Foreign investment: a panacea or a threat

Abstract

The resources of Ukrainian industry were already depleted prior to the start of Russia’s large-scale military aggression in February 2022; while the forthcoming physical destruction of manufacturing facilities and infrastructure, and the migration of qualified personnel and promising innovators further worsened the situation. Before the outbreak of war, only individual manufacturers of technologically complex products had research units, made innovation, and were able to compete in international markets. Some industries were only based on one or two companies, who mastered unique high-tech competence; these manufacturers paid taxes to budgets of all levels; provided employment, and helped to improve incomes and social stability. At present, the resources possessed by Ukraine’s private sector are critically low; so the country’s leaders are pinning their hopes on foreign investment as a means to solve the complex postwar issues such as the restoration of basic conditions for economic growth, the promotion of stability and the creation of an enabling environment for sustainable development. The goal of the article is to demonstrate some historical examples as to the obstacles and threats of foreign direct investment for host countries, which Ukraine may face in its post-war economic recovery. The author reveals that the foreign investments along with the well-known positive side, also have a lesser known negative side. The paper shows that transnational corporations as major investors, having economic power and political influence, have the potential not only to speed up but also to slow down the development of the host country’s companies, which can have an adverse impact on business results and lead to significant problems including the denationalization of assets, loss of technological competencies and industries, increased external dependence, and various threats to national security and economic sovereignty. On the example of the pharmaceutical industry in Mexico, which appeared and started actively developing after the end of World War II, the key challenges and threats (caused by denationalization and transfer of production control to foreign business) are shown. The author formulates the basic warnings for Ukraine. It is substantiated that the determining factor whether foreign investment will stimulate economic modernization and structural changes or will slow down the country’s development, lead to de-industrialization, and denationalization of the economy and mass unemployment is the extent to which that investment will be integrated by the Government into national development plans, also to what extent the absorption potential of domestic economic entities will be able to implement investments and ensure their maximum effects.