Nationalization is the time when a government takes control of a business or industry, which usually happens without compensation for the loss of the net worth of seized assets and potential income. The action may be the result of a country’s attempt to consolidate its power, of resentment against foreign ownership of industries of significant importance to local economies, or of supporting failing industries.
Nationalization is more common in developing countries. Privatization, which is the transfer of government-run operations to the private sector, occurs more frequently in developed countries.
Nationalization is one of the main risks for companies operating abroad due to the possibility of having significant assets seized without compensation. This risk is amplified in countries with unstable political leadership and stagnant or contracting economies. The main result of nationalization is the redirection of income to the government of the country rather than to private operators who can export funds without any benefit to the host country.
Nationalization and petroleum
The petroleum industry has experienced nationalization actions for decades, going back to the nationalization by Mexico of the assets of foreign producers such as Royal Dutch and Standard Oil in 1938 and the nationalization by Iran of the assets of the Anglo- Iranian 1951. The result of the nationalization of foreigners in Mexico ” the oil assets were the creation of PEMEX, which is one of the largest oil producers in the world. After the nationalization of the Anglo-Iranian, the Iranian economy fell into disarray and Britain was allowed to return as a 50% partner a few years later. In 1954, Anglo-Iranian was renamed British Petroleum Company.
In 2007, Venezuela nationalized the Exroon Mobil Cerro Negro project and other assets. Seeking compensation of $ 16.6 billion, Exxon Mobil received about 10% of that amount through a World Bank arbitration panel in 2020.
Nationalization in the United States
The United States has technically nationalized several companies, usually in the form of a bailout in which the government has a controlling stake. The bailouts of AIG in 2008 and General Motors Company in 2009 amounted to nationalization, but the United States government had very little control over these companies. The government also nationalized the Continental Illinois Bank and Trust bankrupt in 1982 and eventually sold it to Bank of America in 1994.
Despite the temporary nature of most nationalization actions in the United States, there are exceptions. Amtrak transferred to government property after the failure of several railways in 1971. After the terrorist attacks of September 11, 2001, the airport security industry was nationalized under the Transportation Security Administration (TSA) ).