Foreign ownership

Foreign ownership refers to the ownership of a portion of a country's assets (businesses, natural resources, property, bonds, equity etc.) by individuals who are not citizens of that country or by companies whose headquarters are not in that country.

Foreign ownership of assets is widespread in a modern, globally integrated economy, at both the corporate and individual levels. An example of the former is when a corporation acquires part, or all, of another company headquartered overseas, or when it purchases property, infrastructure, access rights or other assets in countries abroad. If a multinational corporation acquires at least half of a foreign company, the multinational corporation becomes a holding company, and the company receiving the foreign investment becomes a subsidiary.

At the individual level, foreign ownership occurs whenever a domestic asset is acquired by a foreign individual, such as an Indian businessman buying a house in Hong Kong, or a Russian citizen purchasing United States Treasury bonds.

Benefits

*The transfer of technology and organisational knowledge can lead to higher productivity, and the company in the host country can learn from multinational corporations
*It increases employment and wages. Inward foreign direct investment has an overall positive effect in employment, as companies have more capital to expand.
*It lowers prices and improves the quality of products. That is a result of higher productivity, which is beneficial for consumers and the company's competitiveness for exports.

Drawbacks

*Foreign ownership can increase the demand of products, leading to price increases.
*The increase in productivity in the firms in foreign ownership can cause other domestic companies to become relatively less competitive, which reduces profits.
*Multinational corporations may use their power to influence government policies, especially in underdeveloped countries. That may have an adverse impact on economic development.
*A lowering of employment because of operational optimization or an increase by a planned expansion can occur. Wages can be reduced for new employees by new corporate policies, and an optimized employee benefits package can reduce benefits for all.
*The demise of local economies can be caused by siphoning money from communities to global elites.

Policies

Indonesia

The House of Representatives of Indonesia passed the plantation bill to set stricter rules on foreign ownership in the plantation sector to prioritise smaller local plantation firms. There is no specific percentage value on the limit on foreign ownership, but a 30% foreign ownership ceiling had been demanded by the House's Commission IV.

Plantation business groups as well as the Ministry of Agriculture had previously voiced criticism of the bill, expressing concern that it would negatively impact plantation firms and growers, as foreign investment might be reduced.

Even though the bill was passed to limit foreign ownership, the law encourages cooperation research and development between domestic and foreign businesses, universities and individuals.

A reduction in foreign ownership limit may reduce foreign investment, but it can help boost revenue for domestic firms and economic development.

Government Regulation No. 14 of 2018 limited foreign ownership in insurance companies to 80%. However, this rule is not applied retroactively for insurance companies with foreign ownership higher than 80% at the time of its implementation date of 20 January 2020.

Qatar

As part of financial reforms, Qatar's emir has issued a law, allowing foreign investors to obtain up to 49% of listed Qatari companies for expansion in the stock market and to stimulate development in the financial industry.

Prior to the law, ceilings on listed Qatari firms restricted foreign ownership to 25%.

The reform aims to help attract more foreign investment in the long run. However, according to a wealth manager in the Gulf, "It's a step in the right direction, but it will have to be backed up by good performance from companies in order to attract foreign investment. Also, there should be limited impact from the law in the short term due to liquidity issues and limited numbers of shares available."

Russia

In 2014, the Russian Duma passed a law reducing the foreign ownership ceiling for print publications and radio and television outlets from 50% to 20%; it was passed with a vote of 430-2. The legislation, which came into force in 2016, forbids foreign governments, organisations, companies and individuals from founding or holding more than a 20% stake in Russian media businesses.

According to Vadim Dengin, one of the bill's authors, "the tighter limit on foreign ownership would help protect Russia from western influence." However, publishers and editors of independent media companies in Russia argued that the new law would further reduce diversity of opinion.

See also

*Foreign Investment Review Agency (Canada)
*Holding company
* Subsidiary
*Foreign ownership of companies of Canada
* Foreign direct investment
* Foreign portfolio investment

References

{{DEFAULTSORT:Foreign Ownership
Foreign direct investment
Business ownership