Subsidies, Strategic Sectors, Investment Screening and the New Competition for Capital
By Gustavo Scriffignano
International Corporate & Banking Consultant
Studio Legale Internazionale Bertaggia
International Business & Geopolitics · Sources checked on 8 October 2026
For much of the last generation, international expansion was often presented as a search for the most efficient combination of tax, labour, logistics and market access.
That model is no longer sufficient.
Governments are once again intervening directly in the geography of business. They are subsidising factories, steering capital toward strategic sectors, financing infrastructure, screening foreign acquisitions, protecting sensitive technologies and linking investment incentives to jobs, domestic production, energy policy and economic security.
The result is not the end of globalisation. It is a more political version of it.
OECD data published in 2026 shows industrial subsidies across 15 major sectors reaching USD 108 billion in 2024, with renewable-energy equipment, semiconductors and heavy industry among the most heavily supported areas. UNCTAD, meanwhile, reports a record 229 investment-policy measures adopted globally in 2025, most of them still favourable to investors but increasingly targeted toward strategic priorities.
TOP LEGAL — THE NEW BUSINESS QUESTION
The question is no longer simply “Where is the tax rate lowest?” It is increasingly “Where do capital, incentives, infrastructure, regulation and market access work together — and will the business still make sense when the incentive ends?”
1. Industrial policy is back
Industrial policy is not new.
Governments have always influenced business through infrastructure, procurement, regulation, education, energy policy and finance. What has changed is the scale, visibility and strategic ambition of current intervention.
The OECD’s 2026 Industrial Policy Handbook describes industrial policy as having returned to the forefront of policymaking in response to supply-chain vulnerabilities, productivity concerns and the clean and digital transitions.
The sectors receiving special attention increasingly include semiconductors, critical minerals, energy-transition technologies, advanced manufacturing, data infrastructure, batteries, pharmaceuticals and heavy industry.
This changes the way companies should compare locations.
A jurisdiction may appear expensive when viewed only through tax rates or wages, but become attractive when grants, subsidised finance, infrastructure and regulatory support are included.
The opposite can also be true. A generous incentive package can make a structurally weak project look attractive for a few years.
2. Governments are competing for investment again
UNCTAD’s World Investment Report 2026 shows global FDI recovering to around USD 1.6 trillion in 2025, while remaining heavily concentrated: the top 20 host economies captured more than 80% of inflows.
Strategic sectors now account for a much larger share of global greenfield investment than only a few years ago. UNCTAD reports that strategic sectors represented about 44% of global greenfield project values, compared with 16% in 2020.
Governments increasingly ask different questions from those asked during earlier waves of globalisation:
- Which industries do we want to develop?
- Which technologies should exist domestically?
- Which supply chains are too concentrated?
- Which investments create jobs, exports or technological capability?
- Which investors should be screened for economic-security reasons?
- Which projects deserve public financial support?
The old competition for investment was often presented primarily through tax.
The new competition can include direct grants, tax incentives, public guarantees, subsidised finance, infrastructure, energy support, workforce programmes and procurement opportunities.
For an international company, that means comparing the entire operating ecosystem rather than a single tax percentage.
3. Subsidies are reshaping global competition
The OECD’s MAGIC database tracks subsidies received by hundreds of major industrial firms. Subsidies across the 15 sectors covered amounted to USD 108 billion in 2024, and OECD analysis suggests public support has become a meaningful factor in changes in global market share.
| Policy environment | Common forms of support | Business implication |
|---|---|---|
| China | Grants and below-market financing | Lower financing costs and rapid capacity expansion |
| Europe | Grants and targeted public programmes | Investment attraction and strategic capacity building |
| Japan / Korea / United States | Significant use of tax incentives alongside other measures | Support tied to selected strategic investments |
| Emerging economies | Tax relief, industrial zones, infrastructure and facilitation | Competition for production and employment |
The important point is not which system is “best”. It is that companies increasingly compete not only against other companies, but against entire policy ecosystems.
4. Strategic sectors are becoming a separate category
A conventional service business and a semiconductor manufacturer may now face completely different international-investment environments.
Companies operating in sensitive fields can encounter additional questions involving foreign-investment screening, critical technology, export controls, local-content requirements, subsidy eligibility, sensitive data, government procurement, strategic infrastructure and ultimate beneficial ownership.
Before asking where should we invest?, management should first ask: How will the proposed activity be classified by the authorities?
That classification may determine both the incentives available and the restrictions imposed.
5. Foreign investment remains welcome — but on more selective terms
The increase in screening should not be confused with the disappearance of investment openness.
UNCTAD reports that 167 of the 229 investment-policy measures introduced in 2025 were favourable to investors.
The change is that favourable policies are becoming more targeted. Incentives accounted for around half of favourable measures, with growing focus on digital infrastructure, advanced manufacturing, critical minerals and energy-transition technologies.
At the same time, the number of economies operating investment-screening regimes increased from 21 in 2016 to 52 in 2025.
Interestingly, outright prohibition remains relatively uncommon.
The message is therefore not simply “foreign investment is unwelcome”. It is increasingly: foreign investment is welcome, but governments want to know who is investing, what is being acquired and whether the transaction affects strategic interests.
6. Europe: openness combined with economic security
Europe offers a particularly useful example.
The EU remains highly open to foreign investment while simultaneously strengthening its investment-screening architecture.
The revised EU Foreign Investment Screening Regulation was adopted in 2026. It introduces a common minimum framework, mandatory screening mechanisms across Member States and broader attention to strategic sectors and indirect foreign control. Full application is scheduled from 17 January 2028.
The new framework covers sensitive areas including critical technologies, raw materials, financial services, transport, energy and infrastructure.
For international investors, this changes due diligence. A transaction may require analysis not only of corporate law, tax, employment and competition law, but also of ultimate ownership, strategic-sector classification, foreign-investment screening, filing requirements, review timing and closing conditions.
7. Investment incentives can be valuable — and expensive
The headline value of an incentive is rarely its real economic value.
| Question | Why it matters |
|---|---|
| Who qualifies? | Eligibility can depend on sector, ownership or location |
| What spending qualifies? | Only defined capital expenditure may be supported |
| Are employment commitments required? | Job targets may become binding |
| How long must the operation remain? | Early closure may trigger repayment |
| When is the support paid? | Reimbursement timing affects cash flow |
| Can incentives be combined? | Cumulation may be restricted |
| What reporting is required? | Compliance can continue for years |
| Is there a clawback clause? | Failure to meet conditions can create liabilities |
A EUR 20 million grant received after construction is not economically identical to EUR 20 million paid upfront. A tax credit is not equivalent to a cash grant. A subsidised loan is not equivalent to either.
Industrial policy therefore becomes a treasury question as well as a corporate one.
8. Incentives should not be confused with financing
Public support can take several forms.
A grant reduces investment cost. A tax credit may only generate value if the company has sufficient taxable profit. A subsidised loan still has to be repaid. A public guarantee may improve financing conditions. Accelerated depreciation affects taxation over time rather than supplying cash immediately.
Companies should model these instruments differently.
The relevant questions include when the financial benefit is obtained, what its present value is, whether repayment is possible, whether it affects borrowing covenants, whether it depends on future employment and whether assets can later be transferred.
9. The competition for capital is becoming geopolitical
Industrial policy increasingly overlaps with economic security.
The WTO’s 2026 World Trade Report describes government intervention, subsidies and geopolitical tension as increasingly central challenges for the rules-based trading system. It also stresses that the core international trade framework still provides substantial economic value.
The issue is not that governments should never intervene. The issue is the cross-border impact.
One government’s subsidy can affect production, prices and market share elsewhere. That can lead to countervailing duties, anti-subsidy investigations, procurement preferences or competing subsidy programmes.
For a company, an incentive offered by the host country must also be considered from the perspective of the countries where the resulting products will be sold.
10. Different economies use different policy models
The OECD data also shows that industrial policy does not have one universal form.
China has relied significantly on grants and below-market finance. European policy frequently uses grants and public programmes. Japan, Korea and the United States have used substantial tax incentives in selected strategic areas alongside other forms of support.
Emerging economies can compete through industrial zones, customs regimes, infrastructure, workforce incentives and simplified investment procedures.
A EUR 50 million tax incentive does not have the same value as a EUR 50 million cash grant. The result depends on profitability, timing, financing and eligibility.
International site selection increasingly requires financial modelling in addition to legal analysis.
11. Industrial policy can change entire supply chains
Companies are affected not only by incentives granted directly to them. They are also affected by support given to customers and suppliers.
A new semiconductor facility can attract equipment manufacturers, specialised construction firms, logistics providers and technical services.
A battery cluster can attract chemical suppliers and recycling businesses.
A digital-infrastructure programme can create demand for electricity, connectivity, real estate and security services.
Sometimes the best opportunity is not obtaining the subsidy. It is selling to the companies that do.
12. Subsidy-driven markets can also create excess capacity
Public support is not automatically evidence of a healthy market.
The OECD warns that subsidies can increase capacity and market share without necessarily increasing productivity or profitability. Steel illustrates the risk: OECD analysis published in 2026 projects significant excess steel capacity through 2028 and identifies subsidies as one factor affecting competition.
This creates a paradox. A highly subsidised sector can become more attractive for investment and simultaneously more competitive.
Before investing, management should ask how much additional capacity is entering the market, whether demand is growing fast enough, whether prices are falling and whether subsidised competitors will continue expanding.
An incentive reduces cost. It does not create demand.
13. A practical location comparison
Location A — low tax, limited support
Advantages: relatively low corporate tax, established supplier network and straightforward operating model.
Disadvantages: limited investment support, high energy costs and little public R&D funding.
Location B — higher tax, strong incentives
Advantages: construction grant, workforce support, research incentives and strong infrastructure.
Disadvantages: employment commitments, minimum investment requirements, clawback clauses and higher reporting obligations.
Location C — strategic market, higher screening risk
Advantages: large customer base, strong industrial ecosystem and access to capital.
Disadvantages: investment screening, technology-related restrictions and longer transaction timetable.
None is automatically superior. The correct choice depends on the business model.
14. A decision framework before chasing an incentive
| Review area | Question |
|---|---|
| Commercial | Would we invest here without the incentive? |
| Financial | When is the support received and what is its real value? |
| Legal | What obligations, conditions and clawbacks apply? |
| Strategic | Does the jurisdiction improve customers, suppliers or infrastructure? |
| Political | Could screening, subsidy or trade policy change the economics? |
The first question is especially important: Would we invest here without the incentive?
The incentive may compensate for a temporary disadvantage. Or it may be hiding a permanent one.
15. The business must survive when the incentive ends
A factory may operate for twenty years. A tax credit may last five. A grant may be received only once.
The business therefore needs a post-incentive model.
Management should test the project using normal assumptions for taxation, wages, energy, logistics, maintenance, future capital expenditure, financing and demand.
The strongest project is one in which the incentive accelerates a commercially viable investment.
The weakest is one in which the incentive is the only reason the investment appears viable.
Frequently asked questions
Are industrial subsidies always harmful to competition?
No. They can support legitimate policy objectives such as infrastructure, research, energy transition or supply-chain resilience. The concern is that large or poorly designed subsidies can distort competition and encourage excess capacity.
Is the country offering the largest incentive automatically the best location?
No. Companies should compare infrastructure, workforce, customers, suppliers, financing, tax, regulation and the post-incentive economics.
Does investment screening mean foreign investors are being excluded?
Generally no. UNCTAD data shows that most recent investment-policy measures remain favourable to investors, while outright prohibitions of screened projects remain relatively uncommon. Screening nevertheless needs to be factored into transaction timing and structure.
Can an incentive be withdrawn?
Potentially. Many programmes contain conditions concerning investment levels, employment, location, ownership or operating periods. Failure to meet them can trigger clawback or repayment.
Should the corporate structure be designed before applying for incentives?
The two questions should usually be considered together. Eligibility can depend on which entity owns the assets, employs the workforce, receives the financing or carries out the qualifying activity.
Conclusion: the best jurisdiction is becoming a strategic question
International investment decisions used to be framed largely around tax rates, labour costs and logistics.
Those variables still matter. But they now operate inside a wider policy environment.
Governments are directing capital, subsidising strategic sectors, screening sensitive investments and linking economic policy to national resilience.
International companies therefore need to understand not only the law of a jurisdiction, but also its economic strategy.
The right question is not: Which country offers the biggest subsidy?
It is: Which location improves the long-term business case — and what part of that advantage still exists when the subsidy ends?
The best jurisdiction is no longer necessarily the one with the lowest tax rate. It may be the jurisdiction where capital, infrastructure, talent, regulation and market access work together.
But an incentive should improve a good project. It should not be asked to rescue a bad one.
Discuss an international investment structure
Studio Legale Internazionale Bertaggia assists clients with cross-border company structures, governance, international investment planning and coordination with local advisers.
Avv. Daniele Bertaggia leads the legal assessment, supported by Gustavo Scriffignano on international corporate and banking matters.
Before selecting a jurisdiction, a preliminary review should normally identify the proposed activity, investment amount, ownership, financing, customer markets, supply chain, workforce requirements, strategic-sector exposure and any public incentives under consideration.
International company formation · English Insights · Contact the Studio
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About the author
Gustavo Scriffignano
Junior Partner | International Corporate & Banking Consultant
Gustavo provides international corporate and banking support under the leadership of Avv. Daniele Bertaggia.
Editorial notice: General international business, corporate and geopolitical analysis, not individual legal, tax, investment, state-aid or regulatory advice. Incentive availability, eligibility, investment screening and financial outcomes depend on the applicable jurisdiction, programme, transaction and facts.
Sources and further reference
1. OECD — OECD MAGIC Database of Industrial Subsidies (2026): https://www.oecd.org/en/publications/oecd-magic-database-of-industrial-subsidies_ce94f33b-en.html
2. OECD — Industrial subsidies hit USD 108 billion and reshape global competition: https://www.oecd.org/en/blogs/2026/06/industrial-subsidies-hit-usd-108-billion-and-reshape-global-competition.html
3. OECD — Industrial Policy Handbook: From Strategy Design to Implementation: https://www.oecd.org/en/publications/industrial-policy-handbook_ff099713-en.html
4. UNCTAD — Governments still want foreign investment, but on more selective terms: https://unctad.org/news/governments-still-want-foreign-investment-more-selective-terms
5. UNCTAD — World Investment Report 2026: https://investmentpolicy.unctad.org/publications/1324/world-investment-report-2026-international-investment-in-a-turbulent-era
6. UNCTAD — Launch of the World Investment Report 2026: https://unctad.org/osgstatement/launch-world-investment-report-2026-international-investment-turbulent-era
7. European Commission — Investment screening: https://policy.trade.ec.europa.eu/enforcement-and-protection/investment-screening_en
8. European Commission — EU strengthens its foreign investment screening framework: https://policy.trade.ec.europa.eu/news/eu-strengthens-its-foreign-investment-screening-framework-2026-06-26_en
9. WTO — World Trade Report 2026: https://www.wto.org/english/res_e/publications_e/world-trade-report-2026_e.htm
10. WTO — World Trade Report 2026, Executive Summary: https://www.wto.org/english/res_e/publications_e/world-trade-report-2026_execsum_e.htm
11. OECD — MAGIC Database dashboard: https://www.oecd.org/en/data/dashboards/magic-database-industrial-subsidies.html
12. OECD — Steel excess capacity continues to weigh on global markets: https://www.oecd.org/en/about/news/press-releases/2026/06/steel-excess-capacity-continues-to-weigh-on-global-markets-with-subsidies-increasingly-undermining-fair-competition.html