IBM report reveals small CEE/SEE nations’ success in attracting FDI to create jobs

IBM report reveals small CEE/SEE nations’ success in attracting FDI to create jobs
By bne IntelliNews September 5, 2018

Serbia was ranked first in IBM's Global Location Trends report based on the number of jobs created in a country by foreign direct investment, relative to the size of the country's population, with other countries from Central and Southeast Europe holding the lion’s share of positions in the top 10.

Three other countries on the list of top-ranking destination countries by estimated jobs per million inhabitants — Bosnia & Herzegovina, Slovenia and Macedonia — were also from the former Yugoslavia, which (with the exception of Slovenia) has lagged behind its peers from Central Europe economically, indicating that efforts by governments in the region to attract investors are paying off. The low costs in countries like Bosnia, Macedonia and Serbia have also proved attractive to investors as the labour market squeeze drives up costs in CEE. 

Serbia “continues to receive significant inward investment in key sectors such as textiles, transport equipment, chemicals and electronics. Not surprisingly, manufacturing activities account for almost 80% of all jobs created from FDI,” the report said. 

“The continued strong performance by Serbia and the wider Western Balkans on this measure testifies to the region’s growing success in attracting foreign investment and cementing its position in global value chains. While the performance of individual countries varies from year to year, the region as a whole is experiencing a sustained high level of interest from foreign investors,” according to IBM’s study. 

However, while it remains within the top 10 destinations, the jobs created per million inhabitants in Macedonia dropped considerably in 2017 compared to in 2012-2016, indicating that the political unrest that culminated with a violent invasion of the parliament in 2017 has deterred some investors. 

Not adjusted for the size of population the US was first, China took second place and Mexico third.

Other countries from CEE that scored highly in terms of estimated jobs created per million inhabitants were Lithuania (2nd), Hungary (7th), Slovakia (8th) and Latvia (11th). 

Like the Western Balkans, “the Baltic countries are experiencing continued high levels of inward investment, with Lithuania ranking second overall and Estonia and Latvia featuring among the global top 20. The region has been particularly successful in attracting ICT investment, and this sector is the most significant source of inward investment measured by both number of projects and jobs created.”

Meanwhile, Hungary has become an attractive destination to investors as the personal income tax rate and the corporate tax rate is one of the lowest in Europe and the social contribution tax rate is also getting lower, said the Foreign Affairs and Trade Ministry, which oversees foreign investments. 

The head of the state investment promotion agency HIPA said IBM registered 121 investments in Hungary by foreigners, which created 17,500 jobs last year. Around 5,500 jobs were created in Budapest, putting it in sixth place among European capitals.

In the first six months, HIPA helped attract 46 investments to Hungary valued at more than €2bn in total and creating 7,000 jobs. Last year, the agency managed 96 projects worth €3.5bn.

Hungary overhauled its investment policy guidelines last year to attract high-added value projects. The incentive tools range from cash and training subsidies, to tax incentives and low-interest loans with special attention to technology-intensive investments. 

BMW announced last month that it will open a new plant in the north-eastern city of Debrecen with a €1bn investment. There is speculation the company may have received HUF30bn (€9.2mn) in subsidies, but no details were given by either the company or the government.