For use of information media - Not an official record

02 October 2000

Poland and the Czech Republic attracted record levels of foreign direct investment (FDI)(1) by transnational corporations (TNCs)(2) in 1999 and jointly accounted for 55% of the total FDI flows to Central and Eastern Europe, according to the World Investment Report 2000: Cross-border Mergers and Acquisitions and Development(3), published today by the United Nations Conference on Trade and Development (UNCTAD).

WIR2000 stresses that: "In the light of a series of crises (Asia, Russian Federation, Kosovo) that shook confidence in emerging markets generally, the resilience and continued increase of Central and Eastern European FDI inflows is quite remarkable. In 1998, the Russian crisis did not keep the rest of the region from setting a new record. And in 1999, even in the most affected south-eastern European countries such as Bulgaria and Croatia, FDI inflows were resilient".

Despite the impressive $23 billion level of FDI inflows - a $2 billion increase in just one year - the region accounted for less than 3% of global FDI flows last year. In terms of the size of their economies, Estonia, Hungary and the Czech Republic are the region´s leading FDI recipients. In 1999 their FDI stock in relation to their GDP reached 41.5%, 39.6% and 30.6%, respectively. European Union TNCs are the dominant foreign investors in Central and Eastern Europe.

In Poland, where FDI rose by more than $1.1billion to a record $7.5 billion, foreign investors were obviously attracted by the large domestic market (the second after the Russian Federation in terms of GDP and the third largest after the Russian Federation and Ukraine in terms of population). Inflows of FDI into the Czech Republic in 1999, which almost doubled from $2.7 billion to $5.1 billion, were largely due to a recent turnaround in privatization policies. While those policies during the first half of the 1990s excluded foreign participation in the Czech Republic, the second round of privatization followed the example of other countries such as Hungary, which had successfully involved foreign firms.

FDI into the Russian Federation rose by $100 million to $2.9 billion, which is a low level relative to the size of the economy. Russian nationals appear to have exported finance and then invested into the country from abroad. This "round-tripping" is suggested by the high share of inflows from Cyprus (8% in the first half of 1999, compared to 23% in inward FDI stock).

The Kosovo conflict influenced some potential investors interested in south-eastern Europe to postpone decisions. Some countries in the subregion reacted to the crisis with an increased openness to FDI and a greater focus on privatization, and some major privatizations were accelerated (e.g. Bulgarian and Croatian telecommunications companies, a Macedonian oil refinery, and a Romanian car producer), although some of these deals do not materialize in actual FDI inflows before the beginning of 2000.

Mergers and acquisitions (M&As) by Western European firms have become increasingly important in the region, while United States firms are also gradually acquiring enterprises, but the size of their purchases in 1999 remained small (totalling less than $1billion). As some countries (e.g. Hungary) have nearly completed privatization programmes in the manufacturing sector, TNCs are now increasingly buying local privately owned businesses. However, privatization in the services sector has not yet been completed. For example, the restructuring and consolidation of the banking industry in the Czech Republic and Poland continue to attract cross-border M&As. Cross-border M&As in the Baltic States, particularly in Lithuania, have also been significant.

By the end of 1999, the inward FDI stock of Central and Eastern Europe reached $110billion, mainly concentrated in Poland ($30 billion), Hungary ($19 billion), the Russian Federation ($17 billion) and the Czech Republic ($16 billion). In the sectoral breakdown of inward FDI stocks, the share of services increased at the expense of manufacturing to about 56%, compared to less than 50% in 1998. WIR2000 notes that: "This may have a positive impact on the economic transition as efficiency gains in manufacturing are now being complemented by efficiency gains in services, improving the performance of the host economies more generally".

Some 60% of the region´s FDI stock was held by European Union TNCs, while the United States accounted for 16%.

The Region´s Largest TNCs

UNCTAD compiles a table of the largest 25 TNCs in the region in terms of their foreign assets, but insufficient responses from TNCs in the Russian Federation preclude the ranking of Russian corporations. However, available data suggest that in 1998 Russia´s Lukoil Oil Co. had foreign assets of $2.3 billion, foreign sales of $2.6 billion and 5,000 employees abroad, and that on a foreign assets basis it is considerably larger than the largest TNCs on the top 25 table. In fact, Lukoil´s total foreign assets are $600 million below the $2.9 billion in total foreign assets of all the companies listed.

The top 25 firms are actively pursuing both greenfield investments and foreign acquisitions as a mode of international expansion, as illustrated by the rapid increase in their foreign assets. Between 1 January 1997 and 30 June 2000, seven of the top 25 firms undertook foreign acquisitions. The average size of these deals is still fairly small. Until mid-2000, the largest single acquisition was by MOL Hungarian Oil & Gas Plc., which took a 36% share in Slovnaft, a Slovakian oil company, for $262 million.


1. "Foreign direct investment" is defined as an investment involving management control of a resident entity in one economy by an enterprise resident in another economy. FDI involves a long-term relationship reflecting an investor´s lasting interest in a foreign entity.

2."Transnational corporations" comprise parent enterprises and their foreign affiliates: a parent enterprise is defined as one that controls assets of another entity or entities in a country or countries other than its home country, usually by owning a capital stake. An equity capital stake of at least 10 per cent is normally considered as a threshold for the control of assets in this context.

3. The World Investment Report 2000: Cross-border Mergers and Acquisitions and Development (Sales No. E.00.II.D.20, ISBN 92-1-112490-5) may be obtained at the price of US$ 49, and at a special price of US$ 19 in developing countries and countries in transition, from United Nations Publications, Sales Section, Palais des Nations, CH-1211 Geneva 10, Switzerland, F: +41 22 917 0027, E: unpubli@un.org, Internet: http://www.un.org or from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, N.Y. 10017, USA; T: +1 212 963 83 02 or +1 800 253 96 46, F: +1 212 963 34 89, E: publications@un.org. A CD-ROM version of the report is expected to be issued by December 2000.

For more information, please contact:
Officer-in-Charge, Karl P. Sauvant
Division on Investment, Technology and Enterprise Development
T: +41 22 907 5707
F: +41 22 907 0194
E: karl.sauvant@unctad.org
Press Officer, Erica Meltzer
T: +41 22 907 5365 / 5828
F: +41 22 907 0043
E: press@unctad.org.


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