March 2021

FDI Foreign Direct Investments are bad for a sovereign economy

Let's imagine you have a house, which needs some improvements. Since you don't have the finances or skills to do it yourself, you ask others to chip in. Somebody will do the hydraulic pipelines of water and heating, some will put in new wooden floors, somebody else will custom design a new kitchen, somebody the landscaping of the garden.
Now, who owns the house?
With works completed, the heating system is very expensive because of foreign technologies, to walk on parquet floors you need to wear special footwear, kids and dogs cannot use garden so to not damage the grass lawn, because the "investors" want to safeguard their "investments".

In a sovereign economy, foreign investments have many disadvantages, in some cases they are a trap. An economy can only be sovereign if the state is very strong, to direct the economy down the right path to become advantageous for the country and its people. Even with a strong government, large investors have incredible power to influence an economic and political system.

The advantages of receiving FDI Foreign Direct Investment is clear: investment, jobs and knowledge transfer.

The list of disadvantages of receiving FDI Foreign Direct Investment is very long:
-Hindrance to Domestic Investment
-Modern-Day Economic Colonialism/predatory exploitation
-Disappearance of local cottage and small scale industries
-Replacement of local technologies with expensive proprietary foreign ones
-Takeover/elimination of unique or critical local companies
-Cultural erosion
-Profit repatriation

How does a sovereign economy need to manage FDI Foreign Direct Investment?

1) Excellent governance, i.e. resistance to pressures
2) Allow only FDI in real economy (i.e. manufacturing)
3) Give local investors same (tax) benefits as FDI investors
4) Disallow takeover/elimination of unique or critical companies/technologies

Summing up, FDI Foreign Direct Investment is mostly a bad deal for receiving sovereign economies, and only advantageous if the sovereign economy is able to apply a very strong governance in order to reap its (limited) benefits.

Best Practices for Import Substitution

Recently I was researching import substitution by looking at import data of various countries. And I hatched a generic plan.

First of all 3 questions:

1) which imported items can be easily displaced?
Examples could be:
- Agri-food, light industry(FMCG) where capital expenditure is minimal and technology low

2) which are the most imported items (by value) ?
Often relatively simple chemical raw materials are a big item in the import basket. Things like plastics or base chemicals for cleaning products.

3) which items are more strategic for the market or industry?
Examples could be one or more priorities:
-goods whose production has multiplying effect on jobs
-strategic goods where unavailability stops whole industries
-linkage to related industries
-processing of local resources

This analysis needs to be further drilled down, for each industry, and an analysis of imported good needs to be donein order to know which goods have a very big money value.

The Sovereign Economic Model - Political considerations

When I was developing the core economic concepts of the Sovereign Economic Model ( I was focused exclusively on the economic theories on how to strengthen the economy.

But slowly it dawned to me, that it implicitly contains  many political elements, not because of my personal political inclinations, but because economic control implies also political influence.

As with any type of sovereignty, it means the country controls processes within its borders.

In economic terms, economic sovereignty means a country controls the money flows within a country. When someone else outside a country controls food, medicines, electronics, industrial production, energy, media, military hardware, land ownership and other main businesses it means a country is not in charge, is not sovereign.
Therefore the Sovereign Economic Model implicitly tries to reverse such external control, though state capitalism,import substitution, market regulation, industrialization and tries to move the economic control levers back to the country and its people.
The Sovereign Economic Model also has a more long-term view of the well-being of the economy, in terms of independence, self sufficiency and stability while capturing and retaining the wealth created in the country.

It is obvious that increased competition is not a welcome concept for many of the largest international industry players and countries with such industries. It is therefore criticized, despised and ostracized both in media and academia by most economic experts and stakeholders.

It is sad to see that only a few countries like China, Russia, India(partially), Iran and few others are capable of having sovereign economic policies, while others willingly or unwillingly gave up economic control of their country, which is economically negatively impact their economies in the longer term.

State Capitalism - Investment strategies

Many still define state capitalism as socialism or communism.
What is it?
We can differentiate between different types:

Sovereign wealth funds
These are funds, usually accumulated by oil rich nations in Middle East, Norway,Russia.
In most cases these funds just want to optimize returns, ie. make the most efficient investments anywhere in globe, thus operate just like an investor.
In some cases, they are mixed, these funds also invest inwards, i.e. they finance business in their home country
In Russia, RDIF invests and co-invests mainly inwards. The most glaring example is the Sputnik V vaccine for COVID-19.

State owned companies
State owned companies were/are historically tied to energy, ie. Oil and utilities. Probably the fact that these industries are critical. While in West these we mostly or partly privatized, in the rest of the world this is the standard.
In developed countries, there are few state owned companies, while in emerging countries it is almost a norm.
As a paradox, the biggest growth seems to have happened, while the state had a larger ownership of companies, both in Europe as in Asia.

The State itself
A government can influence business with economic policies, taxed, regulation, permits. In fully deregulated capitalist countries the government does not pose many obstacles to business, and supports the largest companies. Usually the government has to step in if critical business have large losses or face bankruptcy.
In state capitalism, the state heavily regulates some sectors of the economy, own and/or controls large business, and effectively has the monopoly in strategic industries.

Investment Models
State capitalism allows a country to move a huge amount of resources to implement a plan. The State can move state owned companies, sovereign funds and internal funds to support an industry. This combination of finance, manpower and technological skills make it easier to complete large scale projects.
Let's imagine an infrastructure upgrade in rail roads: State provides financing, sovereign fund attracts foreign co-investment, state companies provide the technology (fast trains, management systems), state owned construction firms manage the project.
State capitalism investment strategies are generally more focused on long term improvement of the general economy though infrastructure, providing employment, favoring internal development of industrial and technological goods and solution, and spending the money within the country.
Comparatively, unbundled capitalism is not about rising a tide to lift all boats.

Экспортная Организация И Суверенная Электронная Коммерция

Экспортная Организация И Суверенная Электронная Коммерция

Недавно я исследовал организацию экспорта стран.
Должен сказать, что большинство стран меня весьма разочаровали.
Большинство развитых стран имеют статичную структуру: Торгово-промышленная палата, Экспортные банки, Экспортное страхование, поддержка крупных организаций, обычные торговые выставки. Некоторые заключают сделки через соответствующие министерства по таким предметам, как оружие, сельское хозяйство.

Между тем Китай использует передовые технологии электронной коммерции, такие как Alibaba/Aliexpress, для прямых продаж потребителям США и Европы.У них развитая логистика, соглашения с такими организациями, как почта США, о международных поставках. У них много торговых связей, любой континент, любая страна. И они поставляют что угодно кому угодно, в любое время, в любой валюте.

Индия довольно своеобразна. Они очень сильны в ИТ-услугах, фармацевтике и других услугах. Индия не имеет очень сильных торговых структур, но индийские компании коврово бомбят людей, предлагая услуги через социальные сайты, такие как Linkedin.

Я хотел бы видеть лучший тип экспортной организации. В наш век электронная коммерция и связанная с ней логистическая составляющая являются наиболее эффективными инструментами для того, чтобы поместить товар в "витрину" и нацелить его непосредственно на потребителя. Недавно я написал в блоге о том, что электронная коммерция де-факто является бизнес-инфрактуройСуверенная-электронная-коммерция-как-стратегическая-суверенная-бизнес-инфраструктура

экспорт-это еще одна причина рассмотреть.