Investing in the V4

THE COUNTRIES of the Visegrad Group are perceived as an attractive location for foreign investments as all four nations are members of the European Union and offer lower costs of labour along with high productivity in comparison to other parts of the EU. While V4 countries could form a common strategy to increase awareness of the region among distant foreign investors, a totally joint effort is unlikely as an actual investment usually lands in just one country and thus the countries often find themselves competing to attract investors.

THE COUNTRIES of the Visegrad Group are perceived as an attractive location for foreign investments as all four nations are members of the European Union and offer lower costs of labour along with high productivity in comparison to other parts of the EU. While V4 countries could form a common strategy to increase awareness of the region among distant foreign investors, a totally joint effort is unlikely as an actual investment usually lands in just one country and thus the countries often find themselves competing to attract investors.

Based on an Ernst & Young report entitled European Attractiveness Survey 2010 the central and eastern European region will be the third most attractive destination for investors over the next three years. Timea Nemešová and Jana Franeková from the foreign direct investment section of the Slovak Investment and Trade Development Agency (SARIO) told The Slovak Spectator that this report is quite positive for the region and stated that foreign direct investments (FDI) can be expected especially into sectors such as manufacturing, science and research, and services.

“The V4 region with an area of about 534,000 square kilometres and a population of about 64 million people … remains attractive for investors,” Nemešová and Franeková said. “This is not only due to the region’s strategic location but also thanks to the huge economic potential, cost-effectiveness, quality human resources, favourable business environment, and constantly improving living standards.”

According to national investment agencies within the V4, the region benefits from lower labour costs and concurrent high labour productivity as well as favourable business conditions linked with relatively low taxes when compared with more western EU countries. But experts note that countries like Romania and Bulgaria within the EU, Asian countries such as India and China, and Russia stand as growing competition to the countries of the V4.

Even though the economic crisis curbed FDI inflow into the region last year, Nemešová and Franeková view the figures as quite sound as aggregate FDI inflow into the V4 countries reached about €12 billion and was credited with creating over 24,000 jobs. Investments into V4 countries came primarily from other EU states such as Great Britain, Germany, France and Austria, but also from the USA, Japan and South Korea. The SARIO experts added that most FDI has been targeted at the automotive, electro-technical and manufacturing sectors as well as into the service sector.

By the end of 2008 the V4 countries had received about $380 billion in foreign direct investment, of which 43 percent went to Poland, 25 percent to the Czech Republic, 22 percent to Hungary and 10 percent to Slovakia, according to Hajnalka Hársfalvai, PR manager of the marketing and communication directorate at the Hungarian Investment and Trade Development Agency (ITD Hungary), citing data from the Vienna Institute for International Economic Studies’ databases. She told The Slovak Spectator that between 2004 and 2009 aggregate FDI accounted for €133.491 billion and the estimate for 2011 is €16.5 billion.


Attracting FDI with skills



Hársfalvai told The Slovak Spectator that reducing costs is no longer the leading factor attracting investors.

“The investors move to countries [of the V4] looking for knowledge and skills, in a developed business environment,” Hársfalvai said. “Between 2003 and 2009 Hungary, Poland, Slovakia and the Czech Republic registered more than 100 investments in R&D and design and development. More than half of the projects were realised in ICT, mainly in software development. In the Czech Republic and Hungary automotive engineering and life sciences also showed outstanding performance.”

Hársfalvai pointed out that the economic crisis raised concerns about the stability of economies within the region which resulted in a significant decline in the region’s short-term attractiveness.

“While in 2006 the region finished as the second most-attractive region globally, in 2010 the CEE countries reached only third place behind China and western Europe,” said Hársfalvai, citing the European Attractiveness Survey 2010.

Opinions differ regarding the opportunity for V4 countries to compete together as a region for foreign direct investments.

Jan Fidrmuc from the Department of Economics and Finance at Brunel University in Uxbridge, in the United Kingdom, thinks that it is unlikely that the V4 countries will ever compete for foreign investment in a coordinated fashion as one region.

“Rather, they are likely to compete with one another for FDI flowing into the wider region incorporating their four countries,” Fidrmuc told The Slovak Spectator. “While the V4 countries could gain from coordinating their actions, the potential gains from reneging on such agreements are bound to be high and therefore such coordination is not likely to be maintained in the long term. Moreover, coordination among the V4 countries, without wider participation by the other countries in central and eastern Europe, may simply induce foreign investors to overlook the V4 countries and move elsewhere.”

According to SARIO, V4 countries in general can be assessed together as a dynamic region, whose potential could be multiplied by more intensive trading with countries outside the EU, which might help to share risks in the future. The SARIO experts noted that when establishing contacts with countries outside the EU it would be useful for the V4 countries to “create a joint strategy and to present the region as a whole”.

“There are both advantages and disadvantages to such an approach [by one region],” Štěpánka Filipová, the director of the Marketing and PR department at the Investment and Business Development Agency of the Czech Republic (CzechInvest) told The Slovak Spectator. “When dealing with investors the countries could together offer a bigger market, better logistics, more employees or more industrial properties. On the other hand, this approach would need several legislative changes in all the countries. For example, investment incentives should be harmonised. More importantly, there will still be only one country where the investment would be finally located, with all the related advantages – tax income, new working positions and new opportunities for subcontractors in the country. Investors often look for only one country to set up a business in. This makes the V4 countries competitors and we believe that this will not change in the coming years.”

The piece is part of the Visegrad Countries - Facing New Challenges, prepared by The Slovak Spectator with the support of the International Visegrad Fund. For more information on cooperation between the Czech Republic, Hungary, Poland and Slovakia please see the following document.

Visegrad Countries

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