Boost Seen For Foreign Investment

PRAGUE -- New infrastructure projects should boost an already strong foreign direct investment surge in reforming East European economies, says a report by Germany's Dresdner Bank.

In a study of post-Communist Europe, Dresdner economist Mark Piazolo said foreign direct investment, or FDI, would continue to be concentrated in the economies seen as most developed -- Hungary, Poland and the Czech Republic.

"The total stock of FDI in Hungary amounted to one-fourth of GDP at the end of 1995, only slightly lower than Malaysia [29 percent] and significantly higher than in Mexico and China," the study said.

"With 13 and 14 percent of GDP, the Czech Republic and Estonia attracted Asian levels of FDI."

Piazolo said the Czech Republic would probably pass Hungary as the most attractive investment destination in the region this year and next with expected new flows of $3 billion each year, up from just over $2.5 billion in 1995.

Poland and Hungary each should attract about $2 billion for each of the next two years, after getting $1.134 billion and $4.41 billion respectively in 1995.

"The Czech Republic will probably replace Hungary at the top thanks to consistent market reform," Piazolo wrote. "Poland can expect FDI to increase simply because of the size of the economy -- [Poland's absolute] GDP is about three times higher than in Hungary and the Czech Republic."

After major telecommunications privatizations in Hungary and the Czech Republic last year, new foreign direct investment in Eastern Europe will also be targeted at energy, road, rail and airport construction.

Hungary, which began liberalizing foreign investment rules in 1989, still leads the 1995 table with $10.8 billion in total FDI stock, followed by Poland, with $5.84 billion and the Czechs, with $5.53 billion.