France is ramping up its foreign direct investment (FDI) regulation as global trade protectionism grows in the wake of the Covid-19 crisis, all while inward investment flows into the country continue to fall.
European Commission guidelines issued in March urged member states to use all available mechanisms to protect critical health infrastructure and other important business sectors from opportunistic foreign investors looking to buy distressed assets.
Existing rules maintain that foreign investors in France can maintain up to 25% of voting rights within a corporate entity. A law instituted on 22 July this year temporarily lowered the threshold to 10% until 31 December. The French government has been progressively strengthening FDI screening rules, including a round of reforms in December 2019 to protect sensitive assets such as activities relating to national security including crypto and data storage, research and development and biotech activities.
This tightening of FDI screening regulations comes at a time when FDI flows into France decreased by 11% to $34bn in 2019, from $38bn in 2018, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2020. According to UNCTAD, the decline was mainly due to a fall in cross-border merger and acquisition sales of assets, and made France the 13th largest recipient of global FDI.