Global Competition Review: Key FDI Trends

Foreign Direct Investment | Jan 5, 2024

Growing Importance and Complexity of FDI

Global Competition Review recently published their annual global overview of Key FDI Trends called "Foreign Direct Investment Regulation Guide - Third Edition" edited by Veronica Roberts provides a comprehensive look at the evolving landscape of foreign direct investment (FDI) regulation.

FDI regulation has become increasingly significant in recent years, especially in the context of unstable economic conditions. Despite high FDI flows, there is a trend towards greater protectionism and stricter enforcement due to heightened geopolitical tensions and the need to keep strategic industries onshore.

Increased Scrutiny in Cross-border M&A

There is a shift towards stricter scrutiny in policy frameworks for screening inward foreign investment, especially in strategic sectors, directly impacts fintech and alternative finance. This is evident in several high-profile deals that have been blocked, unwound, or abandoned due to FDI regulatory concerns. This trend underscores the importance of early identification of potential FDI screening issues in transaction planning.

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FDI screening authorities are becoming more active, both in terms of the number of notifications received and in monitoring non-notified transactions. This increased activity can impact M&A activity, as mandatory filing obligations may dissuade some investors.

Evolving Concept of National Security

The scope of sectors and technologies considered under the concept of national security in FDI regulation has broadened. It now includes critical infrastructure, communications assets, advanced technology, and data. The rise in protectionist policies, partly accelerated by the COVID-19 pandemic, could influence the flow of capital in alternative finance. While this might foster domestic investments, it could also limit the scope for international fundraising and partnerships, challenging the growth of global crowdfunding platforms and peer-to-peer lending services.

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The broadening of the national security concept makes it difficult for investors to confidently assess the risk of government intervention under FDI rules. However, some guidance is available, such as the US President's Executive Order issued in September 2022, which provides a framework for evaluating transactions.

Technological innovations in fintech and blockchain are often at the forefront of FDI discussions. The dual-use nature of these technologies, serving both economic and potential military applications, places them under intense scrutiny. Companies in these sectors must be prepared to address security concerns to attract foreign investments.

Stay Informed and Agile

Businesses in fintech, blockchain, and alternative finance must stay abreast of regulatory changes globally. This involves not only compliance but also active engagement in policy discussions to shape a favorable regulatory environment.

Diversifying investment sources can mitigate risks associated with geopolitical tensions and economic nationalism. Exploring new markets and investor bases can provide stability and growth opportunities.

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Data is king.  Robust data security and privacy measures can make fintech and blockchain ventures more attractive to cautious investors.

Forming alliances with domestic and international partners can help navigate the complex FDI environment. This approach can facilitate knowledge exchange, regulatory compliance, and access to broader markets.

Conclusion

The "Foreign Direct Investment Regulation Guide - Third Edition," edited by Veronica Roberts, offers an essential exploration of the increasingly complex world of FDI. In today's environment, marked by heightened geopolitical tensions and economic uncertainties, FDI regulation plays a pivotal role, especially in sectors like fintech, blockchain, cryptocurrency, and alternative finance.

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The guide underscores the growing importance of understanding and navigating the expanded scope of national security within FDI regulation, which now encompasses a wide range of sectors and technologies. For businesses operating in fintech and blockchain, this means grappling with dual-use technologies (civilian and military) and ensuring robust data security to attract foreign investments.

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