Risk of nationalization of overseas investments
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.
Nationalization is usually associated with attempts to implement socialist or marxist theories of government.
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.