FDI Foreign Direct Investments are bad for a sovereign economy

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.

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