Twelve EU countries criticised for failure to report on FDI

The European Court of Auditors has raised concerns about twelve EU member states that did not report relevant foreign direct investment (FDI) inflows between 2020 and 2022, warning of potential risks. The auditors’ report highlighted that these countries, despite representing about 42% of the average stock of FDI in the Union, did not analyse or notify any cases during the specified period. The lack of reporting is seen as having a significant impact on the effectiveness of the FDI regime, limiting the overall visibility for the European Commission and other member states regarding potential risks associated with foreign investments.

The regulation under scrutiny came into force three years ago and was designed to ensure the coordination of the analysis of foreign direct investments in sectors deemed strategic for the security and functioning of the EU bloc. The auditors expressed disappointment at the lack of correlation between the size of economies, the level of FDI inflows, and the number of notifications, which did not materialise as expected.

Mihails Kozlovs, a member of the EU Court of Auditors responsible for the audit, acknowledged that Portugal was among the countries that did not notify any cases during this period. He noted that Portugal was one of the first member states to introduce FDI monitoring, but the auditors could not determine whether the lack of notifications was due to non-application of the European regulation or if there were simply no operations that required notification.

Kozlovs emphasised the importance of member states having a shared understanding of the risks associated with foreign direct investments, regardless of the size of the investments. He called for an assessment of screening mechanisms in member states to ensure they meet minimum standards laid down in the regulation.

The regulation establishes a framework for member states to analyse FDIs and a mechanism for cooperation between countries and the European Commission to assess and potentially restrict investments that could pose threats to EU security or public order. Despite these concerns, the EU has experienced a substantial inflow of foreign direct investments, recording around €117 million in FDI inflows in 2021, equivalent to 8% of the world’s total level.