FDI RISES FOR FOURTH YEAR IN A ROW IN SOUTH-EAST EUROPE, COMMONWEALTH OF INDEPENDENT STATES

Flows of foreign direct investment to the countries of South-East Europe and the Commonwealth of Independent States (CIS) increased in 2004 for the fourth consecutive year, reaching an all-time high of US$ 35 billion, and that growth is likely to continue over the near future, reveals UNCTAD´s World Investment Report 2005 Transnational Corporations and the Internationalization of R&D (1) (WIR05), released today.

This new statistical grouping of 19 economies comprises South-East Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Romania and Serbia and Montenegro) and the CIS (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, the Republic of Moldova, the Russian Federation, Tajikistan, Turkmenistan, the Ukraine and Uzbekistan). It replaces the former Central and Eastern Europe category, of which the eight countries that joined the EU in 2004 were reclassified as developed countries.

Of the 19 countries, only three received lower amounts of FDI than in 2003. FDI was concentrated in five nations, which together accounted for 81% of the total: Azerbaijan, Bulgaria, Kazakhstan, Romania and the Russian Federation.

The two European Union candidate countries of Bulgaria and Romania were the main recipients of FDI inflows to South-East Europe. Romania´s record US$ 5 billion was partly the result of privatization of its downstream oil company, Petrom, through acquisition by OMV of Austria. In Bulgaria, Telekom Austria acquired the telecom operator MobilTel, while Viva Ventures of the United States took majority control of the Bulgarian Telecommunications Company.

Among CIS countries, FDI was driven mostly by projects in natural resources, especially petroleum and natural gas, according to the report. Petroleum and natural gas extraction in the Russian Federation, and especially projects centred on Sakhalin Island in the country´s far east, attracted large investments in 2004. FDI into Russia was further augmented by the return of some Russian capital from Cyprus and Luxembourg. Azerbaijan benefited from a combination of high oil prices and the prospect of the imminent opening of an oil pipeline linking the Azeri capital of Baku with the Turkish Mediterranean port of Ceyhan. Both factors spurred FDI flows to the petroleum sector in Azerbaijan, the report says. And in Kazakhstan, a surge in FDI led to a 16% rise in oil and gas output last year.

FDI outflows from South-East Europe and the CIS fell slightly in 2004, following two years of growth. The report ties the decrease to a slowdown in foreign investment by the Russian transnational corporations (TNCs) that alone represent about 99% of the region´s total FDI. This slowdown, in turn, reflects a changing relationship between the Russian government and the nation´s business sector, which has responded with slower investment abroad. Russian TNCs often target natural resource projects in other CIS countries. The list of the largest non-financial TNCs of South-East Europe and the CIS is topped by two firms active in natural resources, Lukoil and Norilsk Nickel (table 1)

Region set to continue on growth path

The report projects continued growth for foreign investment in South-East Europe and the CIS over the near future, based on expectations that, with their competitive wages, South-East Europe and the Ukraine in particular will attract an increasing number of investors hoping to maximize the efficiency and minimize the cost of their export-oriented projects. This outlook is also based on expectations that high oil and gas prices will encourage further investments in the energy-rich CIS nations.

The World Investment Report 2005, in addition to covering FDI trends around the world, has a special section on transnational corporations and the internationalization of research and development.

ANNEX

Tables and figures

Table 1 : The top five non-financial TNCs from South-East Europe and the CIS, ranked by foreign assets, 2003 (Millions of US dollars and per cent)

Figure 1: FDI inflows to South-East Europe and the CIS, top 10 recipients, 2003, 2004 (Billions of US dollars)