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Turkey and Russia new FDI powerhouses

Staff writer |
With most Central and Eastern European (CEE) countries having lost their appeal for foreign direct investment (FDI), Turkey and Russia have emerged in the region as highly attractive destinations for FDI, according to a report by Ernst & Young.

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The report "EY's attractiveness survey Europe 2014: Back in the game" stresses that although Turkey did not appear in the top 15 FDI destinations in Europe prior to the 2008 economic crisis, it saw a significant increase in FDI projects, by 129 percent, accompanied by a 162 percent increase in job creation, between 2009 and 2013. Turkey ranked the 10th most attractive destination for FDI in Europe in the report.

It also said that CEE countries, including Poland, the Czech Republic, Hungary, Slovakia, Romania and Bulgaria, had experienced a slowdown in attracting FDI as the economic crisis spread. With a 22 percent drop in FDI projects between 2009 and 2013, Poland lost its leading position in the CEE region to Russia.

The report also noted that due to sluggish growth and unstable economic conditions, FDI projects in the CEE during that same period declined by nearly 5 percent while job creation fell by 4 percent.

"Turkey was an exception to this decline with 98 projects started in 2013 (up from 95 in 2012). Affirming itself as Europe's new hotspot for large manufacturing projects, the country drew several large investments in the automotive sector. The US and Germany remain the two largest investors in Turkey in 2013, accounting for 24 percent and 16 percent respectively," the report said.

However, the report warned that continued FDI growth in both Turkey and Russia remains fragile and is contingent on limiting political risk, particularly in the case of Russia.

Excluding Russia, Poland was again voted the most attractive CEE country -- by 31 percent of the respondents this year -- and the Czech Republic came at a distant second with 11 percent of the vote.

"The overall attractiveness score of both the countries has declined by six and four percentage points, respectively. These 'mature' countries are losing out to economies in the East, with the main winners being Turkey (+4 points) and Romania (+2 points)," the report said.

Turkey also marked a significant increase in creating jobs in Europe through FDI, and it ranked 11th amongst the top 15 origin countries with 4,060 jobs in 2013, a 393 percent increase year-on-year.

Overall, the report finds that the eurozone's recession finally came to an end in the second quarter of 2013, as businesses began to see growth and profits again and boards approved investment proposals. The top three countries attracting FDI projects in 2013 were the Western European countries of Germany, the UK and France. Germany continues to be seen as the most attractive FDI destination in Europe; 40 percent of respondents in the survey put Germany in first place.

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