FDI inflows in Central and Eastern Europe

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FDI inflows in Central and Eastern Europe

• Ing. Tomá Dudá, PhD.

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Introduction

• 1989 downfall of the socialist regimes in CEE
  countries
• The socialist systems burned all the available
  internal (and often the external too) economic
  resources
• The domestic accumulation of capital was low as
  companies were not profit oriented and the
  inhabitants were not allowed to accumulate wealth
• Corporations needed urgently capital, know-how,
  technology
• Important - a quick privatization/deetatization
  was needed

3
Years 1990-1994

• The potential investors were wary
• Joint ventures were very common in this time
  period ex. GE-Tungsram, Tatramat-Whirlpool,
  Samsung-Calex
• Hungary was the most popular state, followed by
  Czechoslovakia, Poland and Russia
• The origins of the FDI dominance of companies
  from Western Europe
• 1991 the beginning of the automotive FDI
  (VW-Skoda)

4
Years 1990-1994

• Industry dominated in the FDI inflows
• 1992 the beginning of the FDI inflow
  concentration (Hungary, Czech republic, Poland
  and Russia)
• Privatization was the most popular method of
  entry (approx. 2/3 of the total FDI inflows)
• The potential investors searched countries which
  used transparent and orthodox methods of
  privatization and were willing to privatize state
  monopolies

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FDI inflows in CEE countries between 1990 and
1994  (mil. USD)
Zdroj UNCTAD World Investment Report 1995, s. 105
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Years 1995-1999

• Steady growth of FDI inflows into CEE countries
  (1995 14 mld. USD, 1999 20 mld. USD)
• Privatization played still a major role
• 1996 was the only year when the FDI inflows
  actually declined (less privatization deals)
• The high concentration of FDI inflows continued
  Hungary, Poland, Czech republic and Russia
  received approx. 75 of the total inflows

7
Years 1995-1999

• The dominance of European corporations continues,
  but investors from eastern Asia emerge (Japan and
  Korea)
• The first intraregional FDI flows emerge mostly
  Russian corporations and the Hungarian duo
  MOL-OTP
• 1998 was the year of the Russian crisis but it
  influenced only Russian FDI inflows
• The dominance of industry in the FDI inflows
  slowly declines and FDI in services emerge
• Poland became the new leader in FDI inflows in CEE

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Prílev PZI vo vybraných tátoch SVE v rokoch
1995-1999  (mil. USD)
Zdroj stats.unctad.org/fdi
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Years 2000-2006

• FDI inflows into CEE countries grew despite the
  overall global decline
• 2003 was the only exception this year FDI
  inflows declined spectacularly due to huge
  privatization deal in Czech republic and Slovakia
  in 2002
• Slovakia becomes an important destination on the
  FDI map
• The concentration of the FDI inflows is still
  high The Visehrad 4 countries and Russia
  receive the major part of FDI inflows

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Years 2000-2006

• This time period saw a decline of privatization
  deals
• Greenfield FDI is the main method of market entry
• Huge FDI inflows in the automotive industry
  Toyota/PSA, Kia, PSA, Hyundai/Kia, Renault
• The electro technical industry is moving out
  production facilities that require low labor
  costs especially from Hungary (IBM, Microsoft,
  Flextronics, Phillips)
• New types of FDI in services call centers,
  regional support centers, IT centers and logistic
  support centers

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Prílev PZI vo vybraných tátoch SVE v rokoch
2000-2004  (mil. USD)
Zdroj stats.unctad.org/fdi
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FDI inflows into Slovakia between 1999 and 2006

• 1999 402 mil. USD
• 2000 2 155 mil. USD
• 2001 1 270 mil. USD
• 2002 4 093 mil. USD
• 2003 756 mil. USD
• 2004 1 261 mil. USD
• 2005 1 908 mil. USD
• 2006 4 165 mil. USD

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FDI inflows into Slovakia between 1993 and 1998

• Low FDI inflows due to the following factors
• Political problems (Meciar government)
• Economic instability falling international
  ratings (fall into the speculative z0ne)
• Privatization practices focused on domestic
  entrepreneurs (goal strong domestic
  entrepreneural class)
• The strategic companies remained in state
  ownership
• Weak propagation of Slovakia abroad, weak
  performance of SNAZIR (investment promotion
  agency)

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FDI inflows into Slovakia between 1999 and 2006

• Change in political climate entrance into NATO
  and EU
• Improving economic situation and business
  environment
• Interesting economic reforms especially the
  famous tax reform
• Low labor costs the lowest in V4 countries
• Generous investment stimuli provided by the
  government
• Improving performance of SARIO (new IPA)

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The position of assorted CEE countries in FDI
inflows between 1998-2003
Zdroj Spracované na základe tatistík UNCTAD
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The origins of FDI inflows to Slovakia between
1993 and 2005

• Netherlands 21,9 , Germany 19,6 , Austria
  - 14,7 , Italy- 7,0 , Hungary 7,0 , Great
  Britain 6,6
• 2004 Hungary - 20,7 , Austria - 20,6, Czech
  republic - 14,0 , Great Britain - 14,1 ,
  France-10,9, Luxemburg-9,6 , Korean republic
  -6,5
• 2005 Korean republic-31,2 , Germany 30,1 ,
  Czech republic 7,9 , Austria-7,6 ,
  Switzerland 7,6

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Economic structure of FDI inflows in 2005

• Industry 50,2
• Commerce 19,6
• Financial services 17,6
• Real estate development 11,7

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Regional structure of FDI inflows between 1993
and 2005
Zdroj Menový prehlad NBS 5/2005
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Regional structure of FDI inflows in 2004

• Bratislava region 64,6
• Trnava region 12,5
• Trencín region 6,9
• Nitra region - -0,1
• ilina region 7,2
• Banská Bystrica region 2,7
• Preov region 3,0
• Koice region 3,1

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Regional structure of FDI inflows in 2004

• Bratislava region 38,8
• Trnava region 1,4
• Trencín region 14,2
• Nitra region 2,1
• ilina region 34,7
• Banská Bystrica region 4,2
• Preov region 0,6
• Koice region 4,1

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Slovak FDI outflows between 2000 - 2006

• 2000 23 mil. USD
• 2001 71 mil. USD
• 2002 8 mil. USD
• 2003 19 mil. USD
• 2004 51,6 mil. USD
• 2005 110 mil. USD
• 2006 319 mil. USD