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UN: Report Indicates Growth Of Foreign Investment In Southeast Europe, CIS

A new United Nations report shows that 19 countries in Eastern Europe and the Commonwealth of Independent States have seen four consecutive years of growth in foreign direct investment (FDI). Foreign investment in 2004 reached an all-time high of $35 billion. Azerbaijan, Bulgaria, Kazakhstan, Romania, and Russia account for 81 percent of the region's FDI, with much of the CIS investment going into the oil and gas industries. The report says the investment rise is likely to continue, with southeast Europe and Ukraine seeing the largest growth.

United Nations, 29 September 2005 (RFE/RL) -- The annual World Investment Report published by the United Nations Conference on Trade and Development is considered the most comprehensive indicator of foreign direct investment worldwide.

A major change in this year's report is that while developed countries received the bulk of FDI in 2003, in 2004 it was developing nations that were the major recipients.

George Kell, executive director of Global Compact, a UN group that works to coordinate the work of businesses with labor and civil-society groups worldwide, said many economists see FDI as the best agent for globalization and market integration.

FDI trends, he added, say a lot about how the world is changing.

"After three years of gradual decline, foreign direct investment is picking up again," Kell said. "The increase is due exclusively to a significant increase of foreign direct investment flows to developing countries. As a matter of fact, the increase of flows to developing countries was almost 40 percent [compared to 2003] and stands now at over $230 billion."

The United States remains both the leading recipient and leading supplier of FDI, with Britain and China following in second and third place.

Total FDI in 2004 amounted to some $9 trillion and involves around 70,000 transnational companies, according to the World Investment Report.

Romania Leads In Southeast Europe

In southeast Europe, Romania received the bulk of FDI, with $5 billion. The report says this is due in part to the privatization of Romania's Petrom oil company, which was acquired by Austria's OMV.

Romania alone attracted more FDI in 2004 than the combined total of the five countries in the west of the subregion -- Albania, Bosnia-Herzegovina, Croatia, Serbia and Montenegro, and Macedonia.
Incidents like the jailing of Yukos oil tycoon Mikhail Khodorkovskii may have had a chilling effect on some investment in Russia.

The low levels of FDI in the region reflect both the countries' generally low gross domestic products as well as lingering postconflict instability.

In Bulgaria, Telekom Austria acquired the telecom operator MobiTel, while the U.S. firm Viva Ventures took majority control of the Bulgarian Telecommunications Company.

$12 Billion For Russia

Russia, meanwhile, received some $12 billion in foreign direct investment in 2004. Kai Hammerich, president of the World Association of Investment Promotion Agencies, said that amount represents a relatively low investment for a country of Russia's size and potential.

"There is some reluctance from any foreign investors regarding investments in Russia, because there is no sufficient -- from the investors' point of view -- stability regarding the FDI institutions," Hammerich said. "However, it is of course an important market and you see quite a lot of market-driven investments coming to Russia, and I think that the potential regarding Russia is, of course, very important."

Hammerich said incidents like the jailing of Yukos oil tycoon Mikhail Khodorkovskii have had a chilling effect on some investment. Still, he said, many foreign investors consider Russia too valuable an opportunity to pass up, and are willing to take the risks -- particularly in oil-and-gas development projects.

Hammerich said there are many emerging trends in FDI, including so-called "strategic alliances" between major companies. One such alliance between two famous firms -- one Japanese, one Swedish -- in 2001 resulted in the Sony Ericsson Mobile Communications joint venture.
High energy prices helped raise foreign direct investment in the CIS from $5 billion in 2000 to $24 billion in 2004.

"The opportunities are, for example, that we are experiencing more and more now new forms of foreign direct investment, and one such form is the strategic alliance," Hammerich said. "And the fact that we have now these two-way streets of investments will very much open the way for strategic alliances between corporations, in developed and developing countries, which will be quite different in nature and scope, I think, from the past."

Foreign direct investment in the CIS grew from $5 billion in 2000 to $24 billion in 2004 -- a spike driven largely by high energy prices.

Russia alone accounts for over one-third of total FDI inflows in the CIS. Azerbaijan and Kazakhstan together accounted for another quarter.

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