Economics: Foreign Direct Investment

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What impact will the prospect of deprivatization have on investment by managers of privatized firms?

The prospect of deprivatization will impact managers of privatized firms because under this policy, certain past privatization would be declare illegal and the transactions would be reversed. These privatized firms would have to be either run as a state-owned enterprise or sold to another party.

This will affect managers of privatized firms in that they may not have the power to make decisions on their own, decisions will be made by the state and this may limit levels of efficiencies in these firms, also the firms may not respond quickly to changing market conditions due to long process of decision making.

What effect will deprivation have on foreign investment in Russia?

Many of the private buyers were foreign companies and inventors and their idea was to move from a centrally planned economy to a market system. The courts would that the company’s initial privatization was illegal. They suggested that the company was to be resold.

Deprivatization will discourage foreign direct investment, this is because investors will fear the occurrence of such a situation in the future and therefore will prefer to invest in other regions. There are some factors that encourage foreign direct investment which include political stability and well defined property rights and when investors learn that political influences will occur they will not invest. Foreign direct investment has advantages in that it increases job opportunities, pay taxes to the government from profits earned, lead to the sharing of information and technologies and also stimulates economic growth, in future less foreign direct investment will decline and these advantages will not be realized.

Who gains from deprivatization? Who losses?

State-owned enterprises that were privatized loses. Managers who lost their jobs when new investors entered the picture gain deprivatization.

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