Foreign investment screenings are way up. The number of operations flagged by Italy’s investment screening mechanism – complemented by the government’s special powers, which it can use to counter threats to national interests – is rising.
- In 2021, the year Mario Draghi took office, the government flagged 496 potential investments, takeovers or asset-acquiring deals were flagged.
- That’s a substantial increase from 2020 (342) and miles beyond the 2019 figure (83).
- The figures come from the government’s latest report on the exercise of special powers (aka “Golden Power”) throughout 2021. Undersecretary of State Roberto Garofoli, a government cabinet official, presented it to MPs on Tuesday.
Screening is caring. “Public actors – both national and European – have not let themselves be caught unprepared in dealing with the growing prominence of foreign direct investment screening activities, in the dutiful balancing of the needs of security and public order with those of the economy,” remarked Mr Garofoli.
- He highlighted the increase in flagged-up operations, especially those concerning the so-called new sectors.
The aim is predictability. Screening aside, the actual use of special powers “has occurred in a minimal number of cases”: 26 out of 496. As Mr Garofoli remarked, the government’s go-ahead usually prevails.
- Roberto Chieppa, secretary-general of the government cabinet, recently told Il Sole 24 Ore that compensations for the firms that saw their deals blocked by the government’s special powers are to be ruled out. “Increasing the predictability of decisions can allow companies to better orient their investments and make choices that are compatible with the national interest,” he noted.
TLDR: if you’re a company, make sure that the foreign investment deals that fall within the limits of the special powers are compatible with the law and duly notified to the Italian government. Or else, you’re on your own: expect no handouts if the deal falls through.
- Case in point: Alpi Aviation, a drone manufacturer, ended up in Chinese hands. In 2021, the government voided the acquisition for failure to notify and called on the company to restore the situation before the transaction at its own expense.
- All three cases of blocked acquisitions in 2021 concerned Chinese-owned companies.
- Heads up: as noted by Repubblica, Italian intelligence “raised a specific alarm regarding China,” which is “allegedly hunting for startups on the market” to avoid the special powers’ limitations.
- In 2022, Mr Draghi’s government also prevented a Russian company, Rosatom, from acquiring a hydrogen company through a subsidiary.
Focus on 5G. At least 11 of the 26 uses of the special powers concerned 5G technology (namely, deals between Italian companies and the Chinese tech behemoths, Huawei and ZTE). The government did not veto any transaction, but it imposed wide-ranging prescriptions.
- The risk with 5G is espionage on behalf of the Chinese State, as believed by the US intelligence community and Italy’s Intelligence Committee.
- Rome’s approach has undergone a very significant reform: instead of single contracts, analyses now focus on annual planning, and they examine more assets, such as cloud infrastructure.