unctad.org | FDI TO CENTRAL AND EASTERN EUROPE UP 2% IN 2001, BUCKING GLOBAL DOWNWARD TREND
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FDI TO CENTRAL AND EASTERN EUROPE UP 2% IN 2001, BUCKING GLOBAL DOWNWARD TREND

TAD/INF/PR/52
16 September 2002

FDI inflows to Central and Eastern Europe (CEE) increased 2% in 2001 to a record $27 billion, up from $26.5 billion in 2000, according to the World Investment Report 2002 (1) released today by the United Nations Conference on Trade and Development (UNCTAD). These countries and Africa were the only two regions to escape last year’s global FDI downturn of more than 50%, with FDI rising in 14 of the 19 CEE countries. The region’s share of world inflows expanded from 2% in 2000 to 3.7% in 2001. Some two thirds of investors surveyed late last year anticipate improved prospects for FDI in the region over the next three to five years -- the highest proportion of positive responses for all regions covered by the survey.

FDI continues to be highly concentrated by country. Five countries (Poland, the Czech Republic, the Russian Federation, Hungary and Slovakia) accounted for three fourths of the region´s inflows in 2001 (see figure). Of these, all but Slovakia have dominated the picture since the early 1990s.

Poland, the region’s leading recipient since 1996, suffered a decline in 2001, from $9.3 billion to $8.8 billion. The reasons lie in the Polish economy: privatization is coming to an end, and macroeconomic problems have surfaced. The Government has launched a new and extended incentive scheme to attract investors, similar in many respects to schemes already in place in Hungary and the Czech Republic. Investment in the latter country, the region’s second-largest FDI recipient since 1998, remained virtually stable, at $4.9 billion. Inflows were led by some major greenfield investments, including a major venture by Toyota (Japan) and PSA (France) for automobile manufacture. This opens up opportunities for the Czech auto-supplier industry to diversify beyond inputs for Volkswagen/Skoda, so far the country’s only large car producer. Inflows to the Russian Federation also held firm at a low $2.5 billion, despite that country’s attractive natural resources and high GDP growth. In Hungary, robust GDP growth contributed to some increase in FDI inflows – from $1.6 billion to $2.4 billion – the highest inward FDI flow since its privatization programme ended in 1998. In Slovakia, inflows dipped (from $2.1 billion to $1.5 billion) after a privatization-related peak in 2000. Slovakia’s inflows in 2001 were nevertheless the second highest since the start of that country’s transition to a market economy.

Most of the other CEE countries registered gains in their inflows last year, helped by stability and above-average growth rates and by ongoing privatization in some late-comer countries and selected industries. Slovenia, for example, opened such key industries as telecommunications and banking to foreign investors. Some of the region’s highest FDI growth, however, reflects a recovery from the very low levels in 2000, as is the case in Yugoslavia, the Former Yugoslav Republic of Macedonia (FYRM), Belarus, and Bosnia and Herzegovina. That upturn was not observed in Bulgaria and Latvia, by contrast.

FDI outflows and the top TNCs

Judging from registered values, outflows from CEE shrunk by 12% in 2001, from $4 billion to $3.5 billion. This decline was nevertheless smaller than the 55% world average downturn. As a result, the region’s share in world outflows was up to 0.6% in 2001, from 0.3% in 2000. The Russian Federation, which accounts for almost four fifths of the region’s outflows, recorded an 18% decrease last year, from $3.2 billion to $2.6 billion, despite the investment abroad of windfall gains from the high oil and gas prices enjoyed by the leading Russian firms. (The country’s registered outflows do not include capital flight, estimated to exceed $20 billion a year.) FDI outflows from Hungary skidded as well – from $555 million in 2000 to $338 million in 2001 – despite a major telecom acquisition by Hungary’s MATAV in FYRM. Three other countries (Estonia, Croatia and Slovenia) had strong growth in outward FDI, although from a very low base. Most of these new investments from the smaller countries are directed to neighbouring countries. In such countries as Estonia, Hungary and Poland, a significant proportion of outward FDI is carried out by foreign affiliates (e.g. Deutsche Telekom-owned MATAV).

Despite the slowdown in the absolute value of outward FDI flows, preliminary data suggest that most of the 25 largest non-financial TNCs based in CEE maintained their growth in 2001, continuing the previous year’s trends. In 2000, they expanded more abroad than at home (see table), boasting double-digit growth rates in foreign assets, foreign sales and foreign employment. Their domestic assets and domestic sales, by contrast, increased only moderately (in line with earlier trends), while domestic employment contracted. Data for the top 25 in 2000 also confirm that Russian TNCs are much larger and more globally spread than their non-Russian counterparts. Lukoil -- the largest, with some $4 billion in foreign assets – is on a par with the 10 largest TNCs from developing countries. Russian firms tend to be involved either in natural resources or in transport, which are more capital-intensive than most manufacturing activities. But not all top TNCs in the region are on a growth path. While most Russian and Slovene firms, for example, are expanding outward, some Czech, Slovak and Polish firms are undergoing major restructuring, which often involves withdrawal from foreign activities.




Endnotes

1. The World Investment Report 2002: Transnational Corporations and Export Competitiveness (Sales No. E.02.II.D.4, ISBN 92-1-112551-0) is available for US$ 49, and at a special price of US$ 19 in developing countries and economies in transition, from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, NY 10017, USA, tel: +1 800 253 9646 or +1 212 963 8302, fax: +1 212 963 3489, e-mail: publications@un.org, or Section des Ventes et Commercialisation, Bureau E-4, Palais des Nations, CH-1211 Geneva 10, Switzerland, tel: +41 22 917 2614, fax: +41 22 917 0027, e-mail: unpubli@unog.ch; Internet: www.un.org.





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