Simon Evenett is an economics professor at the University of St Gallen, Switzerland, and founder of the Global Trade Alert. Fernando Martin leads the analytics unit at the Global Trade Alert.

In recent years, much ink has been rightly spilt on national investment screening mechanisms that scrutinise inward — and in some cases outward — foreign direct investment (FDI) plans. But what has received a lot less attention is the growing number of instances of state financial support for the foreign operations and expansion plans of national firms — both state-owned and private. While some of that support involves lending money to foreign buyers of their products (which is probably best thought of as a form of trade finance), on many occasions this support includes financing for cross-border mergers and acquisitions, and greenfield investment. 

Based on official announcements and reports of specialist government agencies, the Global Trade Alert (GTA) team has recorded 1660 instances of state support for the foreign operations of national firms since the start of 2009. 

A recent example is a November 2023 decision by the Official Credit Institute of Spain to underwrite a loan to Opdenergy to upgrade the power generation capacity of its projects in the US. That same month, Russia announced a plan to finance joint ventures by its oil and gas processing companies and their joint venture partners in what Moscow deems are ‘friendly states’. Many other entries in the GTA database refer to state support for overseas acquisitions of corporate assets or expansions in foreign markets. 

There has been a rising trend in the number of recorded instances of government support for the foreign operations of national firms. Not much should be read into the lower recorded totals for 2022 and 2023, as agencies responsible for granting such support often publish their annual accounts with a considerable lag. However, in both 2020 and 2021, more than 160 cases were recorded. There has been a marked expansion in the instances of support witnessed since the onset of the global financial crisis. 

Cracking down or taking off?

A total of 30 jurisdictions have been responsible for granting financial support since 2009. Every member of the G7 and founding member of the BRICs bloc, which comprises Brazil, Russia, India and China, has taken steps to finance the foreign operations of their national firms. Such government support has tended not to attract criticism in the recipient nation, perhaps because it is likely to support investments and jobs in the latter’s economy. However, to the extent that such state support helps finance cross-border acquisitions, it could generate a nationalistic backlash such as accusations of ‘selling the family silver’. 

In an era of growing geopolitical rivalry, with some policy-makers advocating for the thinning of commercial ties with certain countries, such foreign state support may be viewed much more negatively in the years ahead. Investment screening procedures may need to adapt to consider in greater detail the manner in which a planned expansion or investment is financed and, critically, whether state support is coupled with potential foreign government influence over the beneficiary company. 

Conversely, if the joint financing of projects of interest by geopolitical allies takes off, this state support may become more common among blocs of like-minded countries. After all, governments such as Japan and the US are already cooperating in financing private sector extraction of rare earth minerals abroad. What is for sure is that the range of state bodies having an influence over cross-border commercial operations and investments is growing. The upshot is that, while inward FDI is getting more scrutiny, states are doubling down on promoting worthy outward deals. 

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