Inappropriate foreign investment

The negative perceptions of the behaviour of foreign investors led some developing countries to nationalize foreign-owned companies operating in their countries. Where there was no outright expropriation, the foreign investors were required to accept minority government participation. Public enterprises and parastatal companies became the main instrument of economic development.

During the 1980s, there was growing disenchantment with both the performance of public enterprise and the heavy burden they imposed on government finances. The result was a reappraisal of the role of the private sector, both indigenous and foreign. Although some of the negative perceptions of transnational corporations may still persist, many governments came to terms with the fact that the potential benefits that can be bestowed by foreign investment (additional equity capital, transfer of technology, access to managerial skills, creation of new jobs, and access to overseas markets and marketing expertise) were crucial to their development.

In the case of developing countries in early years following independence, foreign investors were, apart from being viewed as extensions of colonialism, accused of engaging in various practices which were said to diminish their contributions to the host economy and sometimes resulted in their costs exceeding their benefits. These practices were said to include evasion of controls on the repatriation of profits and the stifling of indigenous competition. Foreign investors were also seen as operating under terms of one-sided agreements negotiated with colonial masters.