Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at The future of FDI in Slovakia Doris Hanzl-Weiss, wiiw AmCham Conference on FDI: Strategies and Future Prospects, Bratislava, December 12, 2011
2 The future of FDI in Slovakia Main Points: Introduction: FDI in Slovakia and the region Location factors International uncertainties and outlook Domestic uncertainties
3 The future of FDI in Slovakia Main Points: 1) FDI in Slovakia and the region
FDI Stock 2010 4 in % of GDP CZ 67% SK 56% HU 70% Remark: Data EU-15 refer to 2009. Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011; Eurostat.
5 FDI-Stock per capita, selected years 1995 2000 2005 2010 16000 14000 12000 10000 8000 6000 4000 2000 0 BG CZ EE HU LV LT PL RO SK SI AT Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011.
6 FDI stock by main economic activities, 2009 100% Czech R. Hungary Poland Slovakia Bulgaria Romania Austria 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Industry Trade Finances Business services Other Data AT refer to 2009. Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011
7 FDI impacts on countries in transition An engine of transformation (capital, transfer of technology and innovation, management) Policy before EU accession: subsidies to large FDI projects Sale to strategic investors most effective way of privatization Massive crowding out and liquidation of uncompetitive companies Dependence, dualism, weak spillover, technology threshold
8 FDI impacts on countries in transition (continued) After EU accession: support restricted to SMEs, regions, employment, R&D Despite investment stimulus, job creation in backward regions is weak Still, export oriented FDI concentrates in regions with best infrastructure, Western border regions FDI integrated NMS manufacturing into European value chains
9 FDI-Inflow in Euro million, 1998-2010 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 18000 16000 14000 12000 10000 8000 6000 4000 2000 0-2000 Bulgaria Czech R. Hungary Poland Romania Slovakia Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011.
10 FDI-Inflow per capita, 2008-2010 12000 10000 2008 2009 2010 8000 6000 4000 2000 0-2000 BG CZ EE HU LV LT PL RO SI SK AT Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011. OENB, Statistik Austria, wiiw calculation.
11 Form of FDI Inflow, 2010, EUR Million 6000 Equity Reinvested earnings Other capital 5000 4000 3000 2000 1000 0-1000 -2000 BG CZ HU PL RO SK SI AT* * excl. SPEs Source: wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2011.
12 The future of FDI in Slovakia Main Points: 2) Location factors
13 Location factors: Overview UNCTAD (1998) identifies three main spheres that determine a region s attractiveness: a) The policy framework for FDI (e.g. economic, political and social stability of a country, privatization policy, trade policy, tax policy etc.) b) Economic determinants: separated according to the main motive of FDI: resource-seeking FDI, efficiency-seeking FDI and market-seeking FDI c) Business facilitation (investment promotion, investment incentives etc.)
14 Development of unit labour costs (at GDP level) Austria = 100 Slovakia Source: wiiw Database and own estimates.
15 The future of FDI in Slovakia Main Points: 3) International uncertainties and outlook
16 GDP growth 2012-2013 changes against the previous year in % Source: wiiw (November 2011), Eurostat. Forecast: wiiw, European Commission (Autumn Forecast, November 2011) for EU-15.
17 wiiw Forecast for the New Member States (NMS) GDP growth from 2011 again faster than in the EU-27 2009 2010 2011 2012 2013 Forecast Bulgaria -5.5 0.2 1.5 2 2.5 Czech Republic -4.7 2.7 2.0 1.5 3.3 Estonia -14.3 2.3 7.3 3 4.5 Hungary -6.8 1.3 1.3 0.3 2 Latvia -17.8-0.3 4.8 2.4 3.5 Lithuania -14.8 1.4 6.2 2.8 3.8 Poland 1.6 4.0 4.0 3.3 4.2 Romania -6.6-1.9 2 2.5 3 Slovakia -4.8 4.0 3.2 2.1 3.4 Slovenia -8.0 1.4 1.6 1.8 2 NMS-10-3.7 2.1 3.0 2.4 3.4 EU-27-4.3 1.9 1.7 0.7 1.6 Source: wiiw (November 2011), Eurostat. Forecasts by wiiw and European Commission (Autumn Report, November 2011) for EU.
18 Real GDP per capita EU-27 average = 100 Note: Projection is based on the assumption of a growth differential of 2 percentage points vis-à-vis the EU-15 after 2014.
19 Risks for future developments Significant and elevated risks may impair future developments: return of inflation is less likely excessive and volatile inflows of capital scarce and/or more expensive credit financing consolidation of state finances, deficit reduction weak investment activity (both public and private) weakening of the euro area and of the whole EU sovereign defaults and the new financial crisis
20 The future of FDI in Slovakia Main Points: Conclusions
21 Impact of the global crisis and outlook Decline of FDI inflow, maybe even to the level of 2009 Future of austerity policies, i.e. investment support Future privatization plans Export oriented FDI transferred crisis further risks Growing competition in Europe for post-crisis locations However: Locational advantages of Slovakia reinforced: declining real estate prices, more or less stagnating wages and unit labour costs
22 Wiiw at a glance (www.wiiw.ac.at) Austrian centre for research on Central, East and Southeast Europe Independent and non-profit organization with more than 35 years of experience in the region Total staff of 41 with 21 economists and 7 statisticians Major publications: wiiw Database on FDI (annual publication with data and analysis) wiiw Annual Database, wiiw Monthly Database wiiw Handbook of Statistics Current Analysis and Forecasts (twice a year, February and July)