Nationalization of foreign investments

Risk of nationalization of overseas investments

Nature

Nationalization of foreign investments may take several forms: the assets of the nationalized companies may be transferred to the state; or only the share capital may be transferred, leaving the company to continue operations under state controls. The process may be undertaken in an arbitrary manner with little or no compensation of foreign investors, or through compensation in non-convertible currencies. Typically, nationalization is applied to a particular foreign-owned enterprise if domestically-owned enterprises in the same sector do not exist.

Incidence

The nationalization of foreign investments has been a significant issue in various countries, particularly in Latin America, Africa, and parts of Asia. According to a 2020 report by the World Bank, over 30 countries have enacted policies that led to the nationalization of foreign assets in the past two decades, affecting sectors such as oil, mining, and agriculture. The scale of these actions varies, with some countries nationalizing entire industries, while others have targeted specific companies, leading to billions of dollars in losses for foreign investors.
A notable instance occurred in Venezuela in 2007 when the government, led by President Hugo Chávez, nationalized the oil industry, seizing control of foreign-owned oil companies, including ExxonMobil and ConocoPhillips. This move was part of a broader strategy to assert state control over natural resources and redistribute wealth. The nationalization led to significant legal battles and financial repercussions for the affected companies, highlighting the contentious nature of foreign investment in resource-rich nations.

Claim

Nationalization is usually associated with attempts to implement socialist or marxist theories of government.

Counter-claim

Nationalization may be undertaken to ensure state control of enterprises or industries of major importance to the health of the economy, particularly where the control of such enterprises is of political and social importance. In many developing countries, such enterprises are concerned with the exploitation of irreplaceable resources whose value on the international market may be subject to wide price fluctuations. The policies of a foreign-owned corporation with regard to the profitable sale of such commodities may be based on different criteria than those of the national government, particularly concerned by their domestic repercussions.