Sofia (Bulgaria), October 22 (SeeNews) - The countries in southeast Europe (see) will hardly enjoy the level of foreign direct investments (FDI) from 2006-2007 in the next few years, analytical reports showed.
In 2006 and 2007 the region attracted a record amount of FDI – 23.78 billion euro ($30.62 billion) and 23.73 billion euro, respectively.
Romania was the leader with 7.141 billion euro in foreign investments last year and has been on the top of the ladder since 2002. Merely in 2001 Croatia attracted some 200 million euro more in FDI than Romania. In the broader region of central and eastern Europe only Poland with 15.198 billion euro in FDI last year was able to boast greater investment interest from foreign companies.
FDI Inflow in southeast Europe (in millions of euro):
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 (est.) | |
| Albania | 232 | 143 | 158 | 278 | 224 | 259 | 463 | 600 |
| Bosnia and Herzegovina | 133 | 282 | 338 | 567 | 478 | 564 | 1,478 | 800 |
| Bulgaria | 903 | 980 | 1,851 | 2,736 | 3,152 | 5,961 | 6,109 | 4,500 |
| Croatia | 1,468 | 1,138 | 1,762 | 950 | 1,468 | 2,738 | 3,626 | 2,800 |
| Macedonia | 499 | 112 | 100 | 261 | 77 | 345 | 239 | 500 |
| Moldova | 116 | 89 | 65 | 121 | 159 | 193 | 335 | 200 |
| Montenegro | 5 | 76 | 44 | 53 | 393 | 644 | 1,008 | 800 |
| Romania | 1,294 | 1,212 | 1,946 | 5,183 | 5,213 | 9,060 | 7,141 | 8,000 |
| Serbia | 184 | 504 | 1,204 | 777 | 1,265 | 3,504 | 2,258 | 2,000 |
| Slovenia | 412 | 1722 | 271 | 665 | 473 | 512 | 1073 | 500 |
To view a chart, please click on the link below:
http://reports.aiidatapro.com/WebContent/FDI_Inflow_Oct_2008.jpg
However, analysts forecast that in the next several years the level of foreign investments in the region will decrease significantly. The global financial crisis had impacted the region of southeast Europe and the companies will have to rely on their own resources.
The crisis hammered the global financial system and even the $739 billion that the US government alone decided to pump into the business could be insufficient to help prevent a financial collapse that would be even worse than the stock market free-fall in the 1930s, analysts insist. The European Union (EU) leaders demanded greater oversight in Europe after the financial turmoil forced them to commit more than 1.8 trillion euro to banks and the money markets.
In a desperate move, the Bank of England plans to lower its interest rate below two percent mark or even to set it at one percent. At present the rate stands at 4.5%, but if the governors of Bank of England decide to cut it to one percent it will be the lowest level since the bank was founded in 1694. A move that proves the situation is very complicated.
On the other hand, even companies’ own resources are affected by the continuing crisis while the banks are more precautious when lending money that will be invested in see. Some of the countries in the region which are more indebted or have a high current account deficit and in which the level of investments in the real estate sector is high, such as Bulgaria, will suffer most, Dr. Gabor Hunya from The Vienna Institute for International Economic Studies said in a report “Foreign Direct Investment in Central, East and southeast Europe 2007-2008: decline to follow uneven growth”.
Moreover, most of the foreign investments in southeast Europe have been made in big privatisation deals, especially in Serbia, Macedonia and Croatia. Bosnia and Herzegovina also benefited from the privatisation of the local telecommunications company but these are one-time capital inflows. Bulgaria, for example, attracted investors mainly in the real estate sector and business services which do not generate exports. This situation could lead to worsening of the fundamental economic indicators i.e. slower pace of economic growth, making the country less attractive for foreign investment.
Albania, Macedonia and Romania are the only countries in the region that are expected to attract more FDI this year compared to 2007. However, both Albania and Macedonia have started from a very low initial level of foreign investments and have more potential to grow in the coming years. Romania is expected to attract more foreign capitals in 2008 but the level will be still lower than the record 9.06 billion euro in 2006. All other countries in see are expected to get less foreign investments this year and this trend will continue in short-term, analysts said.
Other factors that could determine the future level of FDI in the region are the investors’ confidence and the conditions for doing business in southeast Europe. In the past five years, the region of eastern Europe as a whole was among the top performers in the Doing Business report of the World Bank in terms of reforms aimed at improving conditions for economic activities. It competed for the first place only with the region of Central Asia.
Ranking on the Ease of Conducting Business
| Country | Ranking in see | Global Ranking 2008 | Global Ranking 2009 |
| Bulgaria | 1 | 44 | 45 |
| Romania | 2 | 47 | 47 |
| Slovenia | 3 | 64 | 54 |
| Macedonia | 4 | 79 | 71 |
| Albania | 5 | 135 | 86 |
| Montenegro | 6 | 84 | 90 |
| Serbia | 7 | 91 | 94 |
| Moldova | 8 | 92 | 103 |
| Croatia | 9 | 107 | 106 |
| Bosnia and Herzegovina | 10 | 117 | 119 |
Source: World Bank, Doing Business 2009
Bulgaria and Romania ranked 44 and 47, respectively, in the Doing Business report for 2008. These are also the countries with the highest level of FDI in southeast Europe. One of the reasons is the legal framework which allows foreign companies to operate smoothly. Bulgaria lowered the corporate tax to the lowest level in the European Union (EU) - 10%, same as the tax in Cyprus. This makes the country attractive for foreign investors as well.
Another factor in favour of the regional economies is the low labour cost and the presence of skilled workers. Even the newest members of the EU, Bulgaria and Romania, could offer favourable taxation conditions and cheap workers to export-oriented foreign manufacturers. Thus international companies, especially European ones, which export their production to third countries, are encouraged to invest in see in order to lower their production costs.
European investors ranked Romania sixth and Bulgaria 13th as their most favourite destination for FDI in the coming years, according to a Foreign Direct Investment Confidence index report by the independent consultancy A.T. Kearney. Their mood for investment is boosted by the extremely low labour costs in the EU newcomers – the wages in Romania are 12% of the EU average, while Bulgaria can offer wages, which are just seven percent of the EU average, according to data of Eurostat.
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