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

Wiener Institut für 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 Downturn; Shift into Services by Amat Adarov, Mahdi Ghodsi, Gábor Hunya, Olga Pindyuk and the wiiw statistics department Gábor Hunya hunya@wiiw.ac.at

2 Outline ▪ Global FDI decline ▪ FDI down in CESEE too, but mainly due to Russia ▪ FDI stock by activities: manufacturing or services – country specialisation and shifts ▪ FDI stock by investing countries: increasing role of the Netherlands, but not as ultimate investing country ▪ Austria slips to rank 4 in EU-CEE and keeps rank 2 in WB ▪ FDI prospects turn less favourable in EU-CEE and WB (external environment, growth slowdown, labour shortage) 

3 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) Real GDP Trade volume of goods and services Inward FDI flow (rhs) 25 50 20 40 15 30 10 20 5 10 0 0 -5 -10 -10 -20 -15 -30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: FDI flows are on the right scale. 2018: OECD estimate.  Sources: IMF World Economic Outlook, UNCTAD, OECD.

4 FDI inflows in CESEE regions, EUR million, 2014-2018 2018: Steady inflows in EU-CEE11 (2.6% of GDP) and Turkey, upsurge in WB6 (6.6% of GDP), decline in CIS3 and Russia EU-CEE11 WB6 Turkey CIS3+UA Russia 40000 35000 30000 25000 20000 15000 10000 5000 0 2014 2015 2016 2017 2018 EU-CEE11: Central and East European EU members. CIS3: Belarus, Kazakhstan, Moldova.  Source: wiiw FDI Database.

5 FDI inflow in CESEE by countries, EUR million, 2016-2018 14000 12000 10000 8000 6000 4000 2000 0 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 40000 3500 35000 3000 30000 2500 25000 2000 20000 1500 15000 1000 10000 5000 500 0 0 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 2016 2017 2018 AL BA ME MK RS XK BY MD TR KZ RU UA  Source: wiiw FDI Database. .

6 FDI increasingly financed by income earned in host country FDI inflow in the Czech Republic, Hungary, Poland and Romania by components, EUR million, 2016-2018 Czech Republic Hungary Equity Reinvestment Loans Equity Reinvestment Loans 10000 8000 8000 6000 6000 4000 4000 2000 2000 0 0 -2000 -2000 2016 2017 2018 2016 2017 2018 Poland Romania Equity Reinvestment Loans Equity Reinvestment Loans 15000 5000 4000 10000 3000 5000 2000 1000 0 2016 2017 2018 0 2016 2017 2018 -5000  Source: wiiw FDI Database.

7 More greenfield projects, increasing demand for labour Announced greenfield FDI projects 2014-2018: number of projects, announced capital investment in EUR million and number of jobs to be created Number of projects (right scale) Capital investment Job creation 400000 1800 1600 350000 1400 300000 1200 250000 1000 200000 800 150000 600 100000 400 50000 200 0 0 2014 2015 2016 2017 2018  Source: http://www.fDiMarkets.com.

8 Investors optimistic: Capital investment in announced greenfield projects up in all regions, especially RS, TR and RU, low in KZ Capital investment pledged in greenfield FDI projects 2014 – 2018, in EUR million EU-CEE11 WB6 TR CIS3+UA RU 40000 35000 30000 25000 20000 15000 10000 5000 0 2014 2015 2016 2017 2018  Source: http://www.fDiMarkets.com.

9 Differences in specialisation: manufacturing or services Manufacturers (above 25%): CZ, HU, PL, RO, Sl, SK, MK, TR, UA Composition of FDI stocks by economic activity, 2018, in % 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 100% 80% 60% 40% 20% 0% BG CZ EE HR HU LT LV PL RO SI SK AL BA MK RS XK TR KZ MD RU UA 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.

10 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 % Pledged investment Number of projects 60 50 40 30 20 10 0 BG HR CZ EE HU LV LT PL RO SK SI RS TR RU UA  Source: fDiMarkets.com.

11 Rank 1 for the Netherlands on account of tax optimisation; AT down, EU-CEE11 up Inward FDI stock in EU-CEE and Western Balkans by immediate home countries, in % 2012 2017 Austria 7.4 4.9 6.1 9.0 11.0 France 4.1 1.3 5.9 3.2 Germany 7.0 10.2 Luxembourg 8.3 EU-CEE11 14.3 Netherlands 13.9 other EU-15 EU-CEE11 19.1 19.7 9.9 United States 7.5 Cyprus+Russia 19.4 17.8 other countries Austria 14.8 12.3 Germany 17.1 24.7 Greece 2.3 2.4 4.6 Netherlands 6.1 WB6 2.7 Russia 11.1 4.3 other EU-15 6.6 14.1 EU-CEE11 1.2 1.4 9.1 United States Cyprus+Russia 18.1 15.6 15.1 other countries 16.4  Source: wiiw FDI Database.

12 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 Czech Republic, 2017 Poland, 2017 Hungary, 2016 Immediate Ultimate Immediate Ultimate Immediate Ultimate 30000 45000 30000 40000 25000 25000 35000 20000 20000 30000 25000 15000 15000 20000 10000 10000 15000 10000 5000 5000 5000 0 0 0 -5000 -5000 -5000 NL DE LU AT CY US CZ NL DE LU AT CH US HU NL DE LU AT CY US PL  Source: OECD.

13 Austrian FDI in CESEE ▪ 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 ▪ AT share in the EU-CEE and WB stock declined (host country data): 4 th in the EU-CEE, after the Netherlands, Luxembourg and Germany (9%; 3 rd in 2016) - 2 nd in the Western Balkans (12%), - - low in the rest ▪ High profitability: CESEE share in the Austrian outward stock 28%, in global FDI income 36% (OeNB data) 

14 Questions and answers ▪ What are the causes of the global FDI downturn in 2018? - Slowdown of GDP growth since mid-year, globalisation stuck, US protectionism ▪ How could most of the CESEE countries maintain high inflows? - Dynamic economic growth; embeddedness in value chains ▪ Which are the ultimate and immediate investing countries in CESEE, respectively? - Germany and the US; and the Netherlands, and Luxembourg, respectively ▪ Is there a shift of FDI into services? - Seen in the number of greenfield investment projects but less in the structure of FDI flows ▪ 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 

15 Outlook for 2019 and beyond ▪ General slowdown of global economic growth and trade – also FDI (volatile M&A) ▪ Trade wars discourage FDI of US, RU and CN multinationals ▪ Still attractive economic growth in some CESEE, but slowdown expected ▪ RU economy slowing down; Large FDI project acquisition of 10% in Novatek’s Arctic LNG- 2 project by France’s Total ▪ EU-CEE: Challenges of labour shortage and automatisation ▪ Structural upgrading: competition for FDI with higher skilled jobs in ICT, R&D ▪ Government policies are pro-FDI, but selective (regaining national control over banks and utilities) ▪ Western Balkans catching up based on available workforce, but small in size 

16 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 ▪ 71 pages including 25 Tables and 20 Figures ▪ 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 for database: EUR 160 

17 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 