Therefore, the recent proposal of the EC to introduce screening measures has more to do with political economy, wider geopolitical or even security reasons. For instance, one of the biggest concerns is that some of the recent FDI coming into the EU is from various emerging economies such as China, Kazakhstan and Russia, which still have many State-Owned Enterprises (SOEs) in their economies.
This according to economists is a problem, but a simple back-of-the-envelope calculation tells me that the share of this FDI in some sensitive sectors flowing from these countries with much SEOs involved is at most 3.5 percent of EU’s total incoming FDI. Hence, a first question appears: does that warrant an overall screening measure? Some trade-offs are involved as obviously economics doesn’t stand on its own here.
However, my intervention was about the future of foreign investments. In particular, the changing nature of investments the EU has received in recent years, namely investments in digital sectors. This should force policy makers to think about when proposing investment regulations, including screening.
First, although it is right to state that FDI brings along a great “footprint” as economist say, this is in fact much lower for digital investments. With “footprint” we mean economic activity such as employment, value-added and greater output. Footprints for tangible investments such as manufacturing are known to be high, but the recent UNCTAD (2017) report shows that this footprint from multinational digital companies is actually much lower.
This can be seen in the figure below that measures this footprint by taking the ratio from foreign sales over foreign assets. For manufacturing and telecoms this ratio is actually 1:1 (in case of telecoms the assets are high because of infrastructure investments). Yet for FDI coming from digital multinationals, foreign assets are typically lower leading to a much higher ratio (because of higher sales), which means a lower footprint.
Source: UNCTAD WIR (2017)