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.

Background

The nationalization of foreign investments emerged as a significant global issue in the mid-20th century, particularly during decolonization, when newly independent states asserted control over key industries. High-profile cases, such as the expropriation of oil assets in Iran (1951) and Cuba (1960), drew international attention to the economic and diplomatic repercussions. Over subsequent decades, fluctuating waves of nationalization and privatization have underscored the persistent tensions between national sovereignty and international investment security.

Incidence

Nationalization of foreign investments has occurred across multiple continents, affecting sectors such as energy, mining, telecommunications, and banking. This practice has led to significant financial losses for multinational corporations and has triggered diplomatic disputes, arbitration cases, and shifts in foreign direct investment flows. The scale of nationalizations has varied, with some countries targeting entire industries, while others have focused on specific high-value assets, making it a persistent concern for global investors and international economic relations.
In 2023, Mexico nationalized its lithium reserves, impacting several foreign companies with existing exploration contracts. The government declared lithium a strategic mineral, transferring control to a state-owned enterprise and revoking private concessions.

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.