A foreign direct investment, or FDI, is an external investment made by an organization or individual in one country to business enterprises located in another country. Many countries around the world to facilitate foreign direct investment. However, many others impose a ban on the practice. These countries include some which are in the Middle East, Africa and some economically poor areas of Asia.
The main reason why a foreign direct investment is encouraged in one country is that it can provide a source of jobs to local residents. However, there are some problems with this kind of foreign investment. One problem is that some countries do not have readymade businesses to develop and so capital investments are required from time to time. There is also a tendency to localisation at the cost of globalization.
The other problem is that the foreign direct investment may be abused by the host country’s politicians and their cronies who benefit from the tax concession given to the foreign investors. There are several examples. One famous case was the Malaysian investment in South African gold mining which later became bankrupt when the government nationalised the mines.
Many economists claim that foreign direct investments will eventually lead to political and economic chaos in the host countries. There is a fear that foreign companies will dominate the regional and world economy. Moreover, the process of globalization leads to the concentration of wealth in a small number of countries, with consequent loss of local businesses and employment. Another problem with foreign direct investments is that the foreign investors will decide everything for themselves, ignoring the national leadership. This will reduce the competence of a country in international business. A country that has lost its ability to make strategic decisions will lose its credibility in international markets and will become a victim of protectionism.
A third argument against foreign direct investment is that it will reduce the prosperity and opportunity of the host country’s people. The argument is based on the argument that foreign direct investment will change the ownership of the wealth in the economy. The ownership of the wealth is controlled by the foreign investor through a voting stock method. The majority of foreign-owned companies are foreign direct investment companies. This means that a large number of foreign-owned companies control a major portion of the economy.
Some argue that there are positive and negative aspects of foreign direct investment. The first aspect is the fact that it supports diversification of the foreign portfolio. When there are many foreign investments, there are diversification strategies adopted by the portfolio managers to avoid putting all the eggs in one basket, i.e., protecting against depreciation of the currency of the country holding the investment. The second positive aspect of these investments is that they create jobs in foreign countries, boost the productivity of the host country’s economy, increase foreign investment inflows, and allow the host country to diversify the foreign portfolio.
Another issue that has been brought up about foreign direct investment regulation is that foreign direct investment regulation has not kept foreign investors from taking advantage of the opportunities that the economy offers. While there may be rules and regulations regarding foreign direct investment, the rules may not be effective enough to prevent companies and individuals from taking advantage of the economy and using it as a trading ground for their own benefits. On the other hand, there have also been cases when foreign direct investment regulation has been abused, leading to the manipulation of the foreign exchange rate and the country’s currency, as well as taking advantages of the system by some businesses and certain industries.
There are instances when some foreign direct investment companies have become very greedy and have taken advantage of the system, becoming too big to fail. There are also times when the companies themselves do not follow the rules laid down for them by the foreign direct investment company. These companies can affect the foreign portfolio investment negatively by acting in a reckless manner that risks the currency value of the foreign company itself. As a result, foreign investors who participate in the foreign portfolio investment may lose their money. If you want to make sure that you are investing your money into the right kind of companies, then you should be very careful about which company you choose to invest in.