Foreign Investment Risk

Title: Foreign Investments Risks Around The World A Research Proposal: 
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Foreign Investments Risks Around The World A Research Proposal: 
Outline:
I-Introduction ………………………………………………………………3
II-Statement of the problem…………………………………………………4
II-1.Overview………………………………………………………………...4
II-2.The aim and Objectives………………………………………………….4
III-Literature Review…………………………………………………………..5
IV-Methodology and Statistical tools………………………………………… 8
V-.Expected findings……………………………………………………………9
V- Conclusion …………………………………………………………………..10
I-Introduction
In the colonial era, foreign investors from imperial States enjoyed total protection. As a result, there was not much talk and worry about risks associated with foreign investments. Protection was also provided through diplomatic channels in cases where in the investment was to be directed into countries not directly under domination of the investor nation. Reinforcement could be given by collective pressure mounted by home governments of the investors. However, the advent of economic nationalism soon after the colonial era served to eliminate military based protection which consequently opened the door to higher foreign investment risk in contemporary society (Sornarajah, 1994). 
The exercise of national sovereignty which followed from independence meant that countries became firmly in charge of the way their natural resources were utilized. This was a practice whose jurisdiction was expanded to cover both development and property expropriation risk within the international law confines. The immediate implication of sovereign exercise of unlimited control over resources was that a country would be within the law to alter some of the policies and law provisions as it deems fit as long as they are intended to maximize resource utilization. This would have the effect to provide leeway for the host country to effect strategic adjustments to vital political and fiscal policies hence increase chances for foreign investment risks. This research intends to find out what the risks to foreign investment today are in the international setting; with the aim of finding ways of reducing or avoiding the risks. The research will try to highlight some strategies that may help to encourage foreign investment amid the various risks involved. 
II-Statement of the problem  
II-1.Overview
With the current raging wave of globalization, many nation states have fear for
potential security threats and have as a result been forced to streamline some foreign direct investment (FDI) regulations as a cautionary measure. This kind of protectionism constitutes actual risk to FDI. There has been concern that there may be variety of FDI risks ranging from social, cultural, nationalistic sentiments, economic, and political risks. The problem arises from fact that FDI is an essential contributor to growth and development of nation states and need be encouraged. Therefore, there is need for a purposive compromise between these two opposing realities if FDI can make meaningful contribution to economic development without harming either the investor or the host country. A starting point would be to assess and understand the various risks likely to be encountered in FDI especially in the economically globalized set up today. This research will undertake to establish some of these facts while addressing the main hypothesis which is; foreign investment in the world today faces great risks.  
II-2.The aim and Objectives
The major purpose of this research is to establish risks associated with foreign investment and highlight some avenues of reconciling the negative impacts with the positive contributions of FDI so that foreign investment in the future can be environmentally friendly. It might well be the case that investors are driven by either baseless or exaggerated fears, or for lack of adequate information, or that host governments have grown too hostile, untrustworthy and unnecessarily overprotective. This research undertakes to find answers to some of these puzzling questions. The main objective of this research is to establish a neutral standing that will lay foundation for smoother foreign investment operations in the globalized international economy.  
III-Literature Review:
Past research indicate that nationalistic fervor which emerged in the immediate post colonial error traded a big blow to foreign investment (FI) because of the hostility and antagonism that came with it. Host countries pursued and nationalized foreign property while others chose to re-negotiate (Smith et al, 2000). Today, powerful nationalistic fervor such as that which occurred in post colonial time is unlikely. But still, there is real fear in some nation states that uncontrolled foreign investment is likely to restart a fresh platform of economic dominance through home country support of multinational corporations (Sornarajah, 1994). Foreign investors face the risk of xenophobic nationalism in situations where they may be perceived to control the economy, have some political inclinations during administration change periods, or amass and repatriate profits. 
It has been observed that governments at times significantly alter their fiscal regimes. This generates exploration and production fiscal risks. This demystifies calculations of investment returns from foreign investments. Usually, the risk/reward calculations are done with assumption that the existing fiscal arrangements will hold throughout the entire investment period. Any shift of goal posts by the host country will jeopardize future investment decisions following the increased return obstacles. When this happens, investment is cut down and production also goes down. Scholars have argued however that investors can be protected from fiscal risks through contractual provisions that would bind the contracting parties through the whole project life. 
Political risks have been cited to be a big impediment to foreign direct investment over time. Some long-term projects such as gas and oil investments require an enabling environment. Therefore government and political stability go along way in determining the nature and sustainability of foreign direct investment. Political risks are usually country specific and arise from variety of factors including: civil unrests, threats from outside forces, political instability caused by regime changes, restrictive legislation, border disputes, sabotage, terrorism, expropriation, and activism among others (Hallmark, 1998).    
Most foreign investment projects are based on host country’s goodwill and promise of good faith and fairness. Despite all these, an investor can not possibly resist or restrain exercise of expropriation measures by a sovereign host country. Another related risk is to do with currency convertibility and transfer. This occurs in situations where there is no universally accepted currency upon which revenues and expenditures are based. Since these are usually based on the host country’s local currency, depreciation in its value will deal a big blow to the investors. Indexing of local currency to foreign currency to provide a return to investors in their currency would help reduce the risk. But some nations may not readily adopt this policy because it is associated with “economic colonialism”. Another way out would be to adopt political risk insurance. 
Another major foreign investment risk emerges from cases of substantial contract changes. Administrations may enact new constitutions, or through Courts, change existing legislation. This will significantly affect the foreign investment contracts in place because such actions are never anticipated or...