Foreing Direct Investments

Presentation prepared by
Piotr Bartenbach & Bartomiej Staszczyk

Defining the term

An investment made by a company or entity based in one country,

into a company or entity based in another country.

Type: horizontal

Type: platform

Type: vertical

FDI Flow vs FDI Stock

Flow Amount of FDI over period of time

Stock Total accumulated value at a given point in time

2,500,000

Recent FDI Trends:

FDI Flows

2,000,000

1,500,000

1,000,000

500,000
1970
0

1975

1980

1985

World (Inward Stock)

1990

1995

2000

World (Outward Stock)

Units: US Dollars at current prices and current exchange

rates in millions

2005

2010

25,000,000

Recent FDI Trends:

FDI Stock

20,000,000

15,000,000

10,000,000

5,000,000
1980
0

1985

1990

World (Inward Flows)

1995

2000

Wolrd (Outward Flows)

Units: US Dollars at current prices and current exchange

rates in millions

2005

2010

Incentives for FDI

Lower taxes
Preferential tariffs
Special economic zones
Bonded Warehouses
Maquiladoras
Investment financial subsidies
Soft loan or loan guarantees
Free land or land subsidies
Relocation & expatriation
Infrastructure subsidies
R&D support
Derogation from regulations (usually for very large
projects)

Advantages
for home country
1.
2.
3.
4.

Cost Advantages
New Markets
Exposure to other countries
International Relations

for host country

1.
2.
3.
4.

Reduction of technological gap

Exploitation of Natural Resources
Employment Generation
Development of Managerial Pool

Disadvantages
for home country
1. Loss of Employment
2. Problem of Repatriation
3. Possibility of Loosing
Competitive Advantage

for host country

1. Political Lobbying
2. Exploitation of Resources
3. Threaten Small Scale
Industries
4. Technology

From Global to CEE

Incentives for FDI in CEE
Transformation

Central and Eastern Europe started to attract foreign

investors since the post-communism transformation.
Main triggers of the increase of interest in CEE
countries were:
-

Unattained and quickly growing markets

Favorable labor costs
Favorable taxation for foreign investors
Good location (close to developed markets in
Western Europe)

From Global to CEE

Integration with EU
All or most of the Central and Eastern Europe (depending on
methodology) joined European Union in 2004 or 2007.
Thanks to the integration, which translated into much less
restrictive regulations and additional EU funds. Since the
accession, CEE countries started to develop their infrastructure
a very important factor in the eyes of foreign investors.
However, European Union prohibits any kind of incentives
capable of distorting competition and affecting trade between
Member States - so-called state aid. Examples:
- subsidies, contributions and grants
- coverage of all or part of the interest on loans repayable by the
aid recipient
- coverage of part of a debt repayable by the aid recipient
- temporary financial support
- issue of a state or bank guarantee
- a tax or social security payment allowance

Current Perception of CEE

2006-2012

Current Perception of CEE

2013

FDI in CEE
Perception vs. Reality

FDI inflows in CEE 2007-2012

in millions of USD

25000

20000

15000

in millions of USD

10000

5000

Source: UNCTAD

FDI inward stock in CEE

in millions of USD

240 000
220 000
200 000
180 000
160 000
140 000
120 000
100 000
80 000
60 000
40 000
20 000
-

Source: UNCTAD

Future?

Thank you for your

attention

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