Protectionism is on the rise. This doesn’t just apply to trade, but also to foreign direct investment, which is coming under increasingly critical scrutiny. Even in Switzerland, a country with a tradition of openness, there are calls – among other things in the name of “national security” – for a bureaucratically complex system of state controls. Instead of being able to decide on investment autonomously, companies would first have to wait for official approval. This trend toward the renationalization in economic policy is happening in response to the perception of growing investment activity from China – whose significance, it has to be said, is generally overestimated. As of the end of 2016, the lion’s share of investment in Swiss companies came from Western Europe (60%), and the US and Canada (24%). Asian owners accounted for 12%, and a mere 3% of all transactions between 2014 and 2017 stemmed from Chinese companies.
Screening investments is very expensive
A look abroad reveals that while many countries these days have a policy of screening investments, their track record is fairly sobering: screening bodies are rarely independent, and often represent a potential gateway for lobbying. According to Avenir Suisse’s calculations, a Swiss screening authority could involve a considerable amount of effort and expense: in 20016/17 no fewer than 180, or 46%, of cross-border acquisitions would have been subject to screening if the Swiss authorities had proceeded according to the guidelines proposed by the EU commission. And that’s not all. Even now there can be no talk of “unrestricted” access to the Swiss economy, as the state has the option of expropriation at any time for reasons of national security, and the Lex Koller (the federal law on the acquisition of real estate in Switzerland by non-residents) is one of the most restrictive pieces of legislation in the world.
Providing meaningful protection for business
Given the major cost of investment screening we should remind ourselves of the importance of foreign direct investment (FDI) for the economy. Since 1985 FDI has increased by a factor of 24 in real terms, and Switzerland now comes fourth in the OECD rankings as a destination for investment. Because innovative sectors attract a larger proportion of foreign direct investment, FDIs play an important role in terms of employment, tax revenues, and boosting productivity. In other words the cross-border transfer of capital, technology, and entrepreneurship is a crucial pillar of our prosperity, which means that this country should be made more open to foreign investment rather than more restrictive.
Even though the risks of industrial espionage and violation of property rights shouldn’t be ignored, given that the ownership situation on its own does not necessarily constitute a threat, investment screening would not be a very effective response. Nevertheless, a level playing field with China allowing Swiss companies free market access would be a worthwhile goal.
Given that an increase in corporate mergers could erode competition in general, Avenir Suisse calls for the current merger control policy, which so far has been fairly ineffectual, to be bolstered.