Foreign Investments Mostly Robust Despite Global Downturn; Shift - - PowerPoint PPT Presentation

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Foreign Investments Mostly Robust Despite Global Downturn; Shift - - PowerPoint PPT Presentation

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Wiener Institut fr The Vienna Institute for www.wiiw.ac.at Internationale International Economic Wirtschaftsvergleiche Studies wiiw FDI Report 2019 FDI in Central, East and Southeast Europe Foreign Investments Mostly Robust Despite Global

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Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies

www.wiiw.ac.at

Gábor Hunya hunya@wiiw.ac.at

Foreign Investments Mostly Robust Despite Global Downturn; Shift into Services

by Amat Adarov, Mahdi Ghodsi, Gábor Hunya, Olga Pindyuk and the wiiw statistics department wiiw FDI Report 2019

FDI in Central, East and Southeast Europe

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Global FDI decline

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FDI down in CESEE too, but mainly due to Russia

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FDI stock by activities: manufacturing or services – country specialisation and shifts

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FDI stock by investing countries: increasing role of the Netherlands, but not as ultimate investing country

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Austria slips to rank 4 in EU-CEE and keeps rank 2 in WB

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FDI prospects turn less favourable in EU-CEE and WB (external environment, growth slowdown, labour shortage)

Outline

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3 Note: FDI flows are on the right scale. 2018: OECD estimate. Sources: IMF World Economic Outlook, UNCTAD, OECD.

Global trade, FDI inflows and economic growth dynamics, annual change in per cent, 2005-2018

Global GDP: 3.5-3.8% p.a., FDI inflow 2018 estimated at USD 1.3 bn, lowest since 2009 (negative in IE and CH, declines in DE and GB due to US disinvestments)

  • 30
  • 20
  • 10

10 20 30 40 50

  • 15
  • 10
  • 5

5 10 15 20 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Real GDP Trade volume of goods and services Inward FDI flow (rhs)

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2018: Steady inflows in EU-CEE11 (2.6% of GDP) and Turkey, upsurge in WB6 (6.6% of GDP), decline in CIS3 and Russia

FDI inflows in CESEE regions, EUR million, 2014-2018

EU-CEE11: Central and East European EU members. CIS3: Belarus, Kazakhstan, Moldova. Source: wiiw FDI Database. 5000 10000 15000 20000 25000 30000 35000 40000 2014 2015 2016 2017 2018 EU-CEE11 WB6 Turkey CIS3+UA Russia

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FDI inflow in CESEE by countries, EUR million, 2016-2018

Source: wiiw FDI Database. .

500 1000 1500 2000 2500 3000 3500

2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 AL BA ME MK RS XK BY MD

5000 10000 15000 20000 25000 30000 35000 40000 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 TR KZ RU UA

2000 4000 6000 8000 10000 12000 14000

2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 BG CZ EE HR HU LT LV PL RO SI SK

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6 Source: wiiw FDI Database.

FDI inflow in the Czech Republic, Hungary, Poland and Romania by components, EUR million, 2016-2018

FDI increasingly financed by income earned in host country

  • 2000

2000 4000 6000 8000 10000 2016 2017 2018

Czech Republic

Equity Reinvestment Loans

  • 2000

2000 4000 6000 8000 2016 2017 2018

Hungary

Equity Reinvestment Loans

  • 5000

5000 10000 15000 2016 2017 2018

Poland

Equity Reinvestment Loans 1000 2000 3000 4000 5000 2016 2017 2018

Romania

Equity Reinvestment Loans

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7 Source: http://www.fDiMarkets.com.

Announced greenfield FDI projects 2014-2018: number of projects, announced capital investment in EUR million and number of jobs to be created

More greenfield projects, increasing demand for labour

200 400 600 800 1000 1200 1400 1600 1800 50000 100000 150000 200000 250000 300000 350000 400000 2014 2015 2016 2017 2018 Number of projects (right scale) Capital investment Job creation

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8 Source: http://www.fDiMarkets.com.

Capital investment pledged in greenfield FDI projects 2014–2018, in EUR million

Investors optimistic: Capital investment in announced greenfield projects up in all regions, especially RS, TR and RU, low in KZ

5000 10000 15000 20000 25000 30000 35000 40000 2014 2015 2016 2017 2018 EU-CEE11 WB6 TR CIS3+UA RU

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Remark: NACE Rev. 2. RS data refer to 2015, SK data refer to 2016, CZ, HU, PL, RO, SI, BA, MK, TR, MD, RU data refer to 2017. Source: wiiw FDI Database.

Composition of FDI stocks by economic activity, 2018, in %

Differences in specialisation: manufacturing or services

Manufacturers (above 25%): CZ, HU, PL, RO, Sl, SK, MK, TR, UA

0% 20% 40% 60% 80% 100% BG CZ EE HR HU LT LV PL RO SI SK AL BA MK RS XK TR KZ MD RU UA A-B Agiculture+Mining C Manufacturing D-E Electricity+Water F Construction G Trade H+I Transport+Acommocation J Info-communication K Finance L Real estate M Professional Other

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Greenfield projects in business service activities: low capital intensity

Share of producer related business services in the number and capital investment of greenfield projects, 2018, in %

Source: fDiMarkets.com.

10 20 30 40 50 60 BG HR CZ EE HU LV LT PL RO SK SI RS TR RU UA Pledged investment Number of projects

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11 9.0 5.9 14.3 9.9 19.4 19.1 10.2 1.3 4.9 6.1 Austria France Germany Luxembourg Netherlands

  • ther EU-15

EU-CEE11 United States Cyprus+Russia

  • ther countries

14.8 2.4 6.1 4.3 9.1 15.1 15.6 1.4 6.6 24.7

Inward FDI stock in EU-CEE and Western Balkans by immediate home countries, in % 2012 2017

Rank 1 for the Netherlands on account of tax optimisation; AT down, EU-CEE11 up

Source: wiiw FDI Database.

EU-CEE11 WB6

11.0 7.0 13.9 7.5 17.8 19.7 8.3 3.2 4.1 7.4 12.3 2.3 4.6 2.7 14.1 16.4 18.1 1.2 11.1 17.1 Austria Germany Greece Netherlands Russia

  • ther EU-15

EU-CEE11 United States Cyprus+Russia

  • ther countries
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Germany largest ultimate investor, also USA important; NL and LU 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

  • 5000

5000 10000 15000 20000 25000 30000 35000 40000 45000 NL DE LU AT CY US PL

Poland, 2017

Immediate Ultimate Source: OECD.

  • 5000

5000 10000 15000 20000 25000 30000 NL DE LU AT CY US CZ

Czech Republic, 2017

Immediate Ultimate

  • 5000

5000 10000 15000 20000 25000 30000 NL DE LU AT CH US HU

Hungary, 2016

Immediate Ultimate

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Austrian inflows from the world EUR 6.5 billion, outflows to the world EUR -0.6 billion in 2018 (following high flows in both directions in 2017 OeNB data)

  • disinvestments mainly in CH and NL (restructuring of headquarters)
  • positive outflows to CESEE

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AT share in the EU-CEE and WB stock declined (host country data):

  • 4th in the EU-CEE, after the Netherlands, Luxembourg and Germany (9%; 3rd in 2016)
  • 2nd in the Western Balkans (12%),
  • low in the rest

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High profitability: CESEE share in the Austrian outward stock 28%, in global FDI income 36% (OeNB data)

Austrian FDI in CESEE

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What are the causes of the global FDI downturn in 2018?

  • Slowdown of GDP growth since mid-year, globalisation stuck, US protectionism

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How could most of the CESEE countries maintain high inflows?

  • Dynamic economic growth; embeddedness in value chains

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Which are the ultimate and immediate investing countries in CESEE, respectively?

  • Germany and the US; and the Netherlands, and Luxembourg, respectively

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Is there a shift of FDI into services?

  • Seen in the number of greenfield investment projects but less in the structure of

FDI flows

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Does Austria lose positions as a direct investor in CESEE?

  • Yes, high investor presence in neighbouring countries
  • Austrian outward FDI moves offshore and to Asia

Questions and answers

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General slowdown of global economic growth and trade – also FDI (volatile M&A)

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Trade wars discourage FDI of US, RU and CN multinationals

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Still attractive economic growth in some CESEE, but slowdown expected

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RU economy slowing down; Large FDI project acquisition of 10% in Novatek’s Arctic LNG-2 project by France’s Total

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EU-CEE: Challenges of labour shortage and automatisation

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Structural upgrading: competition for FDI with higher skilled jobs in ICT, R&D

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Government policies are pro-FDI, but selective (regaining national control over banks and utilities)

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Western Balkans catching up based on available workforce, but small in size

Outlook for 2019 and beyond

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WIIW FDI REPORT 2019 FDI in Central, East and Southeast Europe: Foreign Investments Mostly Robust Despite Global Downturn; Shift into Services by Amat Adarov, Mahdi Ghodsi, Gábor Hunya and Olga Pindyuk

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71 pages including 25 Tables and 20 Figures

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hardcopy: EUR 70 (PDF: EUR 65)

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Order via wiiw’s website www.wiiw.ac.at per e-mail koehrl@wiiw.ac.at

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Online access to the wiiw FDI Database via https://data.wiiw.ac.at

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Annual fee for database: EUR 160

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Country codes

AL Albania KZ Kazakhstan RS Serbia BY Belarus LT Lithuania RU Russia BA Bosnia and Herzegovina LV Latvia SI Slovenia BG Bulgaria MD Moldova SK Slovakia CZ Czech Republic ME Montenegro TR Turkey EE Estonia MK North Macedonia UA Ukraine HR Croatia PL Poland XK Kosovo HU Hungary RO Romania CESEE23 Central, East and Southeast Europe CIS3+UA Commonwealth of Independent States-3 and Ukraine EU-CEE11 Central and Eastern European EU members WB6 Western Balkans