World Investment Report 2004

Foreign direct investment (FDI) inflows into Central and Eastern Europe declined from a record $31 billion in 2002 to a low of $21 billion last year, the result of the end of privatisation in the Czech Republic and Slovakia, according to the World Investment Report 2004: The Shift Towards Services. Despite the decline in 2003, the report predicts that the medium-term prospects for further FDI growth in Central and Eastern Europe are good. In all, FDI inflows last year rose in 10 of the regionu0092s countries and fell in nine, with most countries receiving less than $1 billion. Inward FDI flows as a percentage of gross fixed capital formation in Central and Eastern Europe declined from 17% in 2002 to 10% in 2003. The region´s modest performance last year suggests that no large-scale diversion of FDI from the older European Union members to the Central and Eastern European countries has occurred. Greenfield projects, spread over a longer period and generally smaller in size, could not immediately compensate for the fall in privatisation-related FDI in the Czech Republic and Slovakia, despite the fact that both countries had been selected as locations for new automobile plants by transnational corporations. In particular, thanks to FDI in large assembly projects, Slovakia is on its way to becoming a major European hub for automobile production. Aside from the Czech Republic and Slovakia, the decline in FDI inflows was small, from $19 billion in 2002 to $18 billion in 2003. The ups and downs of FDI among the Central and Eastern European countries in 2003 re-established Poland, the Czech Republic and Hungary as the three top locations for inward FDI in the region. Far from diverting FDI flows from the old members of the EU, the group of eight Central and Eastern European countries that joined the EU in May 2004 saw their combined FDI inflows shrink from $23 billion in 2002 to $11 billion in 2003. Economic growth is expected to drive FDI growth in Central and Eastern Europe. Flows to EU accession countries are likel