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. Last Updated: 07/27/2016

Study: European FDI Flowing East

FDI Projects
1. Britain313
2. France156
3. Hungary84
4. Germany81
5. Poland69
6. Belgium69
7. Russia66
8. Czech Rep.63
9. Spain62
10. Sweden50
Source: Ernst & Young

Eastern Europe's "Big Four" countries are luring foreign direct investment projects away from the continent's more advanced economies, according to a new study.

Russia and new European Union members Hungary, the Czech Republic and Poland attracted a combined 283 investment projects from abroad in the first half of the year, up from 156 in the year-earlier period, a report by Ernst & Young said.

That gives the four countries a fifth of Europe's total, up from 14 percent in the first six months of 2003.

"The most striking trend is the strong growth in the East," said Marc Lhermitte, a partner at Ernst & Young and one of the authors of the report. "If this trend is maintained, the FDI map of Europe will be fundamentally altered."

Overall, the number of foreign direct investments into European countries grew 27 percent to 1,432. Britain led the way with 313.

Russia attracted 66 projects in the period, up from 58 in the first half of 2003 and more than wealthier Spain. Almost a quarter of new investments into Russia in the first halves of 2003 and 2004 came in the food sector, the report said, although investments into non-metallic minerals -- which include oil -- chemicals, plastic and rubber, as well as machinery and equipment, were also significant.

Nigel Wilcock, one of the authors of the report, said cheaper labor is driving the eastward shift. The kinds of investments being made in Eastern Europe show that investors are moving to target domestic consumption, he said.

Ernst & Young counted new investment projects as "substantial cross-border investments that are new, expanding or co-located," said Vladimir Merkushev of Ernst & Young in Moscow. Investments into retail, hotel and leisure sectors were not included.

The reason the report focused on the number of projects instead of the amount of money invested is that "dollars can flow in one year and out the next," Wilcock said. "The thing about solid foreign direct investment is, it creates employment opportunities which have a multiplier effect on the economy."

Most Russian investments in the first half of 2004 went to Moscow and St. Petersburg. The United States and Germany account for about a third of the total, with the rest coming mostly from other Western European countries.

Last year Russia attracted some $7 billion in foreign direct investment. But while Russia has had roughly $90 to $100 per capita FDI since 1994, Hungary, the Czech Republic and some of the Baltic states are closer to $2,000 per head, said Peter Westin, chief economist at Aton.

Westin said the numbers might mean that the oil major Yukos' legal standoff with the government has not significantly damaged international investors' willingness to do business in Russia.

"It would be interesting to see if we have more companies, more players being active" despite Yukos, he said.

"One big difference between the first six months of 2003 and this year is that in 2003 we did not have Yukos."