OFDI can facilitate access to natural resources and potentially contribute to resources security. This might occur when MNEs acquire natural resources companies, mines and oilfields internationally or purchase overseas land, and secure the associated exploration and exploitation rights. The natural resources produced from these assets can be sold internationally, expanding and diversifying global availability, or be shipped back to the home country directly. Greater supply might have the additional benefit of reducing the prices of such raw materials (Knoerich 2017, UNESCAP 2020).
Many raw materials and natural resources are needed in industrial production processes, for infrastructure construction and to produce enough energy. Their improved availability resulting from OFDI can help ensure the stable operation of the home economy and benefit its industrialisation and development processes. In comparison to imports, OFDI has the benefit of securing longer-term ownership and control over relevant assets and concessions in foreign countries, which can help ensure a stable and continuous supply of resources and reduce their domestic price volatility. In this way, domestic shortages of such resources and materials can be better avoided, which is particularly important if endowments within the home country are insufficient (UNESCAP 2020, Knoerich 2017).
SDG 7 aims to “ensure access to affordable, reliable, sustainable and modern energy for all”, an ambition that OFDI can support, both in the home economy and internationally. The greater availability of raw materials for construction and energy production also contributes to SDG 9.2 (“promote inclusive and sustainable industrialization”).
Key insights
- Many MNEs invest abroad to secure raw materials and natural resources, which could yield tangible gains with regard to domestic resources security and availability.
- Governments could take a neutral approach towards the adoption of HCMs in this area, given the uncertainties about the realisation of home-country effects.
Interactions
B2) Industrial sector: OFDI in natural resources and raw materials sectors could enhance home-country resources availability and security.
B3) Investment motivation: Resource-seeking activities potentially enhances the availability of natural resources in the home country and improve domestic resources security.
B5) Entry mode: Overseas resources extraction has the potential to enhance the availability of natural resources in the home country and improve domestic resource security.
B8) Transmission channels: Transportation infrastructure that facilitates the direct transfers of raw materials and natural resources could improve home country resources capacities.
Available Research Findings
Knoerich (2016, Table 2): The study provides several examples where Chinese OFDI has enhanced the channels for the flow of natural resources and raw materials from host countries to China.
Chen (2011): Chinese national oil companies have enhanced their international energy coffers and reserves, but it is unclear whether this has contributed to greater Chinese energy security, especially as the diversity and reliability of China’s overseas sources of oil are questionable.