Wiener Institut für The Vienna Institute for www.wiiw.ac.at Internationale International Economic Wirtschaftsvergleiche Studies wiiw FDI Report 2018 FDI in Central, East and Southeast Europe: Declines due to Disinvestment Gábor Hunya
2 Main FDI trends in 2017 � FDI inflow in CESEE declined from the 2016 high to the average of 2011-2015 - Balance of payments statistics, directional principle against revised 2016 data � Improved macro-economic environment: Economic growth stabilised or improved in CESEE and in its main investors � Main cause of FDI decline in some EU-CEE: corporate restructuring, disinvestment � FDI stock by investing countries: increasing role of the Netherlands, but not as ultimate investing country � FDI stock by activites: manufacturing or finance – export or domestic market orientation? � Austria keeps rank 3 as investor in EU-CEE and rank 2 as immediate investor in WB � Lower Austrian FDI stocks but higher FDI-related income � FDI prospects good in EU-CEE and WB but limited by labour shortage, government policies and external environment
3 Declining FDI inflows in CESEE, except in the WB FDI inflows in 2017 down by 25% against the peak-year 2016: EU-CEE -20%, Western Balkans +18%, Turkey -20%, CIS-3 and Ukraine -36%, Russia -33% EU-CEE Western Balkans Turkey CIS-3 + Ukraine Russia 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2013 2014 2015 2016 2017 EU-CEE: European Union - Central and Eastern Europa. CIS-3: Belarus, Kazakhstan, Moldova. Source: wiiw FDI Database.
4 FDI inflow in CESEE countries in EUR million Inflow EUR million: Inflow EUR million (left scale): 2015 2016 2017 Inflow as % of GFCF (right scale): 2015 2016 2017 14000 12000 10000 8000 6000 4000 2000 0 -2000 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 BG HR CZ EE HU LV LT Pl RO SK SI 2500 40000 2000 30000 1500 20000 1000 10000 500 0 0 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 TR KZ RU UA AL BA XK MK ME RS BY MD Note: RS: FDI inflow in 2017 is EUR 2544 million. Source: wiiw FDI Database.
5 Disinvestment reduces FDI inflows – capital restructuring efforts of investors meet economic nationalism FDI inflow in the Czech Republic, Hungary, Poland and Slovakia by components, EUR mn Hungary Czech Republic Loans Reinvestment Equity Loans Reinvestment Equity 10000 7000 6000 8000 5000 4000 6000 3000 4000 2000 1000 2000 0 0 -1000 -2000 -2000 -3000 -4000 -4000 2015 2016 2017 2015 2016 2017 Slovakia Poland Loans Reinvestment Equity Loans Reinvestment Equity 16000 2500 14000 2000 12000 1500 10000 1000 8000 500 6000 4000 0 2000 -500 0 -1000 -2000 -1500 -4000 2015 2016 2017 2015 2016 2017 Source: wiiw FDI Database
6 More greenfield projectes but lower capital investment in CESEE Greenfield FDI projects 2013-2017: number of projects, announced capital investment in EUR million and number of jobs to be created Number of projects (right scale) Investment Job creation 350000 1600 1400 300000 1200 250000 1000 200000 800 150000 600 100000 400 50000 200 0 0 2013 2014 2015 2016 2017 Source: http://www.fdimarkets.com.
7 Capital investment in greenfield projects down in Kazakhstan and Turkey, up in Poland, Romania and Russia Capital investment pledged in greenfield FDI projects 2013-2017 in EUR million EU-CEE Western Balkans Turkey CIS-3 + Ukraine Russia 40000 35000 30000 25000 20000 15000 10000 5000 0 2013 2014 2015 2016 2017 EU-CEE: European Union - Central and Eastern Europa. CIS-3: Belarus, Kazakhstan, Moldova. Source: http://www.fdimarkets.com.
8 Differences in specialisation in manufacturing or services Share of main activities in the number of greenfield projects, 2017 Financial and other services Electricity Construction Logistics, Distribution & Transportation Sales, Marketing & Support Manufacturing 100% 80% 60% 40% 20% 0% BG HR CZ EE HU LV LT PL RO SK SI RS TR RU Share of main activities in the capital investments in greenfield projects, in %, 2017 100% 80% 60% 40% 20% 0% BG HR CZ EE HU LV LT PL RO SK SI RS TR RU Remark: Excluding mining and recycling. Source: http://www.fdimarkets.com.
9 Rank 1 for the Netherlands on account of tax optimisation; rank 3 for Austria with about 9.5% of the stocks Inward FDI stock in EU-CEE and Western Balkans by major home countries, in % 2012 2016 Austria 7.4 8.1 9.2 11.0 France 4.1 4.8 6.3 3.2 Germany 1.2 7.0 8.0 Luxembourg 8.3 EU-CEE Netherlands 14.1 13.9 other EU-15 EU-CEE 19.8 19.7 9.0 United States 7.5 Cyprus+Russia 19.4 17.8 other countries Austria 14.8 12.2 Germany 16.9 24.7 2.2 Greece 2.4 4.5 Netherlands 6.1 Western 2.5 Russia 11.5 4.3 Balkans other EU-15 6.6 14.6 1.2 EU-CEE 1.4 9.1 United States 18.0 Cyprus+Russia 15.6 16.6 15.1 other countries Source: wiiw FDI Database.
10 Germany largest ultimate investor, also USA important; NL and AT transit countries; round-tripping capital in CZ and PL FDI stock by main immediate and ultimate investors, in the Czech Republic, Poland and Hungary, EUR million Czech Republic, 2016 Poland, 2016 Hungary, 2015 Immediate Ultimate Immediate Ultimate Immediate Ultimate 35000 35000 35000 30000 30000 30000 25000 25000 25000 20000 20000 20000 15000 15000 15000 10000 10000 10000 5000 5000 5000 0 0 0 NL DE LU AT FR US CZ NL DE AT CH IL US HU NL DE LU FR UK US PL Source: OECD.
11 Austrian FDI in CESEE � Austrian inflows from the world EUR 8.5 billion, outflows to the world EUR 9.7 billion in 2017 following negative flows in in both directions in 2016 (OeNB data): - 2016: UniCredit disinvestment in AT; related AT investments in CESEE turned Italian - 2017: Lukoil invested EUR 6.2 million in AT, but with the aim to invest abroad � 3 rd in the EU-CEE, after the Netherlands and Germany (9.2% of the inward stock in 2016) and 2 nd in the Western Balkans (11%), low in the rest (host country data). � AT share in the EU-CEE and WB stock declined, but FDI income held up. � Austrian direct investors enjoy above-average profitability in the EU-CEE. - Share in the Austrian outward stock 25.5%, in global FDI income 33% (OeNB data). � FDI income from EU-CEE 1.2% of GDP; net contribution to EU budget 0.8% of GDP – - EU payments improve the infrastructure and the business environment in the EU- CEE and help companies to earn profits on their investments there.
12 Outlook for 2018 � Economic growth in CESEE somewhat slower than in 2017. � Expanding domestic and foreign markets attract investors to EU-CEE and WB. � No risk reduction for investors in MD, RU and UA, thus FDI will hardly increase. � Sanctions on Russian oligarchs hit hard, triggering declines in relations with the US and Europe. But - import substituting investments are vivid and - Chinese interest high. � The scope for foreign takeovers is limited in the EU-CEE where foreign affiliates produce 40-50% of the business sector GDP, � and where government support benefits only export-oriented investments with high-technology content; the domestic sector is preferred in market-seeking activities � Strained labour market situation hinders further FDI projects, unless alternatives are exploited: - automation (started but not dominant), - moving further to the east (Ukraine not attractive), - moving Ukrainian labour to the west (massive), - more investment in labour-abundant Western Balkans (expected).
13 WIIW FDI REPORT 2018: FDI in Central, East and Southeast Europe: Declines due to Disinvestment � 164 pages including 103 Tables and 20 Figures, analysis and methodological explanations � hardcopy: EUR 70 (PDF: EUR 65) � Order via wiiw’s website www.wiiw.ac.at, per e-mail koehrl@wiiw.ac.at Online access to the wiiw FDI Database via https://data.wiiw.ac.at Annual fee: EUR 160
14 Country codes AL Albania MK Macedonia BA Bosnia and Herzegovina PL Poland BG Bulgaria RO Romania CZ Czech Republic RS Serbia EE Estonia RU Russia HR Croatia SI Slovenia HU Hungary SK Slovakia KZ Kazakhstan TR Turkey LT Lithuania UA Ukraine LV Latvia XK Kosovo ME Montenegro CESEE Central, East and Southeast Europe CIS Commonwealth of Independent States EU-CEE European Union – Central and Eastern Europe WB Western Balkans
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