The impact of the crisis that started in the US sub-prime mortgage market has subsequently rippled through financial markets and institutions around the world.

Few people now doubt that the negative effects will leave any location's economy completely untouched. For some it may mean recession - even, perhaps, a depression. The pundits are almost as divided as ever, although more now seem to be in the Bear camp than ever before.

Probably a result between extremes is still the most likely outcome. Some economies will be harder hit than others and the length of the slowdown will be indeterminate.

But what is (almost) certain - judging by events in the past - is that when recovery comes, it will come rapidly and very probably as unevenly as the slowdown.

Key then for property investors is to be well-placed to take advantage of that recovery and to be invested in those markets that are most likely to emerge the strongest.

That's why a new report on European attractiveness to business investors makes extremely interesting reading and throws into sharp focus some insights into which economies will be winners in the future - and where property markets are therefore most likely to perform the best.

And, as interesting as the headline results are - which markets business investors favour - the reasons they select those they do is equally relevant when we try to spot those key FDI magnets of the future ourselves.

Future property buyers

And this is important because this is where the jobs will be created and the new middle classes (future property buyers) will be most active.

Ernst & Young's 2008 European attractiveness Survey questioned 834 decision-makers about how competitive Europe is on a global scale in terms of FDI, and which countries within Europe are doing well, how they see the attractions of alternative business locations, and the criteria that drive their perceptions.

What is perhaps most striking about the report is that despite the received wisdom, and the undoubtedly large investments going into India and China, "Europe's multinationals still rely on proximity and take advantage of competitive, modern locations in Eastern Europe's renovated cities such as Prague, Budapest, Warsaw, Bucharest or Lodz."

As oil reaches record price levels and shows no sign of falling significantly without a huge fall off in economic activity globally, that proximity factor carries an even larger premium than ever.

And, as the report notes: "India, often thought of as a direct competitor, or even a threat to the future viability of back-office operations in developed economies, is struggling to gain ground, falling back to third place in our 2008 ranking.

"Aside from China, Central and Eastern Europe are frequently cited as manufacturing location favorites (17%), and Western Europe wins a surprising third place.

"Europe's dynamism comes from its Eastern borders...and beyond. Central and Eastern Europe, including Russia and its satellites, attracts 28% of the projects and a heavyweight 58% of FDI job creation."


The new near markets

Interestingly, new near markets appear to coming onto business investors' radar screens.

"Patterns are changing fast. The main growth is going to Russia, whilst Turkey and the Ukraine are proving increasingly successful in attracting investment, In a slow year, last year's stars - Poland and Romania - are catching fewer labour intensive investments.''

The significance of this is threefold. While it's interesting that new markets are coming on stream, the fact that investment into them is primarily labour intensive investment indicates they are being chosen for reasons of cheap labour. That tends to be the initial investment phase.

And while it opens up a market, through cheap manufacturing, nowhere (not even China) can maintain its attractiveness based entirely on cheap labour indefinitely.

Eventually, any country in this category is a victim of its own success - as wages grow, they erode this labour cost edge.

So, it's no bad thing that labour intensive investment is moving away from Romania and Poland - both of which are focusing more and more on knowledge-based activities.

In Romania the huge success in the IT industry is a marker of this; similarly, high-end aviation and associated manufacturing is taking place in Poland.

Investment benefits take time

Even so, once that manufacturing investment goes in, whether it's labour intensive or not, it is not uncommon that the full economic benefits to the recipient country aren't seen for several years.

Plants take time to build, production processes gear up to capacity over many months. Jobs are added slowly.

The effects of car manufacturing investment in Slovakia - firmly in the high value manufacturing category - have only really been felt in the last year or two, and this is a good example of this investment effect delay.

In turn, the Slovakian economy is now one of the great CEE success stories, its current star performer, and the property market in Bratislava one of the most attractive right now.

"The results show a remarkable shift. ....... The most important driving force for foreign direct investors is to access new markets. And as Europe's economy slows, they are increasingly looking to thriving economies and competitiveness elsewhere.

"Today, business leaders see the investment world as multi-polar, with destinations such as China, India, Russia, and the Middle East, which enters the top ten ranking for the first time, now strong rivals to the traditional dominance of Europe and the US."

Even so, the top five countries for attracting FDI projects in 2007 remained the same - but Central and Eastern Europe countries rose quickly.

Who attracted what?

Countries and their total share of global FDI

US 12.5% (falling)
UK 11.1% (up)
France 8% (up)
Netherlands 6.8% (up)
China 4.4% (down)
Hong Kong 3.5% (up)
Russia 3.2% (up)
Germany 2.9% (down)
Brazil 2.4% (up)
Singapore 2.4% (up)
India 1.0% (down)

Continental Europe - 42% (down 1%)

The UK topped the job-creation ranking.

Europe is quite clearly still an active player, but less a dominant power.

"For the first time, Europe loses its historical, exclusive attractiveness leadership in our 2008 survey. Traditional FDI heavyweights (Europe and the US account for 58% of global GDP) now share the field with fast-growing global challengers."

But, much more significantly, the economic landscape of Old Europe, the survey shows, is rapidly changing, with the transformation undoubtedly more advanced in the UK.

What is being seen is a huge shift of manufacturing, a great deal of it high end manufacturing, from western Europe, eastwards.

The survey describes this as the two faces of Europe.

"....is showing two faces to global investors, and this makes it resilient. While Western Europe's potential attractiveness declines, Central European countries including new European Union members, and frontier countries, such as Russia and the Ukraine, continue to gain interest.

"Europe retains a considerable power of attraction and is ranked among the top three business locations by 75% of respondents.

"But investors seem also to be sending a strong message that their main interest lies in younger, more dynamic and competitive markets. This eastward transition, while evident in our attractiveness surveys since 2004, has become particularly marked over the past two years."

Where is the decline taking place in Western Europe?

Traditional industries.

In 2007, 30,527 industrial job creations were 'missing.' Four sectors are responsible for 60% of them: logistics, automotive, pharmaceuticals and industrial equipment.

"Together, these four sectors provided 31% of total FDI job creation in Western Europe in 2006. Their share dropped to 23% in 2007.

"New jobs in the logistics sector, the top industrial job contributor in Western Europe in 2006, fell by 84%, from 11,292 jobs to just 1,792 in 2007. The automotive sector, which used to rank second in industrial job creation, provided 2,865 fewer jobs, a 35% fall.

"Industrial equipment jobs were down 60% (2,730 fewer jobs), while pharmaceuticals industry hires decreased by 66% (3,413 fewer jobs)."

Job migration

So, where are these jobs migrating to?

The answer is clear.

"Central and Eastern Europe attracts 28% of the projects and captures 58% of all jobs created. In 2007, investment projects into Central and Eastern Europe grew by 15%, despite a 7% fall in job creation (against 29% fewer jobs in Western Europe and 18% fewer across the continent).

"While Western Europe continues to attract new FDI projects (72% of total European inward investment projects), more new jobs were created in Central and Eastern Europe.

"Indeed, 58% of jobs created in Europe were directed to Central and Eastern Europe."

The Czech Republic maintained its place, despite attracting 27% fewer projects. It moved from fourth to third place in the job creation table despite creating 14% fewer jobs than last year.

Russia leapt to fourth position for jobs created (+85%) and moved from 13th to 8th for number of projects (+60%).

Poland and Romania maintained their position in terms of number of projects. In terms of job creation, Poland fell to second, creating 41% fewer jobs than last year.

Slovenia saw the biggest growth in terms of job creation (multiplied by five) and jumped to 15th position in the ranking.

"How to" invest is becoming more important than "how much" for investors considering sustainable location options.

Survey respondents pay more attention to political and legal stability (54%) and telecoms infrastructure (51%) than labour costs (47%).

This places those countries of CEE that are either in or lining up as serious contenders to join the EU as those countries that will have lasting appeal to business investors.

Future focus

Those CEE countries that focus on infrastructure development, including telecoms, will be the winners in attracting new business. Those countries and regions that fail to see this requirement will have to increasingly rely on cheap labour to make themselves attractive - a far weaker strategy long term.

But the message is clear - the great migration of capital investment into central and Eastern Europe may be interrupted somewhat by the current aversion to investment risk, but the flow looks to be unstoppable longer term.

This then is where the new jobs and a new, growing spending power will continue to emerge - and dynamic property markets in turn.

Short term affordability issues among domestic buyers in some of those property markets may well cause a slow down in accelerated price growth along the way, but to focus on this would be a big mistake.


It would miss the huge potential for future growth that exists as productivity grows and wages rise fast. Just as importantly, we need also to stay focused on the tiny percentage of mortgage lending that still exists in most of these markets - a vital measure of potential growth.

A footnote on the UK

Amid all the gloom about UK Inc and the gloom forecast by some who seem to see the end of any kind of growth in the UK's housing market, it's perhaps worth bearing in mind that the country is still the star performer in terms of FDI. Its track record is really nothing less than outstanding.

The Ernst & Young Survey points out that "The UK is the undisputed leader of the European FDI competition.

"The country tops our 2007 ranking both in number of projects and jobs created. FDI projects into the UK grew by 4%. Although its market share was slightly down, the UK holds the largest-ever lead over its European competitors (19.2% market share in number of projects, ahead of France in second place with 14.6%).

"The country's performance is mainly due to its commanding share of service activities (24% of total service investment into Europe), especially in Greater London (52% of UK service investment). The UK dominates Europe's inward FDI in software (30%), business services (26%), and financial services (28%)."

But, along with this success, comes a rider - a very strong economic linkage with the US. Obviously, it's not necessarily a bad thing to be coupled with the world's dominant economy, but it does mean that the old adage (with a slight variation) applies - when the US sneezes, the UK catches cold.

In addition, the areas in which the UK is strongest at attracting inward investment are the very areas that will be hit first (and perhaps hardest) in a credit crunch induced economic downturn.

But, equally, it can be argued that as the US was first into the big slowdown that started in 2007, it will be the first out of it - including its property market.

That could well bode well for UK inc in the coming months and even - dare we suggest - the UK's housing market.

Huge cash cuts to the programme funding the refurbishing of panelaks are set to create a government-led demand for new build apartments in the Czech Republic.

Government subsidies to the Panel Programme have been cut by two-thirds, forcing a freeze on refurbishment applications and exclusion altogether from the scheme for people under the age of 35.

Property Secrets Investment Director, Steve Desmond's view - 'We are going to see a government created demand over the next five years for modern, new build apartments.

Overstretched market

'The market is already overstretched with demand exceeding supply, so with this added pressure it is likely to explode.

'The effect of cutting the refurbishment programme is that it will give people an added motivation to move out of their panelaks.

'With little prospect of repairs and refurbishments, a lot of people will be encouraged to release the huge pent up equity in their panelaks - as much as 60% of the cost of a new build.

'Basicallly, the government has incentivised people in the public housing sector to move into the private sector.'

And this is particularly the case for people under 35 who can now get a subsidised loan - enough to pay a deposit on a new build - which will enable them to get on the property ladder.

Instead of applying to the refurbishment fund, they can ask for a CZK300,000 loan, equivalent to around £8,400, with a rate of 2% over a 20-year term.

Huge numbers of prefabs

There are an estimated 750,000 prefab flats in the Czech Republic - most of them crumbling - and only one in every five has been repaired, with the rest waiting for work on a variety of areas including balconies, roofs and exteriors.

'Only 7%-10% of the current housing stock is new build and the decision to cut the refurbishment programme is going to drive the market by increasing demand for a limited supply of new builds and raise prices,' said Steve.

The demand for repairs was underestimated by the state-run SFRB Fund for Housing Development, which manages the programme.

It estimates it has a CZK2 billion shortfall just to meet current repair requests.
The resulting funding crisis also means the SFRB will not accept any requests this year for the construction of new municipal and co-op flats or for the modernisation of municipal flats.

'This was an inevitable situation because there is a limited amount of subsidy you can give for housing that is 30 to 40 years old and at the end of its life span. The costs just become a bottomless pit,' Steve added.

The common problems in unmodernised panelaks are old heating systems and outdated electrics as well as broken lifts, poor water pressure and security issues on the ground floor.

With the prospect of no repairs in sight, there is only so long that many people will put up with no running water and walking up eight flights of stairs.

Demand boost

"For the property investor this means there will be further demand on the market from a segment of local people who have now been given a push by the government to go to the private sector - to either rent or buy - so they can enjoy a better standard of livings,' said Steve.

So, good news for anyone invested in or considering investing property in the Czech Republic - the government has, in effect, delivered a boost to already excess demand for new build property.

The question has to be then - which CEE country will be next to essentially run out of funds to prop up the panelaks?

Romania, Poland, Slovakia, Bulgaria?

The answer is almost certainly ALL of them.

Posted by Andrea Harper and Robin Bowman

The Economist has revived its R-word index. This attempts to predict whether there will be a recession by counting the number of times the word is used every quarter in the Washington Post and the New York Times.

It won’t surprise many people to know that the index started to rise in the second half of 2007, and that, so far in 2008, it’s rocketed.

It’s not a science, of course, and we could all probably guess the standing of the index anyway – just by doing the same on the PS forums!

Interestingly, perhaps, the index is still lower than prior to earlier recessions. So maybe we’ll get off the hook.

One thing is certain, whether the US or anywhere else slips into a technical recession or not – two quarters of negative GDP growth – growth in most economies (and especially developed economies) is going to slow this year.

Slow down, note – which doesn’t mean the end of the world as we know it, as so many gloomsters seem to enjoy predicting.

It doesn’t mean a 1930’s style depression is inevitable, as so many love to predict as soon as we see a downturn on the way. It doesn’t mean, as someone posted the other day on the PS forums, that UK Inc is finished!

We’ve had US recessions before – we had one at the start of the decade – look what happened to UK house prices since then.

Everyone has a view about what to watch for – the price of gold, the price of oil, the housing market.

All of these factors are in some way meaningful, but the one that always rings the loudest alarm bells, in my view, is the employment figure.

Once we start to see consistent falls in the number of new jobs being created, we can be pretty sure the economy is heading the wrong way.

As yet the employment figures are holding up. So, watch this space.

Assuming then that a slowdown is inevitable, because it is, by even the most bullish assessment, where does that leave the developing economies of central and eastern Europe?

It’s a key point, because it seems reasonable to assume that it’s not a question of whether they will be affected. The question is only by how much.

These economies have seen fabulous growth over the last few years – in some cases (the Baltics), that growth has probably been too fast.

And the driver of the growth has been, overwhelmingly, FDI.

Property markets in these countries have grown at a blistering rate on the back of FDI that has created jobs and a slowly enlarging middle class, which in turn creates demand for more and more consumer goods and ….modern housing.

It’s a simple equation and it’s served the property investor pretty well up to now.

But when we look at where all that FDI has come from, it’s primarily from the developed Western economies.

The obvious question then is this: as a general economic slowdown takes hold in many of these developed countries, will FDI to CEE countries also slow dramatically?

Probably the best way to answer this is to look at what happened last time there was a serious economic slowdown.

But let’s bear in mind that during the last significant economic downturn (2000 – 2002) , the CEE opportunity wasn’t anything like as clear as it is today.

Nowadays, big business investors have proof that the EU enlargement of 2004 really does work. A trend of relocating manufacturing to this region is already established – anyone doing the same is no longer a pioneer.

In short then, the positive pull of CEE as a place to invest is hugely stronger than six, seven or eight years ago.

And this point isn’t made to make unpalatable prospects stick in the throat a little less. Far from it.

OK, so what the effects on FDI in CEE from the fairly brief downturn between 2000 and 2002?

Actually not much.

Few businesses seemed to scrap investment plans, preferring instead perhaps to buy on the downturn.

A 2003 report from the Vienna Institute of Economic Studies, revealed that FDI shrank 50% to central European countries in the first three months of 2002 – even though eight key countries were just two years away from EU accession with all the economic promise that held.

FDI in 2003 was a paltry €7.2 billion, compared to €22.6 billion the year before.

But what, it has since been reported, and what was left out of the equation was reinvested profits. In Hungary alone, for example, in 2002 reinvested profits totalled just under €2 billion – roughly the amount of yearly FDI it had been receiving.

So, effectively, while new FDI shrank, the momentum of previous investments sustained the pace.

And the momentum of FDI going into the downturn had a big impact on how much growth was sustained during the slowdown AND how much the pace of investment picked up coming out of the downturn.

And this is almost certainly likely to be the case this time around. More of this in a moment.

Total FDI in 2000-2002 in central Europe amounted to more than $50 billion, with Poland and Czech attracting the most ($14 billion each), followed by the Slovak Republic ($7 billion) and Hungary ($5 billion).

And as Sam Vaknin Ph.D. wrote in the American Chronicle earlier this month:

The global recession of the early years of this decade ‘…..had little effect on Central and Eastern Europe's traditional export markets.

‘The region was spared the first phase of financial gloom which affected mainly mergers, acquisitions and initial public offerings. Few multinationals scrapped projects, scaled back overseas expansion and cancelled long-planned investments.’

A.T. Kearney's Global Business Policy Council – which is a group of corporate leaders from the world's biggest 1000 corporations - publishes the FDI Confidence Index. This plots FDI intentions of the companies responsible for 70% of worldwide FDI.

And by September of 2002, the index showed CEE countries within the first 25 places globally. Poland beat Japan, Brazil, India and Hong-Kong and immediately followed Australia, for example.

Czech and Hungary - closely together - were found more attractive than Hong-Kong (the gateway for investors into China), the Netherlands, Thailand, South Korea, Singapore, Belgium, Taiwan and Austria.

The report concluded: ‘Europe has become the most attractive destination for first time investments.

‘More than one third of global executives are expected to commit investments for the first time in Europe over the next three years 2003-6 (especially in) Russia, Poland and the Czech Republic.’

And since then, as the American Chronicle points out, a new trend has developed – cross border investments from one developing country into another.

Czech, for example, is responsible for 4% of the FDI going into Slovenia. Slovenia and Bulgaria are investing in Macedonia, Hungary in Serbia, Czech in Romania.

And the fact is that the FDI impetus is much, much stronger this time round?

The latest report from UNCTAD – the UN Conference on Trade and Development – from a few days ago, estimates that FDI globally in 2007 was a record $1.5 trillion ($1.3 trillion in 2006), up on the previous record of $1.4 trillion in 2000.

The financial and credit crisis that began in the latter half of 2007 has not affected the overall volume of FDI inflows, UNCTAD economists reported.

The report concluded:

‘FDI flows to developed countries in 2007 grew for the fourth consecutive year, reaching US$1 trillion.

‘Flows were particularly buoyant in the United Kingdom, France, and the Netherlands. The United States maintained its position as the largest single FDI recipient.

‘The European Union (EU) as a whole continued to be the largest host region, attracting almost 40% of total FDI inflows in 2007.’

(Good news then, too, for UK Inc - not finished just yet!)

‘FDI inflows to developing countries and economies in transition (the latter comprising South-East Europe and CIS) rose by 16% and 41%’

And what of the major recipients of FDI among the EU’s CEE members?

Overall, surely, we would expect to see a dramatic tail off in the latter part of 2007.

In fact, this wasn’t the case.

Overall, the FDI figure was just 2.3% down for all the EU’s ten new members – all but Cyprus and Malta in CEE. The figure went down from $38.9 billion in 06 to $38 billion in 2007.

So far, then, so good.

What we should have seen – a serious FDI downturn – hasn’t happened.

And that is great news for anyone invested in CEE property markets, such as Romania, Czech Republic, Slovakia, Bulgaria and Poland. Because, while a serious and prolonged downturn in the big economies of the West will certainly have a negative effect, that effect looks quite likely to be minimal.

And let’s face it, in some overheating EU markets, like those of the Baltics in particular, a slowdown would be welcome.

What about intentions then?

Well, again, things look fairly optimistic.

Here’s one headlinefrom December 2007, looking at the latest findings of investment intentions, this time from a survey of global executives carried out by management consulting firm A.T. Kearney.

‘Corporate FDI Plans Constant Despite Credit Market Turmoil

‘Study Confirms Shift in Global Economic Power as Corporate Investment Increasingly Targets Developing Nations’

One story went on to summarise the report like this:

‘Troubles in the credit markets are not dampening corporate plans for new foreign direct investments, says the first detailed survey of top executives conducted since the sub-prime crisis began this summer.

‘The assessment of senior executive sentiment at the world’s largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investment in the years ahead.’

And I found this snippet from Bloomberg a couple of days ago even more telling.

East European Buyouts Unhindered by Subprime, Dealmakers Say, was the headline.

‘Financing for takeovers of central and eastern European companies by private investors hasn't been hurt by the subprime-mortgage crisis in the U.S., according to dealmakers in the region.

‘Leverage has become available for the past few years,'' said Piotr Nocen, director of The Carlyle Group in Warsaw.

‘It's still now available on much more favorable terms than in Western Europe or even the U.S.’

The number of private equity deals in central and eastern Europe rose 90 percent to 351 in 2007, compared with 185 the year before, according to research presented by Euromoney Institutional Investor Plc.

The value of deals rose 13 percent to $18.6 billion.

I wonder why that is?

Seems simple really. Financiers, whose whole reason to be is to invest, see this region as a great long term bet – and they’re willing to bet hard cash on that vision.

The emerging economies as the new safe havens indeed!

The Economist has revived its R-word index. This attempts to predict whether there will be a recession by counting the number of times the word is used every quarter in the Washington Post and the New York Times.

It won’t surprise many people to know that the index started to rise in the second half of 2007, and that, so far in 2008, it’s rocketed.

It’s not a science, of course, and we could all probably guess the standing of the index anyway – just by doing the same on the PS forums!

Interestingly, perhaps, the index is still lower than prior to earlier recessions. So maybe we’ll get off the hook.

One thing is certain, whether the US or anywhere else slips into a technical recession or not – two quarters of negative GDP growth – growth in most economies (and especially developed economies) is going to slow this year.

Slow down, note – which doesn’t mean the end of the world as we know it, as so many gloomsters seem to enjoy predicting.

It doesn’t mean a 1930’s style depression is inevitable, as so many love to predict as soon as we see a downturn on the way. It doesn’t mean, as someone posted the other day on the PS forums, that UK Inc is finished!

We’ve had US recessions before – we had one at the start of the decade – look what happened to UK house prices since then.

Everyone has a view about what to watch for – the price of gold, the price of oil, the housing market.

All of these factors are in some way meaningful, but the one that always rings the loudest alarm bells, in my view, is the employment figure.

Once we start to see consistent falls in the number of new jobs being created, we can be pretty sure the economy is heading the wrong way.

As yet the employment figures are holding up. So, watch this space.

Assuming then that a slowdown is inevitable, because it is, by even the most bullish assessment, where does that leave the developing economies of central and eastern Europe?

It’s a key point, because it seems reasonable to assume that it’s not a question of whether they will be affected. The question is only by how much.

These economies have seen fabulous growth over the last few years – in some cases (the Baltics), that growth has probably been too fast.

And the driver of the growth has been, overwhelmingly, FDI.

Property markets in these countries have grown at a blistering rate on the back of FDI that has created jobs and a slowly enlarging middle class, which in turn creates demand for more and more consumer goods and ….modern housing.

It’s a simple equation and it’s served the property investor pretty well up to now.

But when we look at where all that FDI has come from, it’s primarily from the developed Western economies.

The obvious question then is this: as a general economic slowdown takes hold in many of these developed countries, will FDI to CEE countries also slow dramatically?

Probably the best way to answer this is to look at what happened last time there was a serious economic slowdown.

But let’s bear in mind that during the last significant economic downturn (2000 – 2002) , the CEE opportunity wasn’t anything like as clear as it is today.

Nowadays, big business investors have proof that the EU enlargement of 2004 really does work. A trend of relocating manufacturing to this region is already established – anyone doing the same is no longer a pioneer.

In short then, the positive pull of CEE as a place to invest is hugely stronger than six, seven or eight years ago.

And this point isn’t made to make unpalatable prospects stick in the throat a little less. Far from it.

OK, so what the effects on FDI in CEE from the fairly brief downturn between 2000 and 2002?

Actually not much.

Few businesses seemed to scrap investment plans, preferring instead perhaps to buy on the downturn.

A 2003 report from the Vienna Institute of Economic Studies, revealed that FDI shrank 50% to central European countries in the first three months of 2002 – even though eight key countries were just two years away from EU accession with all the economic promise that held.

FDI in 2003 was a paltry €7.2 billion, compared to €22.6 billion the year before.

But what, it has since been reported, and what was left out of the equation was reinvested profits. In Hungary alone, for example, in 2002 reinvested profits totalled just under €2 billion – roughly the amount of yearly FDI it had been receiving.

So, effectively, while new FDI shrank, the momentum of previous investments sustained the pace.

And the momentum of FDI going into the downturn had a big impact on how much growth was sustained during the slowdown AND how much the pace of investment picked up coming out of the downturn.

And this is almost certainly likely to be the case this time around. More of this in a moment.

Total FDI in 2000-2002 in central Europe amounted to more than $50 billion, with Poland and Czech attracting the most ($14 billion each), followed by the Slovak Republic ($7 billion) and Hungary ($5 billion).

And as Sam Vaknin Ph.D. wrote in the American Chronicle earlier this month:

The global recession of the early years of this decade ‘…..had little effect on Central and Eastern Europe's traditional export markets.

‘The region was spared the first phase of financial gloom which affected mainly mergers, acquisitions and initial public offerings. Few multinationals scrapped projects, scaled back overseas expansion and cancelled long-planned investments.’

A.T. Kearney's Global Business Policy Council – which is a group of corporate leaders from the world's biggest 1000 corporations - publishes the FDI Confidence Index. This plots FDI intentions of the companies responsible for 70% of worldwide FDI.

And by September of 2002, the index showed CEE countries within the first 25 places globally. Poland beat Japan, Brazil, India and Hong-Kong and immediately followed Australia, for example.

Czech and Hungary - closely together - were found more attractive than Hong-Kong (the gateway for investors into China), the Netherlands, Thailand, South Korea, Singapore, Belgium, Taiwan and Austria.

The report concluded: ‘Europe has become the most attractive destination for first time investments.

‘More than one third of global executives are expected to commit investments for the first time in Europe over the next three years 2003-6 (especially in) Russia, Poland and the Czech Republic.’

And since then, as the American Chronicle points out, a new trend has developed – cross border investments from one developing country into another.

Czech, for example, is responsible for 4% of the FDI going into Slovenia. Slovenia and Bulgaria are investing in Macedonia, Hungary in Serbia, Czech in Romania.

And the fact is that the FDI impetus is much, much stronger this time round?

The latest report from UNCTAD – the UN Conference on Trade and Development – from a few days ago, estimates that FDI globally in 2007 was a record $1.5 trillion ($1.3 trillion in 2006), up on the previous record of $1.4 trillion in 2000.

The financial and credit crisis that began in the latter half of 2007 has not affected the overall volume of FDI inflows, UNCTAD economists reported.

The report concluded:

‘FDI flows to developed countries in 2007 grew for the fourth consecutive year, reaching US$1 trillion.

‘Flows were particularly buoyant in the United Kingdom, France, and the Netherlands. The United States maintained its position as the largest single FDI recipient.

‘The European Union (EU) as a whole continued to be the largest host region, attracting almost 40% of total FDI inflows in 2007.’

(Good news then, too, for UK Inc - not finished just yet!)

‘FDI inflows to developing countries and economies in transition (the latter comprising South-East Europe and CIS) rose by 16% and 41%’

And what of the major recipients of FDI among the EU’s CEE members?

Overall, surely, we would expect to see a dramatic tail off in the latter part of 2007.

In fact, this wasn’t the case.

Overall, the FDI figure was just 2.3% down for all the EU’s ten new members – all but Cyprus and Malta in CEE. The figure went down from $38.9 billion in 06 to $38 billion in 2007.

So far, then, so good.

What we should have seen – a serious FDI downturn – hasn’t happened.

And that is great news for anyone invested in CEE property markets, such as Romania, Czech Republic, Slovakia, Bulgaria and Poland. Because, while a serious and prolonged downturn in the big economies of the West will certainly have a negative effect, that effect looks quite likely to be minimal.

And let’s face it, in some overheating EU markets, like those of the Baltics in particular, a slowdown would be welcome.

What about intentions then?

Well, again, things look fairly optimistic.

Here’s one headlinefrom December 2007, looking at the latest findings of investment intentions, this time from a survey of global executives carried out by management consulting firm A.T. Kearney.

‘Corporate FDI Plans Constant Despite Credit Market Turmoil

‘Study Confirms Shift in Global Economic Power as Corporate Investment Increasingly Targets Developing Nations’

One story went on to summarise the report like this:

‘Troubles in the credit markets are not dampening corporate plans for new foreign direct investments, says the first detailed survey of top executives conducted since the sub-prime crisis began this summer.

‘The assessment of senior executive sentiment at the world’s largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investment in the years ahead.’

And I found this snippet from Bloomberg a couple of days ago even more telling.

East European Buyouts Unhindered by Subprime, Dealmakers Say, was the headline.

‘Financing for takeovers of central and eastern European companies by private investors hasn't been hurt by the subprime-mortgage crisis in the U.S., according to dealmakers in the region.

‘Leverage has become available for the past few years,'' said Piotr Nocen, director of The Carlyle Group in Warsaw.

‘It's still now available on much more favorable terms than in Western Europe or even the U.S.’

The number of private equity deals in central and eastern Europe rose 90 percent to 351 in 2007, compared with 185 the year before, according to research presented by Euromoney Institutional Investor Plc.

The value of deals rose 13 percent to $18.6 billion.

I wonder why that is?

Seems simple really. Financiers, whose whole reason to be is to invest, see this region as a great long term bet – and they’re willing to bet hard cash on that vision.

The emerging economies as the new safe havens indeed!

"Europe’s periphery has emerged as one of the most vibrant parts of the global economy – a fact little recognised by investors mesmerised by the emergence of China and India"

FT, 8th Jan http://www.ft.com/cms/s/0/4f1867d8-bd44-11dc-b7e6-0000779fd2ac.html

How true is this?

This is a quote from the chief market strategist at Bank of America on the FT's site yesterday - 8th Jan 2008.

Well, I kind of want to say 'told you so'! And aren't you glad you have invested in these markets before the rest of the FT reading public?

But what is really interesting is that it is now becoming public knowledge that China and India have mesmerised investors into missing the opportunities in central Eastern Europe.

Why is that?

From BRICS to 'BRICEES'

Well, one possible (but false) explanation for why investors might have missed central Eastern Europe is because the opportunity isn't as good - but I don't believe this and nor does the Chief Market Strategist of Bank of America based on his recent article.

I believe that investors missed central Eastern Europe because it is a complex and diverse region and isn't as easy to prononuce as India or China.

As I argued in my recent End of Term Performance Report - the term BRICS (Brazil, Russia, India and China) has missed out the other most exciting (but also most stable and secure) region of central and Eastern Europe.

Hence, I propose that we should now talk about Brickies (BRICEES) and not just BRICS! (This also seems the most appropriate name given that we are interesting in property in this region).

It is much easier, for instance, to talk India - than it is to talk about the 12 new countries that have joined the EU in the past 3 years - along with as many languages and nearly as many currencies (Cyprus, Malta and Slovenia have now all successfully adopted the Euro).

Yet, this diversity is exactly why the region offers such opportunity. Whilst the Baltics have done their bit on property price growth for now - the focus has shifted to Romania and Bulgaria.

However, just as Czech Republic began a second wave of property growth last year, so Slovakia is re-entering the property price growth curve and will be followed by a second wave in Poland - in about 12 months.

The good news - is that many investors still haven't figured out where central Eastern Europe is - nor have they managed to stick any money there yet.

Hence, whilst these markets certainly registered excellent growth and are experiencing increased interest from fund investors - the region remains relatively untouched by foreign investors!

This would suggest that there is plenty more growth to come! But that you do need to know your Bucharests from your Budapests! And that is the sustainable advantage that Property Secrets can offer.

Cheers
Neil

ps. One last quote from yesterday's article 'Europe’s got its own China next door'