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Central/East Europe: Danish Fund Invested $2 Billion In 1998

  • Anthony Georgieff

Copenhagen, 4 May 1999 (RFE/RL) -- The Danish Investment Fund for Central and Eastern Europe (IO) says in a recent report that by the end of last year it had invested in 229 projects in 15 Central and Eastern European states, bringing total investment to $2 billion.

The fund said last year alone it invested in 29 new projects, with more than half the money going to Poland. The number of Danish/Polish joint ventures now exceeds 100, making the IO among the largest Western investors there.

It also invested heavily in Russia in spite of that country's financial crisis. Other leading investment sites include the Czech Republic, where the fund maintains 23 joint Danish-Czech companies, and the Baltic states.

At the bottom are Croatia and Romania, with three investments each, and Slovenia and Ukraine with just one investment each.

The IO was created just after the fall of the Berlin Wall in 1989 and was the first Western investment fund directly interested in Central and Eastern Europe. It has now evolved into one of the largest Western investors in the region.

The fund's resources come from the Danish government and private businesses. The IO works in cooperation with other major western financial institutions such as the European Bank for Reconstruction and Development, the Nordic Investment Bank and the Nordic Environmental Finance Corporation.

The fund focuses on sectors where Danish industry is traditionally strong: medicines, telecommunications and environmental projects. Carlsberg Breweries, the largest beer producer in the world, has also invested in Eastern Europe and has opened up plants in Romania and Croatia.

The IO's activities in the region have resulted in the creation of more than 22,000 jobs.

Among the joint firms set up are Belcare-Plast, a medical instruments producer in Belarus, UMS Tervel, a food and beverages maker in Bulgaria, Panonska breweries in Croatia, and Air Latvia.

Four years ago, the IO received additional funds for the creation of a separate investment facility, Environment Investment. Operating on a yearly budget of about $70 million, it has started up 21 environment projects. These include improving waste disposal in the Czech Republic and Slovakia, and a project to use wood chips for energy in the Baltics.

In its recent report, the fund said it lost about $500,000 in 1998. This reflects the large provisions which are required in the short term when investment activity is expanding rapidly.

According to Dan Jensen, the IO's Deputy Managing Director, the philosophy behind the fund is a mixture of idealism and pragmatism: by making short- and long-term investments in Eastern Europe, it promotes the development of a free market. Once the investments stabilize, the Danish economy will benefit by increasing exports and by further investment.

As an independent body governed by Danish regulations, the fund participates as a shareholder in private sector projects. It provides up to 30 percent of the total share capital, which it later offers for sale. To put it in another way, the IO's main interest is in making itself obsolete.

The IO's Dan Jensen says:

"The final success is when we are selling our stakes." Jensen goes on to list some recent successes for the IO, using the Czech Republic as an example.

"I think in general the sewage and refuse disposal projects --particularly with Meyers-Petersen -- in the Czech Republic have been successful projects. I know for the time being they are expanding their activities.... And that is also an Environmental Facility investment project."

Jensen said that other successful projects are enterprises in Bohemia and Moravia that make cement that is asbestos-free.

The IO welcomes proposals for the establishment of new ventures. The main condition for new investment, as Jensen puts it, is that the recipient companies must be in a country experiencing genuine political and economic reform.

An initial approach to the fund must be made in writing either to its headquarters in Copenhagen or to its offices in Warsaw.

All investment proposals must be cleared by the fund's Administrative Investment Committee and then presented for a decision by the Board of Directors. Once approved, loans for the project are granted for up to five years.