In the second episode of the ‘Ganado Meets Corporate’ podcast, Mario Galea, chairperson of The National Foreign Direct Investment Screening Office (“NFDIS”), talks about the role of the Foreign Direct Investment, the EU and its role today in Malta.
After having served as Chief Executive Office at Malta Enterprise, Mario Galea took on the role as chairperson of the NFDIS in April 2020. Mario has been in the sector of foreign direct investment for over thirty years and has influenced the development of industries such as Pharma and Life Sciences and says that this industry has become part of his life.
Background to FDI
Mario Galea outlined how foreign direct investment is an interesting and complex subject which is prevalent in a number of industries including manufacturing, tourism, hotel management, financial services, aviation, maritime etc. Along the years the European Union (the “EU”) has had a lot of intra foreign direct investment however, the Chairman noted that in the last 10-15 years, there has been (i) an inflow of investment coming from outside the EU and (ii) a change in the type of investor.
Therefore, the dynamics of foreign direct investment have evolved and to this effect, the way in which foreign direct investment is looked at and regulated had to adapt.
In terms of its development, Mario Galea elaborated on how the European Commission recommended the implementation of a regulation five years ago in order to ensure that there is one regulation that oversees security of the Union. Although the introduction of the FDI Regulation was perceived with some trepidation, Mario Galea believes that overall, such a regulation has had a positive effect as it gives comfort to a prospective investor that the EU is open to investment but potential risks are also assessed carefully. In this same vein, the Regulation introduced a screening mechanism of the EU which also had the knock-on effect of fostering positive collaborations between different Member States, something which goes beyond what was foreseen by the European Commission. Mario Galea pointed out that the Malta FDI office has collaborated with five at least countries on different transactions, and that this is a useful learning mechanism where different practices are exchanged. He states that even the national approach in Malta has been well received by other Member States.
FDI in practice in Malta
Mario then elaborated on his experience with local services providers and professionals in the industry and how they have responded to this regulation positively and that the Office has established a good working relationship with various professionals in the industry. In terms of numbers, Mr. Galea indicated that around 98% of all the transactions that the NFDIS office viewed were responded pragmatically within the timeframes and that while most transactions have proceeded without being conditioned, there have been some which have been refused or subjected to certain conditions. In this regard, conditioning of an investment has focussed on protecting Matla’s security and also on occasion the security of the individual data.
Potential future developments
In the final part of the podcast, Mario Galea identified certain aspects which, based on his experience in the industry, may need to be addressed. He noted that the EU regulation may need some tweaking especially in relation to the approach on ultimate beneficial owners (the “UBO”), where apart from considering the activity of the UBO is within the EU or outside of the EU one should also look to the history of the UBO. A second point to consider adjusting related to synchronising timings for screenings among different Member States. In his view, this would ensure greater uniformity across the EU as there had been circumstances having different timelines at play creates uncertainty. Lastly, Mario Galea emphasised that today’s biggest challenge is IT and artificial intelligence activities. He states that with such activities, it is difficult to know whether they may impose a security risk in Malta or even how such risks may spread to different member states.
Mario Galea concluded by noting that up to now every aspect of the new regulation has been a learning process which has been received positively by the industry and jurisdiction.
Author: Philip Mifsud, Simay Cilingir