FDI: good results but not sufficient for a fast catching-up

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FDI: good results but not sufficient for a fast catching-up

The last annual UNCTAD report on worldwide Foreign Direct Investments (FDI) brings solid evidences on the strength of the integration process for Central Europe. Whereas FDI world flows fell by 51% last year, they actually increased by 2% for CEECs, reaching a historical record of $27bn (Russia included). This is also the only emerging zone to progress. Overall, flows dropped by 14% for the developing countries, -24% of which in Asia and -11% in Latin America. Within 10 years the CEEC’ share has almost doubled to reach nearly 4% of the world FDI. What is even more significant, it jumped from 10 to 17% of the total FDI going to the developing countries, ex-China.

Within the region, in 2001 Poland remained the principal destination of FDI (8.8bn), yet with a slight decline that seems to continue this year. The Czech Republic kept the 2nd position with 5bn and seems to maintain its attractiveness this year. Hungary (2.4bn) got ahead of Slovakia after quite large inflows of FDI in 2000, both countries, however, will have to make big efforts if they want to keep their attractiveness for foreign investors. Because the major fact that UNCTAD noticed is the significant increase of FDI in South-East Europe, i.e. in Romania and Bulgaria, and more recently in former Yugoslavia, and in particular in Croatia that surpassed Romania in 2001 ($1.4bn against 1.1).

The UNCTAD annual report provides, above all, two indexes of performance and effectiveness of FDI for CEE:

The FDI Performance index is the ratio between the FDI share and the GDP share of an economy in the world. It is equal to 1 if the two weights are equivalent and increases with the attractiveness of countries like Ireland with a 5.1 Performance index. If no applicant country appears in the leading group except Malta (5th rank), all CEEC rank among the first 57 countries (out of 140), except Slovenia (110th rank !). On the other hand, the group is rather heterogeneous. The Czech R. leads the region with an index of 2.5 (13th rank), followed by Estonia (16th) and Bulgaria (24th). Poland is in the middle with a rather good index (1.4 and 38th rank), while Hungary disappoints a little (1.1 and 49th) even if it precedes Spain. Romania lags behind at the 57th rank with a weight in the world FDI strictly equivalent to its weight in the world GDP.

The second index is the ratio of FDI to the Capital formation and measures their potential role like an engine for the catching-up. The overall global picture is quite positive even if the differences within the region are just as significant. For an average ratio of FDI/CF of 18.2% against 10%, in China or Thailand for example, one notes a peak of 52% in Bulgaria, another intermediate well positioned group at about 25-35%, but a third group is still insufficiently driven by FDI at about 15%.

On the whole, the applicant countries appear quite present on the FDI world map and their competitive integration within the European economic space looks favorable. But performances are uneven and for the moment, there is no champion such as Ireland. This makes the new IMF forecasts for 2003 reasonable: the region’s GDP could grow by 3.8%, only 0.2 point below the original one in March. But this is not the 5-6% for Emerging Asia, which is also the required speed for a quick catching-up with the EU15. In short, there is no room for complacency but plenty for further efforts.

For more analyses see the

enlargement website of DREE.  

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