Page 12 - bne Magazine February 2023

12 I Companies & Markets bne February 2023
The report, entitled “Economic and Social Impacts of FDI in Central, East and Southeast Europe”, in fact showed that German and Austrian FDI had the most impact on the region in terms of growth, creating jobs, raising wages,
as well as reducing poverty and not widening inequality, largely because it was concentrated in the sectors such as manufacturing, and via means such as retained earnings, that had the biggest effects.
Haussmann added that the efforts by some states to weaken these investment links were therefore misguided. “Efforts to disadvantage foreign investors or to force them out of
“The shortening and regionalisation of supply chains play an important role in this. There are tremendous opportunities for Central and Eastern Europe if the framework conditions are right”
strategic sectors are a loss for both sides,” he warned. Viktor Orban’s regime in Hungary has regularly launched such campaigns against foreign investors.
The report dismisses populist arguments against FDI, such as that it crowds out domestic investment, arguing that the weak linkages between domestic and foreign companies in the region meant that FDI had had no effect on domestic investment either way.
Tremendous opportunities
The panellists also pointed out that there would also still be great opportunities for CESEE countries from planned nearshoring or “friendshoring”, as multinationals seek supplies from nearer countries or those that share Western values following the disruption to supply chains caused by the COVID-19 pandemic in China, as well as the Ukraine war and sanctions on Russia.
“Right now, German companies are reorganising their international supply chains against the backdrop of global upheavals,” Haussmann said. “The shortening and regionalisation of supply chains play an important role in this. There are tremendous opportunities for Central and Eastern Europe if the framework conditions are right.”
Gunter Deuber, chief economist of Raiffeisen Bank, one of the biggest banks in the region, added: “A lot of companies are currently looking at projects,” though he said the new investment cycle would start in two to three years.
The European Bank for Reconstruction and Development’s
www.bne.eu
2022/23 Transition Report published last week included a survey showing that three quarters of German manufacturing companies in global supply chains have implemented at least one measure to improve the resilience of their supply chains and that Central European suppliers were seen as much
more reliable than Chinese or other Asian ones. Already in Hungary and Slovakia more than 35% of output comes from work for global supply chains.
However, the panellists said that the rule of law – currently
a serious problem in Poland and Hungary – and labour shortages were big obstacles to a new FDI wave. Haussmann warned: “The shortage of qualified labour is becoming more and more a problem. That is the biggest problem – as long as the rule of law is guaranteed.”
According to the report, since the collapse of communism, CESEE countries have had a wave of FDI that has completely transformed their economies. Between 1993 and 2020 the world as a whole has been receiving annual FDI inflows of around 2.5% of global GDP, while foreign investment in the 17 countries in CESEE has averaged 4.4% of GDP (the report excludes post-Soviet countries apart from the Baltic states).
After an early focus on Central Europe and the Baltic states, over the past decade investment has been moving into the Western Balkans.
In relation to GDP, the highest stock of FDI is in Montenegro at 110% of GDP, followed by Estonia at 100% and Serbia at 90%; the lowest were in Slovenia, Romania and Bosnia & Herzergovina, at around 40%.
In the four main states of Central Europe, Czechia has the highest stock of FDI as a percentage of GDP, followed by Hungary, Slovakia and then Poland – by far the largest economy – bringing up the rear.
Total stock of FDI in 17 CESEE economies in 2020 (% of GDP)
Source: wiiw FDI database