To attract investment, certain regulations can help countries understand the size of the garden (where investors can play) and the height of fence (to keep out malign actors).
Investment screening has become an important component of the policy toolbox of nations, with the objective of blocking inward investment by foreign actors over concerns of national security and retaining competitiveness.
Three recent developments have placed investment screening at the heart of national economic policy:
- The rise of China, accompanied by massive outward investments by state-owned and private firms in sensitive and non-sensitive sectors.
- The COVID-19 pandemic, which exposed deep weaknesses in supply chain reliability and the resilience of many nations, notably in the G7.
- The Russian invasion of Ukraine, which triggered unprecedented American and European sanctions against Russia, is unfolding and is bound to have a long-term impact on the rules for inbound investment.
As countries shore up their defences, through tighter investment screening and foreign direct investment (FDI) criteria, policymakers should be alive to the risk that the new processes create unintended consequences.
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