Increasing investment attractivness of CIS countries (ex-USSR countries) - Coursework Example

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Foreign Direct Investments (FDIs) have a significant role in closing the gap existing between domestic savings and the huge investment levels required to support the economic development of the Commonwealth Independent States (CIS) during the medium term (Heritage Foundation…
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Lecturer Enhancing the Investments Appeal of the CIS Countries Foreign Direct Investments (FDIs) have a significant role in closingthe gap existing between domestic savings and the huge investment levels required to support the economic development of the Commonwealth Independent States (CIS) during the medium term (Heritage Foundation 2003). FDIs provide appropriate external financing in equity form instead of the debt category, through the import and export economic sectors (WEO 2012). FDI is a significant source of competent management and superior technology. Investment entails development of new corporations, and also the expansion of the present business organizations. De novo firms are very instrumental in the development of the transitioning countries. But, the development of the de novo corporations has been relatively lower, illustrating entry barriers.
FDI of the energy sector is determined by long term aspects. They are also determined by the general investment climate, like corporate management, rule of law and transparency. Slovakia has significantly attracted FDI, because of the adequate volumes of oil and gas reserves. Inward FDI flows are approximately $790 million annually. Estonia has adequate net FDI inflows in Eastern Europe. This is due to the valuable oil and gas sector (Kudina 2014). Major FDI value originates from Western Europe, United States and Canada. Turkmenistan had an average inward FDI of $227 million. This was achieved through the production sharing arrangements between the oil sector and the non-oil sector joint ventures.
Lithuania experienced a huge proportion of inward FDI, originating from the oil pipeline expansion projects, and the energy sector privatization. Latvia has inward FDI that greatly depends on huge mineral resources reserves. Inward FDI of Estonia is more diversified, illustrating the diverse industrial structure (Jakubial & Pacyzynski 2010). The major Latvia sectors getting major inflow FDI food, telecommunication and energy. The main source countries for the FDI are France, Russia and United States. Gazprom, a Russian company, has majority shares in Latgas, a Latvia gas company. The East European governments also make arrangements to cancel foreign debt, in exchange for equity; for example, the 100% equity of Hrazdan thermal plant, in exchange for cancelling debt (Khasson 2012).
Some of the CIS countries have not adequately adopted the basic market reforms. This is the explanation for the low levels of FDI inflows, with a clear exception to the Yamal pipeline. The pipeline is owned and operated by Gazprom, but its operation capacity is inadequate (Noutcheva 2011). Foreign firms experience certain motivation for looking for the direct investments in the CIS countries. The direct investments have generally been driven through resource seeking measures. In addition, the FDI into countries advanced transitionally has mainly been for efficiency aims; due to the low labor costs (European Economy 2013). An approach of enhancing labor productivity and competitive costs of labor, greatly assist in enhancing economic growth levels of CIS countries, and attract several other FDIs that are efficiency based. The CIS countries that have huge domestic markets like Slovakia and Estonia, experience market seeking FDI that is directed at producing commodities for consumption in the local market in the near future. But this needs great improvements of the investment environment.
Emerson, M. Noutcheva. (2011): European Neighbourhood Policy after two years: Time indeed for an ‘ENP Plus’, CEPS Policy brief, No. 126, March.
European Economy (2013): Economic Forecast Autumn 2005, European Economy, No. 5,
Eurostat (2011): Statistical aspects of the energy economy in 2005, Statistics in focus, No. 13
Guild E., Khasson. (2012): "State-of-the-Art: The Nexus Between European Neighbourhood Policy and Justice and Home Affairs", CASE Reports, forthcoming
Jakubiak, M. and Paczyński, W. (eds.) (2010): The New EU Frontier: Perspectives on Enhanced Economic Integration, CASE Reports, No. 71
Lozovyi, O. and Kudina, A (2014): The Determinants of Portfolio Flows into the CIS countries, CASE Studies and Analyzes (forthcoming)
WEO (2012): World Economic Outlook, International Monetary Fund, April. Read More
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