobs tradable, a backlash against such outward FDI will become inevitable.
The growing unease with FDI is so far largely confined to developed countries. But there are signs that it is spreading to emerging markets. In the case of large-scale projects, some host countries are raising questions about the contracts that define their relationship with TNC’s, and governments are reviewing such contracts because they believe (rightly or wrongly) that they did not get a fair deal. Of the 219 known international arbitration cases concerning investment projects, some two-thirds were initiated during the past three years.
Approaches to FDI have changed in the past, and they can change again in the future, depending on how governments view the balance of costs and benefits. This balance involves not only economic factors, but also such considerations as security and the desire to control one’s own economic development. The concept of “twenty-first-century nationalization,” introduced by Peruvian presidential candidate Ollanta Humala, mirrors in this respect the “economic patriotism” of French Prime Minister Dominique de Villepin.
Reservations against FDI (as against anything foreign) can be found in all groups of countries, and politicians can bring them to the surface, resulting in protectionism. It would be ironic, though, if developed countries – which led the FDI liberalization wave of the past two decades – now led a backlash against FDI. Let us hope that the de-liberalization seen in developed countries can be checked before it spreads to other parts of the world and ultimately brings undesirable consequences for all.

Karl P. Sauvant is Executive Director of the Program on International Investment at Columbia University (www.cpii.columbia.edu). His a co-author of World Investment Prospects to 2010: Boom or Backlash?, a report on foreign direct investment in 82 countries, issued on September 5 by Columbia University and the Economist Intelligence Unit.

Copyright: Project Syndicate, 2006.
www.project-syndicate.org
More from "Economy"

Other titles:
Tuesday, 17-October-2017
The United Arab Emirates acknowledged on Tuesday that two of its pilots were killed when their military aggression plane crashed over Jawf province, a military official said

The official added that the aggressive crashed plane was an apache that was
Tuesday, 17-October-2017
Three citizens were killed and four others wounded in two Saudi air strikes hit Majza district of Saada province, an official said on Tuesday.

The strikes hit a citizen's car in al-Jamalah area in the district, the official added.
Tuesday, 17-October-2017
Artillery of the army and popular shelled a gathering of Saudi-paid mercenaries in al-Moqadra area in Serwah district of Marib province, a military official said on Tuesday.

Meanwhile, dozens of Saudi-paid mercenaries were killed and others injured in Wadi al-Theek in the district, the official added.
Monday, 16-October-2017
The army and popular forces carried out on Monday unique military operations in Taiz province.

A military official said that a number of Saudi-paid mercenaries were killed at the hands of the army and popular forces in al-Jazami Hill in al-Kadaha area in al-Ma'afer district.
Monday, 16-October-2017
A Saudi aggression fighter jet targeted a citizen's car driving in Fara area of Kutaf district in Saada province overnight, killing the driver and injuring his friend, a security official said on Monday.
Monday, 16-October-2017
The army artillery and popular committees launched a fierce attack on Saudi-paid mercenaries' sites in Jawf province, a military official said on Monday.

The attack destroyed a military vehicle belonging to the mercenaries and killed all on board in Sabran area in khab and shaaf district.
Sunday, 15-October-2017
Scores of Saudi enemy soldiers were killed and injured on Sunday when the army and popular forces repelled a Saudi military attempt to sneak into Shurfah site in the border province of Najran, a military official said.

The operation was accomplished successfully against the Saudi
Sunday, 15-October-2017
The army and popular committees have killed a total of 18 Saudi-paid mercenaries in sniper operations over the past hours in the central province of Marib, a military official said on Sunday.

Ten mercenaries were killed in Nehm district and eight others were killed in Serwah district, said the official.
Saturday, 14-October-2017
Saudi aggression warplanes have launched more than 49 airstrikes over the past hours on several residential areas across Yemen, a security official said on Sunday.
The airstrikes targeted the areas of Malahiz and Husama in Dhahir district, and areas Thuban, Masahif and Sdad in Bakim district of northern Saada province.
Thursday, 12-October-2017
The army and popular forces carried out an operation attack on Saudi-paid mercenaries' sites in al-Hawal area in Nehm district.

A local official said that the operation attack resulted in killing and injuring mercenaries, adding they also incurred heavy losses at their ranks

who we are     |    Advertising     |    contact us
All rights reserved © Almotamar Net, Developed by