Central and eastern Europe is benefiting from the global economic slowdown in the US and the European Union. According to the Ernst & Young European Investment Monitor six monthly review of inward investment between January and June 2002, central and eastern European countries saw their investment project numbers grow by 54%.

Romania, for example, has seen a 142% increase in investment projects. This rise coincides with an increase in the share of total projects going into the manufacturing sector from 43% to 47%. “Central Europe is proving to be a significant draw for mobile manufacturing projects, a good number of which are a result of rationalisations in western Europe,” said Mark Hughes, author of the report.

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The report shows that project numbers within the EU fell by 15%. Western European countries have not only suffered due to a loss in manufacturing projects but also due to a decline in investment from the US, particularly in the information and communications technology sector.

US market share fell from 42% in the first half of 2001, to 32% in the same period of 2002. According to Mr Hughes, the decline in projects impacts disproportionately on the UK, Ireland and the Netherlands, which are heavily dependent on US technology and services investment. New investment project numbers in the first half of this year in these three countries fell by at least 15%. Davy Stockbrokers in Ireland estimated that FDI flows into the country declined by 60% in 2001, and Scotland has just seen the closure of another technology factory by Taiwanese company CPT.

The UK’s share of the European market fell from 22% to 16%. However, London still remains the most popular investment destination and the UK as a whole was still the largest recipient with 16% of all projects. This contradicts warnings by both the Confederation of British Industry (CBI) and British Trade International, which both fear that the UK is losing competitiveness as an investment location.

A MORI poll carried out by the CBI found that although the majority of executives surveyed said that the UK was still an attractive location, they also said the business environment had deteriorated in the past five years with tax and regulations increasing. Concern was also expressed about a deteriorating infrastructure, public services and the possible impact of public sector pay claims on macroeconomic stability. Digby Jones, director-general of the CBI, said: “We must retain our competitive edge. Anyone who thinks that business is crying wolf when it warns about relocation overseas is living in the past.”

The position of France, which attracts the second largest share of investment in Europe, remained stable, as did Germany. The latter has seen a rise in outward investment and is now the second most prolific investor in Europe after the US. The US remains the largest investor in western Europe but Germany dominates investment in central and eastern Europe with 51% of all projects being located there. This is compared with US investment into these countries, which stands at 16%.

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