While manufacturing FDI increased in South-East Europe, buoyed by competitive production costs and open access to European Union markets, in the CIS, incoming investment continued to be focused on natural resources. FDI inflows remained concentrated in a few economies, with the top five destinations accounting for 87 per cent of investment directed to the region. The Russian Federation saw FDI flows grow by 22 per cent to $53 billion, the third-highest level ever recorded for the country. Foreign investors were motivated by the continued strong growth of local domestic markets, affordable labour costs and productivity gains.
Foreign investors also continued to be attracted by high returns in energy- and natural-resource-related projects. The region’s FDI rebound was due mainly to a surge in cross-border M&As, from $4.5 billion in 2010 to$33 billion in 2011, the report says. While deals in energy, mining, oil and gas tend to attract mostmedia attention, one of the liveliest magnets for cross-border M&As was the consumer market in 2011. The services sector still plays only a small part in inward FDI to the region, but its importance may increase with the accession to the World Trade Organization (WTO) of the Russian Federation, the World Investment Report 2012 notes. Through accession, the country has committed itself to reducing FDI restrictions in a number of services industries, including banking, insurance, business services, telecommunications and distribution. Accession also may boost foreign investors’ confidence and improve the overall investment environment, the report says. Developed countries, mainly European Union members, remained the most important source of FDI to the transition region, accounting for the highest share of projects (comprising cross-border M&As and greenfield investments), although projects by investors from developing and transition economies also gained in importance.FDI outflows from the transition economies, mainly from the Russian Federation, reached an all-time record in 2011, the report reveals. The region’s natural-resource-based transnational corporations, supported by high commodity prices and higher stock market valuations, continued, and will continue to expand their operations in emerging markets rich in natural resources, the study predicts. Other firms from the region also are investing, including Russian banks which help to finance the foreign activities of Russian firms. Overall, FDI flows to transition economies are expected to continue to grow, reflecting a more investor-friendly environment, WTO accession by the Russian Federation, and new privatization programmes.