The role of FDI and trade in the catching-up process

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1 Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies wiiw.ac.at 8th East Jour Fixe of the Oesterreichische Nationalbank Bulgaria and Romania 1 years after EU accession March 31st, 217 The role of FDI and trade in the catching-up process Gábor Hunya, wiiw hunya@wiiw.ac.at

2 Boom-bust-boom; BG: larger FDI; RO: different structure, 216 up GDP growth and FDI inflows, (mind the scale!) Bulgaria Romania Source: wiiw Database. Annual inflow FDI, % of GDP (right scale) Annual rate of GDP growth (left scale), %

3 BG relatively higher FDI stock than RO; different valuation and structure FDI inward stock as a percentage of GDP Austria Bulgaria Croatia Czech R. Hungary Poland Romania Slovakia Slovenia Source: wiiw FDI database. 3

4 In BG lower economic importance of FDI than in RO; FATs are larger, more productive, invest more than domestic firms Share of foreign affiliates in the non-financial business economy, in %, Number of ent. Production Value added Employments Investments BG HR HU PL RO SK RS Source: EUROSTAT, FATS. 4

5 RO: more FDI in manufacturing incl. automotive industry BG: less manufacturing, but more oil refining, real estate; Equal: professional services Inward FDI stock by economic activities, 215, share in % Bulgaria A B C D E F G H I J K L M N Other Romania A B C D E F G H I J K L M N Other NACE Rev. 2 A Agriculture, forestry and fishing B Mining and quarrying C Manufacturing D Electricity, gas, steam, air conditioning supply E Water supply, sewerage, waste manag., remediation F Construction G Wholesale, retail trade, repair of motor vehicles etc. H Transportation and storage Source: wiiw Database. I Accommodation and food service activities J Information and communication K Financial and insurance activities L Real estate activities M Professional, scientific and technical activities N Administrative and support service activities Other not elsewhere classified activities (A-U) 5

6 Greenfield FDI declines again since 211 by number, even more by investment capital Number of announced greenfield FDI projects Bulgaria Czech R. Hungary Poland Romania Slovakia Source: fdimarkets.com. 6

7 RO manufacturing; BG construction; windfarms until 214; : ICT more in RO Greenfield investment capital by activity cumulated 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% ICT & Internet Infrastructure Business Services Logistics, Distribution & Transportation Sales, Marketing & Support Construction Manufacturing Electricity % BG RO Remark: partly estimated. Source: fdimarkets.com 7

8 Rebalancing of current account mainly by trade in goods; Services BG: tourism, other; Services RO: transport, other services; Remittances (secondary income); 216: BG+ RO - Components of the current account balance, in % of GDP, 25, 21, 215 Secondary income Primary income Trade in services Trade in goods Current account 15, 1, 5,, -5, -1, -15, -2, -25, -3, -35, BG 27 BG 21 BG 215 CZ 25 CZ 21 CZ 215 HU 25 HU 21 HU 215 PL 25 PL 21 PL 215 RO 25 RO 21 RO 215 SK 25 SK 21 SK 215 Source: wiiw Annual Database incorporating national and Eurostat statistics. 8

9 Exports increase 2.4 times; BG stuck in food, fuel, chemicals; RO more rapid upgrading Machinery and transport equipment exports in RO: 25%, 42%, 45%; BG: 14%, 17%, 21% Goods exports by SITC commodity groups, fob Food and live animals; 1 Beverages and tobacco; 4 Animal and vegetable oils, fats and waxes 2 Crude materials, inedible, except fuels; 3 Mineral fuels, lubricants and related materials 5 Chemicals and related products, n.e.s.; 6 Manufactured goods classified chiefly by material 7 Machinery and transport equipment 8 Miscellaneous manufactured articles; 9 Commodities not classified elsewhere in the SITC Bulgaria EUR 9.5 billion EUR 15.6 billion EUR 22.9 billion Romania EUR 22.3 billion EUR 37.4 billion EUR 54.6 billion Source: wiiw Annual Database incorporating national and Eurostat statistics. 9

10 Intra-EU: RO higher, BG increasing but RU+TR. Trade and FDI shift from Italy to Germany; trade shifts to EU, to neighbours; AT market seeking investor; RO for BG 4 th (from 7 th ), share double of 25; BG for RO 7 th in exp. 11 th in imp. little change; Main six export partners and FDI stock countries Export partners, 215 FDI stock countries, 215 Bulgaria DE NL Other IT TR Other AT GR FR EL RO RU CY UK Romania DE Other NL Other IT HU TR UK FR IT FR CY DE AT Source: wiiw Annual Database incorporating national and Eurostat statistics. 1

11 BG and RO less sourcing from DE than CZ and HU. BG more than RO (size) Backward linkages with Germany, 214,6 Bulgaria Romania Czech Republic Hungary,5,4,3,2,1, Food, beverages, tobacco 26 Computer Textiles, apparel 27 Electrical equipment 16 Wood 28 Machinery 19 Coke, petroleum 29 Motor vehicles 2 Chemicals 3 Other transport 24 Basic metals Source: WIOD (World Input-Output Database), Hanzl-Weiss in wiiw Monthly Report 1/217 11

12 RO more integrated, deliveries to DE high in electrical equipment, less in motor vehicles Forward linkages with Germany, 214,6,5,4,3,2,1 Bulgaria Romania Czech Republic Hungary Food, beverages, tobacco 26 Computer Textiles, apparel 27 Electrical equipment 16 Wood 28 Machinery 19 Coke, petroleum 29 Motor vehicles 2 Chemicals 3 Other transport 24 Basic metals Source: WIOD (World Input-Output Database), wiiw calculations. Hanzl-Weiss and Stehrer,

13 Conclusions Statistical overview based on and preliminary 216 data FDI inflow and greenfield projects no upward trend since 211 Inflow and stock per capita and per GDP in BG higher than in RO BG: high exposure to FDI by stock/gdp (real estate) small by FATS Export structure related to FDI structure: - RO more machinery and vehicles, BG more chemicals, real estate and finance - Two countries similar weight of ICT and business services, RO more greenfield - RO stronger shift to medium-high-skill activites in FDI and exports (Germany) EU and neighbours increase share in trade; AT more FDI than trade Strategic trade orientation: regional clustering, EU, RU, TR, beyond Wage increases in RO may lose competitiveness against BG and RS 13

14 Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies wiiw FDI Database Contains time series on FDI inflows and outflows, inward and outward stocks by component, by partner country and by activity for 23 CESEE countries. This data allows to generate country- and industry-specific FDI profiles. The time series are updated twice a year and start from 199 onwards as far as the data are available. wiiw FDI Reports The wiiw FDI report is based upon the wiiw FDI Database covering 23 countries of CESEE. It analyses the major features of FDI developments in and out of the countries of the region and is published annually beginning of June. It is available in hardcopy or for download (PDF). Thank you for your attention! 14

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Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at wiiw FDI Report 217 FDI in Central, East and Southeast Europe: Recovery amid