Latest Trends in Czech FDI Screening

The Czech Republic's FDI screening regime has been in place since 2021. While the screenings remain fully confidential, annual reports of the Ministry of Industry and Trade (MoIT) allow us to deduct some of the enforcement trends and structure of cases that have been notified. This analysis delves into the recent trends, key statistics, and strategic initiatives that have shaped the FDI landscape in the Czech Republic and builds on annual reports for 2021-2023 and personal experience of the author.

1. The regime in international comparison

Among EU member states, Czechia belongs to medium-sized economies. In 2023, it seems that the amount of Czech FDI screenings is catching up to match the size of the economy, as 28 cases were reported. In the same year, 7 top enforcers in Europe (Austria, Denmark, France, Germany, Italy, Romania and Spain) accounted for over 400 notifications, leaving the rest of the EU with only ca 70 filings. Technically, Czechia contributed with only 8 cases to these filings, as the less formal 'consultations' are not notified to the EU cooperation mechanism. Still, the numbers realistically posit the Czech Republic somewhere in the middle of the list of the EU countries. It is a significant increase compared to 2022, when roughly a half of the amount (13) was screened in total.

Overall, the Czech regime proves to be construed relatively narrowly in terms of mandatory notifications. In 2023, only four investments into the Czech Republic required ex ante screening. Three other cases did not fall under the mandatory regime, but MoIT made use of its call-in power to screen them. One investment ended up in the screening procedure after the preliminary consultation initiated voluntarily by the investor, totalling the above mentioned 8 cases notified to the EU cooperation mechanism.

The mandatory limb of the regime is accompanied with an ability of MoIT to call in any investment to the Czech Republic, and a corresponding possibility of the investors to consult the investment voluntarily. The two limbs, therefore, combined for a wide scope of potentially screened investments, but compared to mandatory-only regimes puts much more emphasis on the investor's self-assessment of risks. This allows to mitigate the red tape and focus the manpower of MoIT (which consists of single-digit full time employees) on relevant cases. On the other hand, the downside of the approach is that the national security is, to a larger extent than elsewhere, dependent on the authority's ability to effectively discover risky cases outside of the narrow mandatory regime.

2. Notification trends

The regime saw its main statistical change in the amount of so-called 'consultations'. The difference to formal screening proceedings is, first, in timing – consultations take roughly a half of the time (around 40 calendar days) of the formal screenings. Second, while MoIT consults other relevant local public bodies, it does not announce consultations to the EU cooperation mechanism.

In 2022, investors consulted seven cases. The amount almost tripled to 20 cases in 2023. In my personal perspective, the low number of consultations and overall screenings in 2022 (and similarly in the first year of application, ie. 2021) was significantly affected by limited knowledge about the existence of the regime and its scope among foreign investors. Mainly, the Czech regime (as well as a number of other EU member states' regime) covers, under certain circumstances, also acquisitions of minority (non-controlling) shareholdings and internal restructurings.

It seems that the investors' awareness reached an optimal level around 2023. It leads me to believe that the number of cases have not further significantly increased in 2024 and we may expect a similar level of cases (close to 30) in next years. This estimate goes with an obvious caveat that any change in the scope of the regime – likely if the new EU FDI Screening Regulation is adopted – is going to change the course.

In fact, 20 consultations in 2023 signify that the investors are relatively risk-averse. The Czech regime has not seen a prohibition or conditions imposed in, as of today, probably around 60 cases in total, illustrating Czech openness to foreign investments. While the exact reasons for clearing the investments remain black-box, the overall picture for a normal risk-averse investor gives a compelling reason not to notify the investment voluntarily in most situations. In practice, after the opening era of an (understandably) extremely careful approach resulting in most non-risky cases being notified out-of-caution (if investors were able to identify the applicability of the Czech regime), the time is right for the investors to sophisticatedly assess the risks and determine, in most situations, that not notifying the investment (that does not meet the criteria for a mandatory filing) is the most suitable approach.

3. Is more formalistic approach coming?

In the beginning, MoIT had been very open to informal discussions and contacts with representatives of the foreign investors. Over time, the main line has not changed and MoIT is still one of the easily approachable authorities. Seemingly, the open approach is linked to the original focus of the FDI unit, which is (and remains) to be trade policy of the Czech Republic, which has been oriented towards open foreign trade and partnerships.

Nevertheless, recent months have seen – hopefully only on particular occasions – more formalistic approach of MoIT to certain procedural questions and the scope of information being submitted. Noting that a period of a rather formalistic approach is a standard feature of 'young' authorities (or authorities given a new decisional power), we can only hope that MoIT will overcome it quickly and will join the group of mature ones, focusing strictly on material aspects of the screenings.

4. Targeted sectors and investors' countries

The FDI screening cases continue to be diverse in terms of targeted sectors. In 2023, the electrotechnical industry was the most represented, followed by information and communication technology (ICT), healthcare, defence, aerospace, and automotive industries. This is largely in line with the wider EU trends. Nevertheless, MoIT could be described as having a conservative view on sectors critical for the economy. Contrary to other FDI regimes, the Czech one does not require filings e.g. for the artificial intelligence sector, personal data operations or (sub-)suppliers to operators of critical infrastructure. Also the call-in cases mostly concerned sectors regularly perceived as critical (weapons, dual-use items).

Geographically, the most frequent foreign investors in the Czech Republic come from the USA (40% in 2023). Other countries of ultimate beneficiaries were Taiwan, Canada, Japan or Switzerland. The notified investments nevertheless came also from more problematic countries from the perspective of foreign trade policy, such as SAE, China or Turkey. Somewhat surprisingly, in 2023 there were even two cases of investments with the ultimate investor based in Russia.

5. Outlook

Looking ahead, the Czech Republic is set to present its own strategic document on economic security in 2025, which will define its approach to FDI screening and related issues over the coming years. All the hints tell us that the Czech policy will be more open than the one implied in the European Commission's new draft regulation on FDI screening, which (in its draft form) sets a much higher bar in terms of sectoral scope of the FDI screenings than it is the case currently in Czechia. It remains to be seen whether the final EU regulation will lean closer to the Czech position or, if not, the Czech FDI screening will have to be expanded.