c



 

by Katrinah Best

Europe and its 1 billion consumers is a world leader in the import of goods and services, and a pacesetter in research and
development. With the majority of Europe now stable with democratic elected governments, its corporate environment is viewed
by international investors as a prime destination for foreign direct investment (FDI).

As to be expected, Europe¶s affluent markets, UK, France, Germany and Ireland have attracted much FDI, although trends show
that emerging European economies including the Czech Republic and Poland are seriously open for business; and are looking to
attract key investors. These countries face the challenge of steering their transitional economies into becoming consumer led and
market based. The implementation of good accountable governments, transparency, and a judiciary and legislation enabling
business, heightens the perception of these countries, as good investment opportunities.

Competition for foreign direct investment looks set to increase in more stable former soviet economies, which are seeking new
ways to attract FDI. And this is likely to accelerate with the introduction of the euro, the drafting of new countries into NATO and
the EU, growing European integration and globalisation.

FDI benefits host countries but at a cost. Concerns still exist over national security, indigenous economies being replaced by trans-
nationals, and erosion of national independence. But benefits include skill training, technology transfer, employment opportunities,
and access transfer, employment opportunities, and access to foreign finance and tax revenue. Government policies are in the
main inclined to maximise benefits and minimise costs

However, the underlying causes for FDI, are not always the same incentives perceived by host countries, and can be the opposite.
Investors may not want to transfer technologies, and motivated by low-cost labour may seek to minimise workers¶ training to keep
down labour costs and pressures for wage increases. It is advisable for investors and governments to visualise their policies vis a
vis benefits as a spectrum, ranging from least to most restrictive. A country¶s place on the spectrum can vary by industry.

The competition for foreign direct investment has intensified worldwide owing to the positive effect it can have on employmen t
levels and economic development. Favourable FDI can result in strong industries and technologies.

Relations between the EU and the US - the world¶s largest economies - are of central importance in the flow of FDI, with the most
bilateral trade. The scale of EU-US investment flows is equally impressive with the EU accounting for over 50% of all FDI in the
US and 40% from the US into the EU. These investments have resulted in the formation of 3 million jobs in both states.

Underpinning this relationship is the commitment shared on both sides of the Atlantic to civil society, democratic values and the
rule of law and human rights. Active and substantive cooperation between the EU and the US can lead to the achievement of rea l
progress on a global scale, as was evidenced by the successful conclusion of the Uruguay Round for multilateral trade
liberalisation negotiations. For a number of countries, there is also a military dimension to this relationship based on alli ance
agreements. In this regard, priority has been given by the EU and the US to the promotion of peace and stability, democracy and
global developments.

Liberalisation and economic recovery are attracting FDI to Central and Eastern Europe. The key factor affecting the pace of
investments is the overall level of economic growth. In 1995, the total inflow of FDI was $12.8 billion, almost double the 1994
level. Flows into Hungary and the Czech Republic tripled in 1995 to $3.5billion and $2.5 billion respectively. FDI in Poland
increased from $1.9 billion to $2.5 billion. In the Russian Federation, the jump was from $1 billion. to $2 billion. Most foreign
investments in the region are controlled by multinational companies headquartered in the EU. US corporate involvement in
emerging European economies is still relatively modest, and Japanese companies are barely represented there.

Countries attracting investment have transparent economies, and accountable governments pursuing business friendly policies.
The UK has become an exemplar economy of this. Investments into the UK by foreign companies since 1995 have more than
doubled. This has reinforced Britain¶s position as Europe¶s leading recipient of global investment. FDI into the UK grew by 7 2%
in 1998, attracting 43% of total US investment into Europe in that year, desp ite its position outside the euro. Overall, the UK in
1998, attracted the most international investments, $86 billion in total. Germany followed with $37 billion, followed by Belg ium.
Other European countries have seen increases in foreign investment - except for Spain and Italy which have experienced declines
from previous years. FDI to Spain declined to $5.7 billion compared to $6.2 billion in 1997

Economic relations between France and Canada have benefited from a period of unprecedented growth in 1995-1996. France is
Canada¶s seventh economic trading partner, and bilateral trade exceeded the $5 billion mark in 1995, with Canadian exports to
France experiencing an annual increase of 41%. The relationship is focused on leading-edge industries, aeronautics,. transport,
electrical and mechanical equipment, telecommunications, biotechnology and agri-food. A parallel relationship in services, led by
tourism is also developing. As a European leader in science and technology, France has the capacity to become a strategic partner
for Research and Development in Canada.
With bilateral trade of $5.2 billion and Canadian exports amounting to $3.5 billion in 1995, the Benelux countries (Belgium, the
Netherlands and Luxembourg) also represent a large and attractive market for Canadian exporters. An important source of
investment, technology and strategic-alliance partners, and tourism, the Benelux area is also considered attractive as an entry point
to EU markets.

Total Canadian direct investment in the Benelux was $4 bi llion in 1998, with more than half of Canada¶s merchandise exports
consisting of agri-food or fabricated products such as wood, paper, metals, chemicals and textiles. There are good market
opportunities for finished products including the likes of pharmaceuticals, medical equipment and supplies, telecommunications
and related equipment, industrial machinery, industrial instrumentation, transportation and office equipment and a variety of
consumer products, including sports and recreational goods. Other sectors of opportunities include defence, civilian security,
environmental technologies, consumer software and business services.

Northern Europe offers a market as diverse as the countries themselves, ranging from fully developed and long-standing trading
partners such as the UK to smaller emerging markets like the Baltic states. The UK has a large population (over 56 million) and is
highly dependent on imports, favouring North American products. It is a major market for primary products and a growing marke t
for manufactured goods and services. The UK is the first and most promising point of entry within the EU for a number of foreign
producers of manufactured goods.

The UK¶s telecommunications market is the most open in Europe but as a result, is highly comp etitive. Canada enjoys a
significant position through its national companies Nortel, Mitel, Newbridge, Gandalf, Bell Canada and Videotron. Other secto rs
with great potential for FDI into the UK markets include: agri -food and fish, health-care, business and educational services,
consumer products, oil, gas and tourism.

The remaining affluent markets of Europe enjoy much of the same FDI as the UK, though less affluent European nations are also
showing signs of increased FDI. The Baltics (Estonia, Latvia, Lit huania) lack extensive trade relations with foreign companies.
They have only recently regained their status as independent nations. Since 1991, however, they have made great strides in
strengthening their economies. But with considerable success in implementing economic reforms, Estonia, Poland, the Czech
Republic and Hungary were also moderately affected by the Russian Financial Crisis. Inward investments into these countries a ll
fell last year after significant growth in 1997. FDI statistics nevertheless suggest a continued interest to invest in the Baltic states,
and inflows into Poland are at record levels. According to the UN, privatisation is proving to be a critical factor in attrac ting
foreign investment into the region. The main investors are large, trans-national corporations from Western Europe and the US.

Recent arrivals come from Asian countries, mainly South Korea, which has also starting to invest in Central and Eastern Europ e.
Immediately after the declaration of independence in 1990, Lithuania started a reform process aimed at steering the country away
from a centrally planned economy and centralised towards democracy and a free market economy. Currently the Lithuanian
government is undergoing a second phase of privatisation, during which a number of large scale enterprises, mainly in
infrastructure, are being offered for international tender. The government since 1995 has focused its attention on attracting more
foreign direct investment.

FDI in Europe appears at its greatest during periods of rapid integration. As the affluent countries of Europe have enjoyed
increasing amounts of FDI, the emerging European countries are not far behind, as they too join in European integration. The case
that European integration stimulates investment flows into Europe is clear cut. However, inclusion in the euro, which becomes the
EU national currency in 2002, could eventually impact upon the flow of FDI to countries like the UK, which at present has opt ed
not to adopt the currency. Investors could perceive the higher costs of doing business in non euro currency countries as a
disadvantage in a regional zone with nearby competitive markets.

What is quite apparent is that the notion of "Fortress Europe" is gradually disappearing with greater trade liberalis ation and free
markets.