At a Glance

• There was a significant decrease in foreign direct investments (FDI) into the EU in 2022, with inward FDI negative in absolute terms, albeit greenfield FDI held up better than acquisition FDI (M&A). The U.S. and the UK remained the top two origin countries for FDI into the EU in both acquisition FDI and greenfield FDI.
• EU members states continued to adopt or update national FDI screening frameworks and there are now only six EU member states which do not currently have a screening mechanism in place. In line with the increasing number of EU member states with screening mechanisms, the percentage of FDI transactions which undergo formal screening by EU member states has increased significantly.
• The EU FDI cooperation mechanism continues to mature and a wider range of member states are making applications under the cross-border EU cooperation mechanism.

The EU Commission recently published its ‘Third Annual Report on the screening of foreign direct investments into the Union’ (Report). The Report examines the application of the EU Foreign Direct Investment (FDI) Screening Regulation (Regulation) during 2022. It highlights important trends in EU FDI, legislative developments across the EU, as well as the FDI screening activities carried out by EU member states.

Report Summary

The Report covers four main areas: (1) trends and figures for FDI into the EU, (2) legislative developments in EU member states, (3) FDI screening activities carried out by EU member states, and (4) the operation of the EU cooperation mechanism on FDI screening under the Regulation.

The Report confirms that the EU Commission is evaluating the current pan-EU FDI framework under the Regulation and intends to propose revisions to the Regulation by the end of 2023. We will provide a further update on those prospective revisions once published.

Trends and Figures

The EU contributed to the global decrease in FDI in 2022 by recording EUR -140 billion of inward FDI. This compared with EUR +142 billion of inward FDI in 2021 and represents a -199% change. The U.S. and China also reported decreased FDI flows in 2022, but at lower rates of -12% and -41% respectively. Unsurprisingly, the Report identifies the economic slowdown and the rising cost of financing due to higher interest rates as causes of the fall in deal-making.

Although the aggregate value of FDI decreased, the number of foreign transactions into the EU continued to show a positive trend across the period 2015-22. The Report estimates that the average yearly number of foreign acquisitions (M&A) totalled about 2,200 with greenfield investments about 3,200.

The U.S. and the UK remain the top two origin countries for FDI into the EU in both M&A and greenfield investments. The U.S. accounted for approximately 32% of all foreign acquisitions and 47% of all greenfield investments by number of transactions. In fact, for greenfield investments, the U.S. figure represented a 13.7% year-on-year increase compared to 2021. It is also notable that the share of greenfield investments in the EU originating in China decreased to 3.9% from 5.9% in 2021.

Germany was the number one destination in the EU for M&A FDI, representing 17.2% of all acquisitions in 2022, with Spain in second place at 13.5%, followed by Italy, France and the Netherlands each at approximately 10%. However, almost all EU member states saw declines in the number of acquisition FDI transactions as compared to 2021.

For greenfield investments, Spain was the number one destination in the EU in 2022 with 17.2% of the number of investments, followed by France and Germany with 14% and 11.4% respectively. The Netherlands and Ireland saw large increases (approximately 25% year-on-year) in the number of greenfield transactions as against 2021, as did France (20% year-on-year).

By sector, ICT and manufacturing represented the largest number of FDI acquisitions, albeit both saw decreases compared to 2021. Retail and ICT represented the largest number of greenfield investments, with percentage increases of 2% and 17.6% respectively compared to 2021.

Legislative Developments

Slovakia adopted a new national FDI screening mechanism in 2022, while Austria, France, Hungary, Italy, Latvia, Lithuania, Poland and Spain made updates to their existing frameworks.

Furthermore, Belgium, Croatia, Cyprus, Estonia, Greece, Ireland, Luxembourg and Sweden had consultative or legislative processes underway in 2022 which were expected to result in the adoption of new FDI screening mechanisms. The new mechanisms in Estonia, Luxembourg and Belgium have entered into force during 2023.

Screening Activities by EU Member States

Across the EU, member states processed 1,444 requests for authorisations of acquisitions by foreign investors. Of these, 55% were formally screened, which represents a significant increase compared to 2021 (29%).

A significant majority of acquisitions (86%) were authorised without conditions, with 9% being approved with conditions or mitigating measures and 1% of decided cases being blocked. The remaining 4% involved the parties withdrawing the transaction.

Operation of the EU FDI Cooperation Mechanism

In 2022, 423 notifications were submitted by EU member states in connection with the cooperation mechanism established in Article 6 of the Regulation. This relates to FDI which may have cross-border effects and allows EU members states and the EU Commission to provide comments on foreign direct investment undergoing screening in one member state which is likely to affect security or public order in other EU member states. Six EU member states were responsible for 90% of these notifications: Austria, Denmark, France, Germany, Italy and Spain.

Most of these notifications (81%) were closed in ‘phase one’, that is, within 15 calendar days. Where a notification enters ‘phase two’, which involves a more detailed assessment, the average time taken for member states to provide responses to requests for information was 24 calendar days, but with a range of between one and 126 days.

Of the 423 notifications, the origin of the ultimate investor in 32% of them was the U.S.