L'IDE (Investissement direct étranger) (document en anglais)

Foreign Direct Investment (FDI)

Introduction:

FDI can be defined as “cross border flows in which business in one country own part or all of business in other country”. In this regard, the current era of globalization can be characterized by the expansion of FDI and the creation of cross border production network by multinational companies. FDI offered benefits to both developing and developed countries as well as to host and source countries and has become the principal engine of global economic growth

However, in the recent few years, many countries have adopted or expanded regimes to review inward foreign direct investment (FDI) for either national or economic security purposes, reducing the quantity and quality of global FDI flows, with potentially significant adverse political and economic consequences.

In this paper work, firstly we are going to follow the main trends of FDI evolution in the world, secondly we will analyze the FDI’s benefits and disadvantages in order to answer the question whether FDI can offer a possible solution to the current financial crises.

1- Main concepts and trends in FDI:

FDI is direct investment in a country by a company in another country. In contrast to FPI , FDI refers to those investments that involve an equity stake of 10 percent or more in a foreign-based enterprise to exert meaningful managerial control over company strategies and decisions.

We can differentiate 5 main eras and milestones of FDI:

• 1960s: US started to invest in Europe to rebuild it after the 2nd war world.

• 1970s: Europe started to invest in USA as well (rich countries investing in each other)

• 1980s: Developed countries started to invest in developing countries

• 1990s: Developing countries started to invest in each other

• 2000s: Developing countries started to invest in developed countries (mainly China and India) .

1-1- Main trends of official policies toward the FDI:

The policies and national regulations toward FDI have been changing a lot since 1960s. From the 1960s onward, governments started to get interest in FDI. However, there have always been voices in favor of FDI and against it. Due to augmenting acquisitions of enterprises in developing countries by large multinational companies, the host countries have increased restrictions on foreign ownership, both written and unwritten, since 1970s that included governmental approval of acquisitions according to statutory criteria, total exclusion of some areas of investment from foreign participation, creation of joint ventures allowing up to 49% of foreign ownership. These restrictions prevented further development of the countries and resulted in the acceptance by the host countries of total foreign ownership under conditions of technology transfer since 1980s. Though certain strategic industries are still limited to state ownership most developing nations encourage FDIs excepting a few countries like Venezuela and Bolivia.

Parallelly with developing nations, non-market economy nations imposed limitations on the initiation of foreign investment using however totally different restriction basis on foreign investment. Political-economic Marxist philosophy lay in the heart of restricting measures applied in non-market economies. Considering IP as the patrimony of mankind, these countries had no legal protection of Intellectual Property and excluded majoritarian foreign equity ownership. This rigid approach discouraged market economy nations from investing in these countries on the one hand, while depriving non-market economy countries from the access to advanced technologies on the other hand. Poor production quality the growing technological gap encouraged the nonmarket economies to stay back from the Marxist theory and to adopt first joint venture laws nevertheless limiting the foreign equity participation to 49%. Penetration of Foreign investments provoked in the 1980s the rush in the nonmarket economies to become market ones that lead the countries to the next transition phase, that of privatization of the 1990s. Workers participation in ownership and control of equity significantly reduced the state involvement in the economy.

Legal restrictions on foreign investments as well as non-written rules are not limited to developing countries but are also common in developed market economies. The perfect example is the creation of the Committee on Foreign investments in the US in 1975 the responsibilities of which were codified by the Foreign Investment and National Security Act in 2007 and that became the presidential designee to monitor foreign investments

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