Diverging Patterns of FDI Recovery (press conference presentation in German)
(by Gabor Hunya)
wiiw Press Conference, 7 June 2011, 10 a.m.
Albania, Baltic States, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, New EU Member States, Poland, Romania, Russia, SEE, Serbia and Montenegro, Slovakia, Slovenia, Ukraine, Visegrad countries
International Trade, Competitiveness and FDI
The Vienna Institute for International Economic Studies (wiiw) presents an analysis of foreign direct investment (FDI)
in 20 Central, East and Southeast European countries based on the latest update of its database.
FDI is still of great importance for the development of CEECs especially as the domestic engines of
economic growth are still weak, and fiscal consolidation drags on many of the economies. The
economic recovery that has started in the region is mainly based on external demand, which has
upgraded the role of foreign investors whose subsidiaries produce the main part of exports.
Not all countries can successfully participate in the FDI-generated export-led growth. Modest and
uneven recovery characterized the development of FDI in the CEECs in 2010: overall an increase of
9% was registered (in current euro terms). Strong growth occurred in the Czech Republic, Latvia
and Lithuania. Bulgaria, Romania and Southeast Europe booked another year of severe decline.
Most of the CEEC FDI increase, however, took place in Russia where domestic demand was
FDI was attracted mainly by three factors: booming export demand, improving financial stability in
host countries and the recovery in the financial position of investors. All three factors coincided
positively in the Czech Republic and led to a big increase of FDI inflows. In Hungary, on the other
hand, investment risks were accumulated in the financial and retail sectors due to extra taxes, but
high amounts of new equity investments went into the export-oriented automotive industry. The
number of new greenfield projects recovered strongly throughout the region but they promise less
investment value than in the previous year.
The most important investing countries in the NMS are the Netherlands, Germany and Austria
(based on end-2009 FDI stock data). The ranking has not changed over the past three years, but the
position of the Netherlands has strengthened compared to Germany. Austria is the largest investor
in Bulgaria and Slovenia and occupies the second place in Romania and Slovakia while its position
is weak in the Baltic countries and in Poland. In Southeast Europe Austria is the primary investor in
the larger countries, Bosnia, Croatia and Serbia, mainly by its banks.
The effects of the financial crisis were still felt in terms of declining profits of foreign investors. The
profit rate was above 10% of the FDI stock only in the Czech Republic, fell to 8% in Hungary, Poland
and Slovakia and was much weaker in Latvia, Lithuania, Bulgaria and Romania. The latter were the
countries that had been hit hardest by the crisis and had also received rather low FDI inflows in the
past two years. The share of FDI-related income that was reinvested was higher than in the previous
year as a result of improving confidence, except in Latvia, Lithuania and Romania.
As to 2011, wiiw experts are more optimistic than global surveys and expect a 27% increase of FDI
inflows to the CEECs. Russia will receive most of the increase; much of it, as in the past, will be
invested by Russian off-shore companies. The proximity to highly developed European countries
with growing economies is expected to attract substantial FDI in the NMS (+10%) and the SEE
(+29%). Single large projects may influence this forecast, such as the Hungarian government’s
purchase of the Russian stake in the oil company MOL, or the postponed privatization of the Serbian
telecom company. In the longer run, proximity to the main EU headquarters and a good competitive
position remain the two most important factors attracting FDI in export-oriented production and
services, but to reach the inflow of the pre-crisis years consumption in the CEECs will have to
recover as well.
Das wiiw präsentiert seine aktuelle Analyse der Entwicklung der Auslandsinvestitionen
in Zentral-, Ost- und Südosteuropa, sowie den Update der "FDI Database
detaillierten Statistiken über Auslandsinvestitionen in 20 Ländern.
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