Foreign investment is a vital monetary process during which foreign private and state-owned businesses provide technology, capital and innovations to companies held abroad. One of the main types of foreign investment is ‘direct investment,’ where one company purchases partial or full ownership of another, foreign company. Investment may be made by both private ventures and companies, and by governmental organisations.
Direct investment is made to control the foreign enterprise, but there is another type of foreign investment, known as ‘portfolio investment’ made for the dividends or interest paid or for possible capital gains in the future.
Investments from abroad have contributed to the economic lives of host countries from time immemorial. For example, from the time the first US colony was set up in Jamestown chartered trading companies, merchants, and investors in mining, land and manufacturing made a huge number of transatlantic investments. During the American Revolution the assets of many of these foreign investors, who were deemed British Royalists, were seized.
Even today, foreign-owned assets in the United States, particularly in farmland and forests, continue to increase. A 2010 report compiled by the US Department of Agriculture reveals that individuals and companies from the Netherlands and Canada own nearly half of the foreign holdings in forests and farmland. A great deal of these foreign-owned lands are for growing timber and are most common in Maine, which has approximately sixteen percent of privately owned land belonging to foreign leasers or owners, nearly twice the amount held in the other states, the Department said.
Canada is perhaps the country with the largest level of foreign-owned assets in the world, and a large fraction of that country’s economy is controlled by American investors.
In 2011 China expanded the sections of its economy that are open to foreign investment and loosened some of its restrictions in its bid to promote investment in high-end manufacturing, the service sectors and high tech enterprises. The country also removed the ‘healthcare’ category from restricted status. The change means that there will no longer be limitations on the percentage of shares foreigners are allowed to buy in these sectors.
Finally, we look at Iran, a country that liberalised investment regulations in the early 2000s after its economy stalled for due to international sanctions and complex or unfavourable operating requirements. Vehicle manufacture, petrochemicals, copper mining, the oil and gas industries, pharmaceuticals and food are the main areas in which foreign investors concentrate their activity. Iran ranked sixth in the world for attracting global investments in the year 2010.
Foreign investment plays an extraordinary and increasing role in business dealings worldwide. Its most profound effects are seen in developing countries, and it benefits both the home and the host country. With the rapid growth of the Internet, the increasing role of technology, relaxing of direct investment limitations in a lot of markets and falling communication costs newer, non-traditional forms of investment are now playing a greater part in the economies of developing nations.
In conclusion, foreign investment is generally a good thing, because it generates jobs and other economic activity, especially in the developing world. Governments, however, must remain on guard for the evils of foreign investment, which include sweatshops that use child labour, poor working conditions and low wages. These governments must implement and enforce proper regulations that will protect their citizens from exploitation.