2007. helmut maukner. attractiveness of south east europe for foreign investors....
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Helmut MauknerManaging Partner, Ernst & Young Österreich,
Österreich/Austria
Die Attraktivität von Süd-Osteuropa für ausländische InvestorenAttractiveness of South East Europe for foreign Investors
Attractiveness of South East Europe for foreign investors
Helmut MauknerCountry Managing PartnerErnst & Young Austria
CEE Economic Forum 2007
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About Ernst & Young
The members of the global Ernst & Young organization help companies in businesses across all industries — from emerging growth companies to global powerhouses — deal with a broad range of business issues. Our 114,000 people in 140 countries around the globe pursue the highest levels of integrity, quality and professionalism to provide clients with a broad array of services relating to audit and risk-related services, tax, and transactions.
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About Ernst & Young
In Austria Ernst & Young is one of the leading professional services firm with more than 400 people in our offices in Vienna, Linz, Salzburg and Klagenfurt.
We closely cooperate with the Ernst & Young member firms in the Central Europe (CE) Area which comprises Austria, Croatia, Czech Repbulic, Estonia, Germany, Hungary, Latvia, Lithuania, Poland, Russia (including the member states of the CIS) Slovak Rebublic, Slovenia, Switzerland and The Netherlands and in the South East Europe (SEE) Sub-Area which comprises Albania, Bulgaria, Cyprus, Greece, (F.Y.R. of) Macedonia, Malta, Moldova, Romania, Serbia, Turkey.
South East Europe Attractiveness Survey 2007
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Objectives
A survey combining reality and perceptions
To measure the attractiveness of South East Europe versus other European regions
To measure the attractiveness within South East Europe
To compare the perception of 200 international executives with the reality of actual Foreign Direct Investments (FDI) in South East Europe provided by the Ernst & Young’s European Investment Monitor
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Profile of respondents
A sample offering a comprehensive picture of business models
200 international respondents
120 established in SE Europe
80 not established in SE Europe
Asia 5%Oceania 1%Central and
Eastern Europe 6%
North America 17%
Western Europe 71%
< 150 €M 60%
> 150 €M < 1.5 €B
27%
> 1.5 €B 13%
Telecom, high-tech 12%
Pharma, chemicals 9%
Other 5%
Consumer29%
Industry, automotive, energy
23%
Business services 22%
Sectors Country of origin
Size Sample
Introduction: the reality of FDI in Europe(with a focus on South East Europe)
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FDI in Europe – East and West – at a record pace
3,500 investment decisions by foreign investors across Europe 2006
74% in Western Europe 26% in CEE
Split of FDI between Western Europe and Central & Eastern Europe(number of projects - 2002/2006)
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South East Europe6% of all FDI projects in SEE
Top five European investment destinations situated in Western Europe
Growth is in Central, Eastern and Southern Europe
South East Europe attracted the same number of projects as Germany and Poland
Source: Ernst & Young European Investment Monitor 2006 in number of foreign direct investment projects in Europe in 2005
559
538
UK
F
Irl 67
EP14729
B
180NL
82
D
181PL
180
RUS111
I 49
CH93
TR 29GR 8
BG 33
RO 85
CZ116
H115
SK 76
DK 55
S96
A 59
SB 19
*FDI: foreign direct investment
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SE Europe’s Top 3 countries account for 85% of regional FDI 2001-2005
285
174141
6229
40%
25%20%
9%4%
Romania Bulgaria Turkey Serbia Greece
Source: Ernst & Young European Investment Monitor 2001- 2005 Market share in number of projects – Top 5
Number of projects
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Job creation through FDI in Europe
Investment projects in Central & Eastern Europe Central and Eastern Europe attracted 26% of investment projects BUT: benefited from 51% of new jobs created by foreign investors 217 jobs per project in Central and Eastern Europe vs 64
jobs per project in Western Europe
Job creation by project
(average 2006)Total job creation
by regionMarket share
Western Europe 64 102,578 49%
Central & Eastern Europe 217 108,795 51%
Total 101 211,373 100%
Job creation split between Western Europe and Central & Eastern Europe - 2006
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Heavy manufacturing projects are the source of job creation
More than 25,000 jobs created by FDI in SE Europe in 2006 Romania: 13.969 jobs Serbia: 5.212 jobs Bulgaria: 4.080 jobs
High average job creation per project Serbia: 372 jobs / project Romania: 191 jobs / project Bulgaria: 128 jobs per project)
Domination of labour intensive projects In the automotive sector From Germany and USA
Investors’ perceptionof CEE and SEE versusother European regions
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Central and Eastern Europe finds new competition on a global level
Central and Eastern Europe has ceded its second position to China in the ranks of regional attractiveness
Evolution of interest in the most attractive areas (total superior to 100% - 3 possible choices)
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Central and Eastern Europe has more of a local following
39% of all voters identify CEE as top three preferred location
BUT: only 30% of North American companies and 23% of Asian companies do
The main foreign investors in CEE come from Western Europe
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Most attractive European regions
South East Europe is gradually building its attractiveness
8% of international investors(not established in SE Europe) spontaneously ranked South East Europe as the most attractive European region in terms of locations where to establish operations
Western Europe
8%South East
Europe
18%
Central Europe
11%Nordics
34%
Source : Ernst & Young South East Europe Attractiveness Survey 2007- 80 international executives not established in SouthEast Europe – First quotations - Maket share in number of projects
Image
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Most attractive regions by location criteria
A region primarily attractive for its cost competitiveness…
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South East Europe
Central Europe
12%
40%
9%
2Western Europe
Labour cost
13
South East Europe
Central Europe
20% 17%
2Western Europe
31%
Productivity increase
Source : Ernst & Young South East Europe Attractiveness Survey 2076- 200 international executives
Image
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Most attractive regions by location criteria …but presenting a challenge to Central Europe on quality and infrastructure
NOTE: undisputed domination of Western Europe on local environment and qualitative criteria
South East Europe and Central Europe compete for 2nd rank:
South East Europe best for labour skills level and telecom infrastructures
Central Europe best for political stability and transport infrastructures
South East Europe
Central Europe
Labour cost 40% 12%
Productivity increase31% 20%
Labour skills level 22% 16%
Social climate 14% 14%
Political stability 12% 14%
Transport infrastructures
17% 18%
Telecommunication infrastructures
16% 13%
=
Source : Ernst & Young South East Europe Attractiveness Survey 2006- 200 international executives
Attractiveness within South East Europe
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Leading FDI sector / function Relative competitive advantage within SEE
o FDI job creation 2001-2005
Turkey
Romania
BulgariaSerbia
Manufacturing, consumer goods
Labour skillso 6,440 jobs
Manufacturing, consumer goods
Labour skillso 6,440 jobs
FDI profile 2001-2005
Manufacturing, Logistics, call center
Labour skillso 42,800 jobs
Manufacturing, Logistics, call center
Labour skillso 42,800 jobs
Manufacturing Domestic market Labour flexibilityo 28,400 jobs
Manufacturing Domestic market Labour flexibilityo 28,400 jobs
Energy and transportation
Corporate Tax Labour costo 17,500 jobs
Energy and transportation
Corporate Tax Labour costo 17,500 jobs
Source : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executivesSource : Ernst & Young European Investment Monitor 2006
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Most attractive countries in terms of perception
Romania leads the way, ahead of 3 competing challengers
58%49% 48%
44%
26%
Romania Turkey Greece Bulgaria Serbia
Source: Ernst & Young South East Europe Attractiveness Survey 2007200 international executives
Image
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Image vs. Reality: the big gap
Romania: “What you see is what you
get”
Turkey & Greece: “Overpromising?”
Bulgaria & Serbia: “Deserving a better image”
Reality ranking
Image ranking
Romania 1 1
Turkey 3 2
Greece 5 3
Bulgaria 2 4
Serbia 4 5
=
Source: Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives
Source: Ernst & Young European Investment Monitor 2006
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56%
59%
62%
68%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Greece
Turkey
Bulgaria
Romania
3 year improvement
50%Serbia
44%
48%
49%
58%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Greece
Turkey
Bulgaria
Romania
Perception 2007
26%Serbia
Most attractive countries in terms of perception
Encouraging perspectives for Bulgaria
Source : Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives
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SEE – Country preference The location sites considered :
Respondents : 65 considering establishing or developing activities in South East Europe
Bulgaria
Greece
Serbia
Can’t say %7
%8
%9
%12
%14
%23
%28
Moldova
Turkey
Romania
27
6%
2%
3%
5%
15%
19%
50%
Can't say
Provide loans to localcompanies
Other
Provide local companies withequipment and capital
Purchase companies or plants
Extend existing locations
Establish subsidiaries
Type of investments
What type of direct investments is your group mainly planning?
Respondents : 62 considering establishing or developing activities in South East Europe and quoting a location country
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Greece Turkey
Romania
Bulgaria
South East Europe2007 Attractiveness scoreboard
Source : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executives
Bulgaria
“surprising and rising”
Bulgaria
“surprising and rising”
Greece
“quality not transforming into reality”
Greece
“quality not transforming into reality”
Romania
“in line with first-wave
accession countries”
Romania
“in line with first-wave
accession countries”
Turkey
“the sleeping giant”
Turkey
“the sleeping giant”
Romania
30
Romania leader of the region
Opportunity Romania is perceived as the most attractive South East
European country International investors are confident in Romania’s future: 68%
believe it will improve within 3 years (# 1 in the SE region)
Threats Romania is not in a leading position in the SEE region on
infrastructures (telecom and logistic), political environment stability, quality of life and R&D availability, which could be an issue when competing with Central European countries in the EU 27
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Opportunities
Promising destination
Romania is perceived as the most attractive country for potential productivity increase
Romania is perceived as the most attractive country for site availability
Romania Greece Serbia
Productivity increase
Turkey
27%20%
11% 9%
Romania Turkey Greece
Site availability
Bulgaria
26%
12% 12% 11%
Source : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executives
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Threats
Doubts on high tech
Respondents perceive Romania as weaker than Greece and Turkey on R&D availability and quality
Romania is also perceived as weaker than Greece and Turkey on telecommunication infrastructures
Greece Romania Bulgaria
R&D quality
Turkey
22% 17%
13%6%
Telecom infrastructures
37%
16%12%
Greece Turkey Romania
5%
SerbiaSource : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executives
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Investors’ expectations for Romania
Connectivity and stability
Ensure political environment stability
Implement more flexible and simple administrative procedures
Meet with the European economic regulatory standards
24%
28%
28%
29%
0% 10% 20% 30% 40% 50% 60% 70% 80%
21%
Investor’s expectations
Further improve transport and communication infrastructures
Improve the education system
Source : Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives
Can’t say = 21%
Bulgaria
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Building Bulgaria´s international image
… but high expectations from the international investors
62% of the respondents are optimistic about Bulgaria´s improvement within 3 years: # 2 in the region
Reality ranking
Image ranking
Romania 1 1
Turkey 3 2
Greece 5 3
Bulgaria 2 4Serbia 4 5
=
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New Confidence, New Challenges
… yet puts Bulgaria in a challenging league:
Hungary Slovakia Czech Republic …
Accession to the EU is building investors´ confidence
Stability (# 6 in the SEE region)
Infrastructures (# 6) Quality of life (# 5)
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Competitive advantages
Cost factors
Bulgaria is perceived as the 2nd most attractive country for labour cost
Bulgaria is perceived as the 2nd most attractive country for corporate taxation
Romania Turkey Greece
Labour cost
Bulgaria
23% 19%11%
9%
Romania Cyprus Greece
Corporate Tax
Bulgaria
15% 12% 12% 11%
Source : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executives
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Investors’ expectations for Bulgaria
Stability and quality
Meet with the European economic regulatory standards
Ensure political environment stability
Implement more flexible and simple administrative procedures
23%
25%
27%
29%
0% 10% 20% 30% 40% 50% 60% 70% 80%
20%
Investor’s expectations
Further improve transport and communication infrastructures
Improve quality of life
Source : Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives
Can’t say = 25%
Future challenges
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Investor monitor Europe at a crucial time of change – Eastern prospects
Executive’s perception of Europe’s attractiveness over the next three years East will meet West Russia and Ukraine – „future atractiveness“
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South East Europe future challenges
Play together as a region, like Central and Eastern Europe
Match image and reality
Make regional diversity a competitive advantage
Showcase for EU accession
Meeting high expectations on quality and stability
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Thank you for your attention