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Rethinking FDI: The Hidden State Influence in Global Economies and Its Impact on Investment Decisions

World Bank data reveals a much larger state footprint in global economies than traditionally believed, with businesses having 10% or more government ownership present in many sectors. This expanded influence, termed businesses of state (BOS), surpasses the impact of majority-owned state-owned enterprises (SOEs). The prevalence of BOSs can deter foreign investment due to preferential treatment and reduced competition, posing significant challenges for private firms. As industrial policies become more active worldwide, understanding state influence is crucial for investors making informed decisions about capital deployment in diverse economies. By Alex Irwin-Hunt FDI Intelligence.

Debate over the economic impact of government control of commercial firms has existed since the birth of modern economics in the 18th century. But at a time when industrial policy is becoming more active around the world, it’s increasingly important that private companies understand the state footprints in different economies, especially those they are looking to invest in.

Government influence in economies has traditionally been assessed by looking at state-owned enterprises (SOEs), which are companies either wholly- or majority-owned by governments. But World Bank data that identifies so-called businesses of state (BOS) — companies with 10% or more government ownership — across 91 countries shows a far greater state footprint in many economies than traditionally thought. 

This has an inherent impact on the attractiveness of countries to FDI, because markets with a large presence of BOSs tend to have less new firms entering and lower competition.

“Businesses of the state often enjoy preferential treatment, from privileged access to resources such as land to market protection and subsidized finance. This creates uneven competition and implicit entry barriers for private firms, making investment less attractive,” Mona Haddad, the World Bank’s global director for trade, investment, and competitiveness, tells fDi. 

Expanding the analysis from traditional, majority-owned SOEs to minority-owned BOSs shows there are more than four times more companies with state influence around the world than earlier estimates, according to World Bank data published at the end of 2023. 

 Rethinking FDI
Rethinking FDI: The Hidden State Influence in Global Economies and Its Impact on Investment Decisions


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