Investment in Eastern Europe -- Still going strong

July 11, 2007

Eastern Europe was the second most popular place in the world for foreign direct investment (FDI). With $112 billion invested, Eastern European countries received more than any other area save Asia. This is a 45% increase over the 2005 investment of $77 billlion.

What maked the area so attractive to investors? Privatization of formerly state-owned business, such as Slovakia’s $4 billion sale of its electric utility, Slovense elektrarne, to Italy’s Enel. However, governments are running out of businesses to privatize, leading many experts to think that Eastern Europe has peaked as a focus for FDI.

Even so, there are plenty of reasons to invest. Real estate, natural resources, and under-capitalized locally-owned private businesses are still good opportunies. In fact, The Economist predicts that $100 billion will be invested in Eastern Europe in 2007.

What FDI in Eastern Europe means:

Many experts thought that Eastern European countries’ membership in the EU would lead to a huge boost in investment. However, political instability and some corruption has been more of a hindrance than originally anticipated. Furthermore, Eastern European countries are competing with Asian countries, which have not only a cheaper but more highly trained labor force, and better support for R&D.

However, although Eastern European development may take longer than expected, it is still occurring faster than if there were no EU. Some member countries, such as Slovakia and the Baltic states, are doing really well. Over time, as these countries modernize their economies and continue to work out the bugs in the transition from Communist rule to membership in a free-market economy, they will continue to see economic growth. (Source: The Economist, “Over the hills?”, June 25, 2007)

Action steps:

The best way to profit from Eastern European growth is within a well-diversified portfolio. Find out how to protect yourself with my home study course, “Retirement Planning 101.” This course will guide you using the same steps I took to retire at age 50.

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