Business Law International (BLI)

In recent years, the investment policy landscape has become more complex as nations respond to national security threats, state development strategies and geopolitical risks. Covid-19 created a major economic shock worldwide, prompting some countries to take an even more stringent approach, with a focus on protecting the security of supply of inputs. Now, as major economies recover from the pandemic, foreign investment review regimes are here to stay. Governments are focusing on protecting the security of supply of inputs that are business critical to key industry sectors, ensuring national infrastructure is maintained and making sure that defence and intelligence technologies secrets do not fall into foreign hands.
While some economies have relaxed temporary Covid-19 measures and remain eager to attract foreign investment, many jurisdictions continue to tighten their screening rules or are introducing robust new measures to protect strategically important or sensitive national assets, creating a wave of increased regulation.

The increasing scrutiny of foreign investment is a global phenomenon, not necessarily driven by protectionism, but primarily by concerns around national security and a growing awareness of the risks that can arise from foreign ownership in a changing geopolitical landscape. As Covid-19 wreaked havoc on the global economy, national governments took steps to protect companies that had become vulnerable to being taken over by foreign investors owing to their struggling economies. For many economies, Covid-19 highlighted weaknesses in supply chains in critical sectors and infrastructure. While China regularly features prominently in the headlines, the regulatory fallout is much broader. Policy changes are having an impact on investors from around the world, including investors from major emerging markets, buyers from sensitive regions and countries, as well as purchasers from all regions focused on sensitive technologies.

Even as the threat of Covid-19 subsides, the prevalent trend in foreign investment restrictions is unlikely to reverse its course. The pandemic has highlighted the risk of foreign ownership of critical supply chains and key businesses, and governments that previously focused on national security will feel validated in their approach.

These developments should be viewed as indicative of shifting market sentiment. All investors, regardless of their country of origin, need to proactively manage stakeholder interests as part of their deal strategy. While most transactions have a high likelihood of being approved, those in strategic sectors may encounter more scrutiny and face a prolonged approval process. Taking the time to understand the rules and identify a regulatory strategy, including appropriate messaging and communication with the relevant governmental authorities, and the consequential impact on deal documentation (eg, whether any closing condition is required) early in the deal process can minimise the risk of delays, last-minute changes to the deal structure or even failed transactions.

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