Disproportionate foreign investment in indigenous industries

Nature

Disproportionate foreign investment in indigenous industries refers to the scenario where foreign entities invest significantly more in local industries than domestic investors, often leading to imbalances in economic power and control. This phenomenon can undermine local businesses, stifle innovation, and erode cultural heritage, as foreign investors may prioritize profit over community interests. Additionally, it can result in the exploitation of natural resources and labor, exacerbating social inequalities. The concentration of foreign capital can also create dependency, making indigenous economies vulnerable to external market fluctuations and decisions made by distant stakeholders.

Incidence

According to the United Nations Conference on Trade and Development (UNCTAD), in 2022, over 60% of foreign direct investment (FDI) in extractive and manufacturing sectors in sub-Saharan Africa was controlled by non-domestic entities, often resulting in limited local ownership and influence. Similar patterns are observed in Southeast Asia, where foreign investors hold majority stakes in key indigenous industries, raising concerns about economic sovereignty and equitable development.
In 2019, Papua New Guinea’s Porgera gold mine exemplified this issue when the government reported that over 95% of the mine’s profits were repatriated by foreign companies, leaving local communities with minimal economic benefit.

Claim

The process of takeover of traditional industries by foreign investors at best meets with resentment from the local business community and government, and at worst encounters solid opposition. By creating an unfavourable reaction, such action can lead to restrictive measures against all foreign private investors, including those offering scarce technology.

Counter-claim

Foreign investment represents high levels of management skills and production, distribution and marketing technology. The profit motive of transnational corporations and its satisfaction assures countries of assistance in the development of traditional industries. Excessive government investment or nationalization of traditional industries assures a slow-down in development.