CHAPTER 11 FOREIGN INVESTMENT IN A CHANGING WORLD BANKING ARRANGEMENTS AND ASSOCIATED FINANCIAL CONSIDERATIONS

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 11
FOREIGN INVESTMENT IN A CHANGING WORLD BANKING ARRANGEMENTS AND ASSOCIATED FINANCIAL CONSIDERATIONS
Juan D. Sanchez
The Anaconda Company
New York, N.Y.

INTRODUCTION

There was once a time, some years ago, when the principal rules for establishing banking arrangements in a foreign country could readily be obtained from books or our own domestic bankers. There were standard sources from which one could obtain information on topics like availability of funds, financial guarantees, exchange controls, interest rates, etc., etc., ad infinitum. Today, however, the prospective investor in an overseas operation needs information that is available only from current experience. He needs to know the political, economic and social conditions that characterize the country that he has in mind. In short, foreign investment in a changing world requires a day-to-day knowledge of the changes that are going on. Mining companies which plan to invest in foreign countries have found life drastically changed if they assumed that their investments were going to be made under the "rules of the game" that were prevalent ten to fifteen years ago. They soon find out that life is quite different. They are confronting rather different rules now in effect in many countries.

The primary factor in these changed rules is, of course, nationalism. This has taken quite different forms in different countries—ranging from increasing demands for ownership or greater taxation of foreign enterprises in countries like Australia and Canada, to outright expropriation and takeover of properties by military juntas in places like Peru, Bolivia, and Chile. Whatever the form, the situation has been pretty much the same for the investing companies—a dramatic change in the way things are done.

Exploitation or Contribution?

One of the principal manifestations of this new nationalistic feeling is the

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attention being given in many developing countries to something usually referred to as the "national patrimony." A mining company is going to extract something from the soil, and the soil is in many countries considered a prime example of national patrimony. That is why it would be unusual for any developing country today to permit—at least to any significant extent—actual ownership of property either on the surface or beneath the surface of the ground. The people consider this part of their own patrimony, and their views on this subject tend to be extremely sensitive and therefore of paramount importance not only to the local people, but as a consequence, to potential investors from outside the national borders. It is vital to convince the people of the country that the foreign investor is making a genuine contribution to the welfare and economy of the developing nation, rather than just extracting some minerals and leaving a hole in the ground, as mining companies have been accused of doing in many, many places.

And what are we contributing? It must be spelled out, and spelled out in detail, and spelled out over a continuing period of time. We are contributing jobs; we are contributing foreign exchange; we are providing the means of industrializing the country; we are providing the means for importation of capital goods; we pay taxes — all of these things result from foreign investment. Nevertheless, when you are dealing with a part of the soil of the country—part of its reserves, important resources—you are facing an extremely sensitive situation.

The attitude of the government and people of the developing country, is, however, not always negative toward foreign investment. These countries have some specific objectives which they hope to achieve with the aid of foreign enterprise. What is it that all of these countries seek? First and foremost, they are seeking jobs. And, on almost the same level of importance, they are looking for foreign exchange. These are two overriding reasons why a developing country is willing to permit others to develop its natural resources. Paramount in the policy of almost any government is the objective of providing jobs and of obtaining foreign exchange to import capital goods to industrialize the country, and, in turn, provide more jobs.

A New Direction for Investment

Many, if not most, of the developing countries have traditionally been producers of raw materials, not manufactured products. Today, there is a desire in many of them to vertically integrate manufacturing within their own countries, to try to produce a more finished grade of product. For example, Jamaica has for many years been an important producer of bauxite—the basic raw material from which aluminum is produced. Today, there is increasing evidence that Jamaica would like to have an aluminum reduction plant of its own. Copper producing countries who once exported copper in concentrates would now like to see smelters, refineries, and rod mills on their own soil.

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In short, I think there is a very definite possibility for countries like Jamaica and others in the developing category to move toward production, not only of raw materials, but of the end products, and to get the benefit of the manufacture of these end products.

This, of course, could offer an investment opportunity of even greater importance than in natural resources. There might be a better investment opportunity in manufacturing or fabricating than there would be in the production of the basic material. American money and American technology could be very important to the ambitions of such a developing country. At the same time, it is important to realize that although the developing country needs the money, and needs the technology, and needs the management that an investor from overseas could provide, the...