Switzerland’s Limited Shield: Why Foreign Investment Control May Not Be Enough
A staggering $8.3 trillion in foreign direct investment flowed globally in 2022, according to UNCTAD, and a growing portion of that capital originates from state-backed entities. Now, Switzerland is attempting to navigate this complex landscape, but a recent parliamentary decision to limit scrutiny of foreign investments to state-owned firms – excluding private companies – raises serious questions about the country’s future economic security. This isn’t simply a Swiss issue; it’s a bellwether for how nations will balance attracting capital with protecting strategic assets in an era of increasing geoeconomic competition.
The Retreat from Broader Oversight
Initially, the Swiss National Council aimed for a more comprehensive approach, seeking to review investments from both state and private foreign entities. The rationale was clear: distinguishing between a private investor and a government acting through a corporate proxy is becoming increasingly difficult. However, the Council of States favored a narrower scope, and the National Council ultimately conceded, voting 128 to 63 in favor of limiting oversight to state-owned investors. The argument centered on guaranteeing investment and protecting jobs, particularly in a climate of economic uncertainty.
This decision, while seemingly pragmatic, overlooks a critical reality. As Emmanuel Amoos (PS/VS) pointed out, countries like the United States, China, and Russia are actively leveraging geoeconomic tools to expand their influence. A loophole that allows private entities controlled by foreign states to acquire Swiss companies in critical sectors – such as military equipment, electricity production, and healthcare – leaves the nation vulnerable.
Critical Sectors at Risk: Beyond Military and Energy
The focus on military equipment and electricity production is understandable, given their direct implications for national security. However, the inclusion of hospitals as a “critical field” highlights a broader concern. Data security, patient privacy, and the potential for disruption of essential services are all at stake when foreign entities, even ostensibly private ones, gain control of healthcare infrastructure. Consider the increasing reliance on AI and data analytics in healthcare; control over these systems could have far-reaching consequences.
Beyond these sectors, other areas deserve scrutiny. Swiss precision manufacturing, pharmaceutical companies, and even its renowned financial technology (FinTech) sector could become targets. The allure of Swiss innovation and expertise is strong, and a lack of comprehensive oversight could lead to a gradual erosion of national competitiveness.
The Geoeconomic Playbook: How States Hide Behind Corporations
The challenge lies in identifying true ownership and control. State-owned investment funds often operate through complex networks of holding companies and private equity firms. This opacity makes it difficult to assess the strategic intent behind an investment. For example, a Chinese state-backed fund might acquire a Swiss robotics company through a seemingly independent private equity firm, gaining access to cutting-edge technology with potential military applications.
This tactic isn’t limited to China. Similar strategies are employed by other nations seeking to circumvent traditional investment barriers. The Swiss government’s limited approach effectively ignores this reality, focusing on the source of funds rather than the ultimate beneficiary.
Looking Ahead: What Switzerland – and Others – Need to Do
The Swiss decision isn’t irreversible, but it underscores a growing trend: a reluctance to impose restrictions on foreign investment, even in strategically sensitive sectors. This is often framed as a commitment to free markets, but it ignores the increasingly asymmetric nature of global competition.
To address this, Switzerland needs to consider several steps:
- Beneficial Ownership Transparency: Implement stricter regulations requiring full disclosure of beneficial ownership, going beyond nominal ownership structures to identify the ultimate controlling parties.
- Enhanced Due Diligence: Strengthen the review process for foreign investments, focusing on the potential impact on national security, economic resilience, and technological sovereignty.
- International Cooperation: Collaborate with other countries to share information and coordinate investment screening efforts. The EU’s framework for screening foreign direct investment offers a potential model. European Commission – Investment Screening
- Broaden the Definition of “Critical Infrastructure”: Expand the list of critical sectors beyond the current focus to include emerging technologies and industries vital to Switzerland’s long-term competitiveness.
The Swiss case serves as a stark warning. In an era of heightened geoeconomic competition, a passive approach to foreign investment control is no longer viable. Protecting strategic assets requires vigilance, transparency, and a willingness to challenge the conventional wisdom that all capital is created equal. What steps will other nations take to safeguard their economic futures in the face of this growing challenge?
