Embed Size (px)
Citation preview
Policy on Foreign Direct Investments in the CR „There is no free Lunch“
Eva Zamrazilová,Chief economist
Czech Banking Association
1
Basic story of previous two decades
• First posttransformation recovery 1994 - 1996• May 1997 monetary crisis followed by recession and banking crisis• Recovery as of 2000 with growth peaking in 2005-2007 („golden age“)• Big slump (crisis) in 2009 followed by moderate growth 2010-2011• Recovery after 6 quarters of recession (Q2/2013- Q3/2013)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H12014
4.3
-0.700000000
000001-0.3
1.3
4.63
1.63.6
4.86.5 7.1
5.5
2.5
-4.7
2.12
-0.700000000
000001
-0.700000000
000001
2.5
GDP, y/y, %
2
Strong inflow of FDI as of 1998
•Czech government has supported inflow of FDI as of 1998, FDI incentives as of 2000•The stock of FDI (66 % of GDP) is very high in the world context• The companies under foreign control create almost one third of GDP
3
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
10
20
30
40
50
60
70
FDI stock, (%of GDP)
Strong inflow of FDI as of 1998
• Foreign investors have been strongly appreciated for :• increasing the export competitiveness, access to world markets• non-debt financing of investments• transfer of technology• managerial skills• promoting economic growth without pressures on external balance
4
Q1/95Q1/9
6Q1/9
7Q1/9
8Q1/9
9Q1/0
0Q1/0
1Q1/0
2Q1/0
3Q1/0
4Q1/0
5Q1/0
6Q1/0
7Q1/0
8Q1/0
9Q1/1
0Q1/1
1Q1/1
2Q1/1
3Q1/1
4
-100,000
0
100,000
200,000
300,000
400,000
500,000
Investments, CZK bill
Credits to non-financial companies, y/y, CZK bill.
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
0
500
1000
1500
2000
2500
3000
FDI Inward stock, CZK bill.
Exports, CZK bill.
Foreign controlled companies in the business sector
FCC in the business sector account for approximately:• One half of value added in the business sector (non-financial companies)• Two thirds of profit in the business sector (non-financial companies)• 75 % of direct export sales • Almost half of investments in the business sector (non-financial companies): 46 %
(2007) → 40 % (2011)The shares have been highest in value added in machinery :
automotive industry (92 % of VA), electronics (80 %) , electrical appliances (73 %), general machinery (83 %)
5
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Share of FCC on value added in the business sector (%) Share of FCC on profit in the business sector (%)Share of FCC on investment in the business sector (%)
Source: CZSO
Dual economy has been persisting
• The differences in productivity have been persisting – measured either by output per worker or value added per worker
• The theory says that persisting duality prevents the positive FDI spillovers to domestic comapnies( Jindra et al, 2009, Narula a Driffield, 2012)
• The studies focused on CR confirm cheap labour force as a very important factor attracting FDI – Král (2004), Hunya a Geishecker (2005)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
0.5
1
1.5
2
2.5
Differences in productivity between FCC and private domestic companiesOutput per worker (CZK million)
Value added per worker (CZK million)
Source:CZSO
:
High and stable profitability of FDI in the CR
0 500 1000 1500 2000 2500 30000
50
100
150
200
250
300
350
f(x) = 0.129823202264574 x − 38.1060350553325R² = 0.960704109518228
FDI stock and profits from FDI, 1995 - 2013
• Correlation between FDI stock and their profitability is quite strong• Coefficient ß corresponds well to ROE (13 %) • In the international comparisons , CR is in the Top Twenty (UNCTAD,
2013) (as the only one among developed economies)
Source: CNB and own calculations
The crisis has interrupted reinvestments of profits
0 500 1000 1500 2000 25000
20
40
60
80
100
120
140
160
f(x) = 0.0719219450920456 x − 19.9778293478835R² = 0.971510645512543
FDI stock (x axis, CZK bill.) and reinvestments (y axis , CZK bill.) 1995-2007
0 500 1000 1500 2000 2500 3000
0
20
40
60
80
100
120
140
160
f(x) = 0.0311864444959122 x + 9.78589287356412R² = 0.509339435994562
• Profits = reinvestments+dividends• Strong correlation between FDI stock and reinvestments of profits
up to 2007, later on becomes very weak
Source: CNB, own calculationsSource: CNB, own calculations
FDI stock (x axis , CZK bill.) and reinvestments (y axis , CZK bill.) 1995- 2013
FDI: reinvestments and dividends
9
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
50
100
150
200
250
300
350
5.8 23.9 36.957.8 64.3 60.9 75.8 78.2 87.2
140.5
41.267.7 75.9
3878 95.3
5.48.6
10.816.4
32.7 52.173.5 72.9
110.8
159.7
183.6178.5
201.6
218.5
204.1
223.7
Dividends (CZK bill.) Reinvestments (CZK bill.)
• Sharp change of foreign investors behaviour as of 2008• The FDI life cycle theory cannot give full explanation• The outflow caused by sharp change of profit strategy is astimated at CZK 400 bill.• Rough estimate indicate the yearly loss in GDP incurred by sharp change of investment
strategy of multinationals around 1 – 1,5 % of GDP since 2008
Gross national income (in % of GDP)
88
90
92
94
96
98
100
102
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
• Gross national income= gross domestic product + balance of primary incomes (approximately balance of incomes as a part of current account)
• Gross national income reflects the part of GDP disposable in the respektive national economy)
• The difference between GNI and GDP (GNI – GDP) represents the part of value added which is produced in the respective economy but belongs to foreign subjects
Source:Ministry of Finance
GDP and its factors
• Czech economy was strongly hit by the fall of foreign demand during the crisis• Exports have recovered soon, which was not the case for investments• Weak investments were an important factor od prolonged recession (Q2 2012
– Q3 2013)
11
Q1/07Q3/0
7Q1/0
8Q3/0
8Q1/0
9Q3/0
9Q1/1
0Q3/1
0Q1/1
1Q3/1
1Q1/1
2Q3/1
2Q1/1
3Q3/1
3Q1/1
40
80,000160,000240,000320,000400,000480,000560,000640,000720,000800,000
Investments ,,CZK bill, constant prices 2010
Exports, CZK bill, constant prices 2010
Q1/07
Q3/07
Q1/08
Q3/08
Q1/09
Q3/09
Q1/10
Q3/10
Q1/11
Q3/11
Q1/12
Q3/12
Q1/13
Q3/13
Q1/14
-20-15-10
-505
101520
GDP, y/y, % Consumption of households, y/y, %
Investments, y/y, % Moving average (Investments, y/y, %)
Exports, y/y, % Moving average (Exports, y/y, %)
Conclusion
• Strong inflow of FDI has resulted into high penetration of foreign controlled companies into domestic Czech economy
• The pre-crisis success story of the Czech economy was largely due to FDI• However, high share of companies under foreign control led to new form of dependency• Uncertain future ahead – not only exports but also investments will be determined by
multinationals• Solid export performance is not enough for growth of investments and wages• Conditions of mothers will strongly affect domestic companies - sometimes „daughters
feeding their mothers“• Czech policy of FDI incentives just blindly followed neighboring countries and the CR
became winner in the „leap to the unknown“• Strategy for FDI inflow is an important part of economic policy – contrary to monetary or
fiscal policy, theoretical background of short-term versus long-term consequences has been missing
12
Some reccomendations for economic policy
• Strengthening role of domestic SMEs achieving a better balance between big foreign companies under foreign control – long-term stable and transparent environment highly needed
• Stable environment could also help to promote reinvestments of big multinationals
• Support of relationship between big companies and SMEs• FDIs should not be promoted and attracetd blindly – stratégy first• The analysis of real impact of FDI incentives in the past
Suggested literature• Bolcha,P.,Zemplinerová,A. (2012).Dopad investičních pobídek na objem investic v České republice. Politická ekonomie, Vol.60,
č.1,s. 81-100.• Blomstrom, M., Kokko, A. (1997). How Foreign Investment Affect Host Countries. The World Bank, Working Paper No. 1745.• Criscuolo, P, et al. (2005). Measuring knowledge flows among European and American multinationals: a patent citation analysis.
Economics of Innovation and New Technologies, Vol. 14, p. 417-433.• Dries, L., Swinnen, J. F. M. (2004). Foreign direct investment, vertical integration, and local suppliers: Evidence from the Polish
dairy sector., World Development, Vol. 32, No 9, pp. 1525–1544.• Gorg, H., Greenaway, D. (2003). Much ado about nothing? Do domestic firms really benefit from foreign direct investment?.
World Bank Research Observer, No.19: 171–197.• Hansen, H.,Rand, J. (2006). On the causal links between FDI and growth in developing countries, World Economy,• Vol. 29, No.1, pp. 21-41.• Hunya, G., Geishecker, I. (2005).Employment Effects of Foreign Direct Investment in Central and Eastern Europe. Vienna, WIIW
August 2005, Research report No. 321.• Chowdhury, A., Mavrotas. G. (2006). FDI and growth: What causes what? World economy, Vol 29, No.1, pp 9-19.• Jindra, B. et al . (2009) Subsidiary Roles, Vertical Linkages and Economic Development: Lessons from Transition Economies,
Journal of World Business, Vol. 44, No.2, pp. 167-17.• Jindra, B. et al. (2006). Theories and review of the latest research on the effects of FDI in CEE. In J. Stephan (Ed.), Technology
transfer via foreign direct investment in Central and Eastern Europe – Theory, method of research – Empirical evidence (pp. 3–74). Houndsmill Basingstoke Palgrave, MacMillan 2006.
• Král,P. (2004). Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic. Working paper No. 5, Czech National Bank.
• Lall, S., Narula, R. (2004). FDI and its role in economic development: Do we need a new research agenda? The European Journal of Development Research, Vol. 16, No 3, pp. 447–464.
•
.
Suggested literature• Lim, E.G. (2001). Determinants of, and Relation Between, FDI and growth: A Summary of the Recent Literature. Working
paper No. 01/175, IMF, Washington.• Mandel,M.,Tomšík,V. (2006). Přímé zahraniční investice a vnější rovnováha v tranzitivní ekonomice: aplikace teorie životního
cyklu. Politická ekonomie, Vol. 54, č.6, s. 723-741.• Narula, R.,Driffield,N. (2012). Does FDI cause development? The ambiguity of the evidence and why it matters. European
journal of developmental research, Vol. 24, No. 1, pp. 1-7.• Narula, R., Dunning, J. H. (2000). Industrial development, globalization and multinational enterprises: New realities for
developing countries. Oxford Development Studies, Vol.28, No.2, pp.141–167.• Narula, R., Dunning, J. H. (2010). Multinational enterprises,, development and globalization. Some clarifications and a
research agenda. Oxford Development studies, Vol 38, No. 3, pp. 263-287.• Smarzynska – Javorcik, B. (2004): Does FDI Increase the Productivity of Domestic Firms?. In Search of Spillovers Through
Backward Linkages. The American Economic Review. Vol. 94, No. 3, pp. 605–626.• Spěváček, V. (2005). K vývoji souhrnných ukazatelů reálného důchodu v České republice. Statistika, 2005, č.3, s.188-204.• Spěváček,V.a kol. (2012). Makroekonomická analýza. Praha, Linde, 2012.• UNCTAD (2001). World Investment Report 2001: Promoting Linkages. New York and Geneva: United Nations.• UNCTAD (2005). World Investment Report 2005: Transnational Corporations and the Internationalization of R&D, United
Nation’s Conference on Trade and Competitiveness, New York and Geneva: United Nations.• UNCTAD (2006). World Investment Report 2006: FDI from Developing and Transition Economies: Implications for
Development. United Nation’s Conference on Trade and Competitiveness, New York and Geneva: United Nations.• UNCTAD (2012). World Investment Report 2012: Towards a New Generation of Investment Policies. New York and Geneva:
United Nations.• UNCTAD (2013). World Investment Report 2013: Global value Chains: Investment and Trade for Development. New York and
Geneva: United Nations.• Zamrazilová, E. (2007). Přímé zahraniční investice v české ekonomice: rizika duality a role trhu práce. Politická ekonomie,
Vol.55, č. 5, s.579-602.
