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The East: Investment Down In Europe, Up In Central Asia

Hong Kong, 22 September 1997 (RFE/RL) - Foreign direct investment into the nations of Central and Eastern Europe in 1996 fell by 14 percent in 1996, but the nations of Central Asia recorded a 37 percent increase compared to 1995.

The figures on foreign direct investment were released today in the annual World Investment Report by the United Nations Conference on Trade and Development (UNCTAD).

It says that the Central and East Europe region recorded foreign direct investment in 1996 of $12.2 million, a decline from the over $14.3 million invested the year before.

UNCTAD Secretary General Rubens Ricupero says the reduced flows to that region reflected the fact that privatization programs are beginning to wind down in Hungary, the Czech Republic and Poland. But he told reporters in Hong Kong that reduced foreign investment in Russia, Slovakia and Albania reflected more the problems of transition to a market economy.

A key problem, says the report, is that without stable market economies, some foreign investors may have decided they had originally overestimated the potential of the region to absorb foreign investment and temporarily shelved plans for expansion.

Moldova and Estonia also recorded drops in the level of foreign investment, but the rest of the nations of the region -- Albania, Belarus, Bulgaria, Latvia, Lithuania, Romania, and Ukraine -- had increased foreign direct investment in 1996. Ukraine showed the largest rise of the group, 65 percent to $440 million.

In Central Asia, on the other hand, foreign direct investment hit $1.1 million in 1996, a marked rise from the $836 million invested in 1995.

Ricupero says the investment in this region is a reflection of the potential of oil in the Caspian sea area. Most of the increases in foreign money went to Azerbaijan, Georgia, and Kazakhstan.

Armenia recorded a huge 183 percent increase in in-flows, although from a very modest $12 million in 1995. Although Tajikistan managed to hold even in 1996, the rest of the nations of the region -- Kyrgyzstan, Turkmenistan, and Uzbekistan -- all recorded serious declines in foreign direct investment.

Another catagory of nations UNCTAD used in its report was "Developing Europe," in which it includes all the countries of the former Yugoslavia, and Malta. Here, foreign direct investment in 1996 rose 55 percent to more than $570 million.

Most of that rise was in Croatia, which recorded a whopping 270 percent increase in foreign direct investment to $300 million in 1996. There were no figures available for Bosnia, but both Macedonia and the Belgrade federation had declines in 1996.

The UNCTAD report also found large increases in investment OUTFLOWS from the nations in Central and Eastern Europe and Developing Europe.

The East and Central region had outflows in 1996 totaling $2.5 million, a 30 percent increase from the previous year. Every country in the region except Slovakia recorded a rise.

Ricupero said it was impossible to say whether this outward movement of money reflect the normal flow of investments -- as in all western countries -- or contained any element of flight capital, or money being sent out of the country by residents who think they need to stash their money abroad.

The private Institute of International Finance, the organization of commercial bankers, investment groups and insurance companies, says it doesn't even to use the concept of flight capital any more in this region. But the institutes executive director, Charles Dallara, said recently that while foreign investors seem to like putting their money into Russia, Russian citizens like to invest abroad.

Globally, the UNCTAD report says that foreign direct investment flows increased 10 percent in 1996 to $349 billion. However, it noted that the international figures only capture a small part of the total volume of finance resources going into international production, especially in the more developed nations.