Reinvestments of Foreign Capital in Developing Countries

The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Reinvestments of Foreign Capital in Developing Countries

 

investments of a portion of the profits obtained from the exploitation of the natural and human resources of the developing countries.

Economically underdeveloped countries are characterized by an acute investment shortage that forces most of them to open their economies to foreign capital and even to establish preferential conditions for it. These factors, as well as the high level of exploitation and specific natural features, usually guarantee foreign capitalists operating in economically underdeveloped countries a higher volume and rate of profit for equivalent capital. For instance, in the mid-1960’s the Standard Oil Company of California obtained 45 percent of its revenues from 14 percent of its foreign assets. The company’s rate of profit on capital invested abroad was greater than 35 percent, as compared with an 11.2 percent rate of profit for all of the company’s assets. In the late 1960’s, hundreds of subsidiary companies of the US monopolies were operating in the economies of the Latin American states, including approximately 650 companies with more than 100 workers each. Annual investments by these companies totaled $700 million, and annual profits, $1.44 billion.

The profits obtained by foreign capitalists in the countries of Asia, Africa, and Latin America make possible extensive reinvestments, the volume of which is substantial. For example, between 1962 and 1964 reinvestments constituted 41.8 percent of the direct private capital investments of the member-states of the Development Assistance Committee of the Organization for Economic Cooperation and Development. For 1966, the figure was 46.7 percent. (The Development Assistance Committee is made up of 17 imperialist states, including the USA, Great Britain, Japan, France, the Federal Republic of Germany, Italy, and Canada.) Since 1967 international bourgeois statistics have not offered summary data on reinvestments and since 1972 there have been no data on reinvestments by particular countries, but there is no reason to believe that there has been any change in the role of reinvestment in the economies of the countries of Asia, Africa, and Latin America. (Reinvestments accounted for 40 percent of the direct private capital investments of the USA in 1969 and for 41.2 percent in 1971. In 1969 reinvestments constituted 42.2 percent of West German investments, and in 1971, 78.8 percent.)

There are three main reasons for intensive reinvesting. First, the significant increase in the profits of monopoly affiliates located in the developing countries makes it possible for these affiliates to allocate a growing portion of undistributed profits for the expansion of production. In 1964 reinvestments accounted for $297 million of the new, direct, private capital investments of the USA, and in 1971, for $645 million. The corresponding figures for West German investments were $51.2 million and $157.6 million, and for British investments, $112 million (1967) and $137 million. The second main reason for intensive reinvestment is the deterioration of the investment climate in regions where the national liberation and anti-imperialist movements are strong. Relatively limited new investments are made in these regions, and already established subsidiaries expand production primarily by reinvesting profits and depreciation funds. The third reason for reinvestment is that newly independent states place legislative restrictions on the removal of profits from the country and require foreign monopolies to reinvest a certain amount of their profits in the economy. However, this process has several negative aspects. It strengthens the position of foreign capital and increases its concentration, contributing to an even greater increase in profits.

The increasing volume of reinvestment does not signify the end of the foreign monopolies’ practice of extracting profits from the countries of Asia, Africa, and Latin America.

V. P. PANOV

The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.