2007. Helmut Maukner. Attractiveness of South East Europe for foreign Investors. CEE-Wirtschaftsforum 2007. Forum Velden.

Helmut MauknerManaging Partner, Ernst & Young Österreich,

Österreich/Austria

Die Attraktivität von Süd-Osteuropa für ausländische InvestorenAttractiveness of South East Europe for foreign Investors

Attractiveness of South East Europe for foreign investors

Helmut MauknerCountry Managing PartnerErnst & Young Austria

CEE Economic Forum 2007

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About Ernst & Young

The members of the global Ernst & Young organization help companies in businesses across all industries — from emerging growth companies to global powerhouses — deal with a broad range of business issues. Our 114,000 people in 140 countries around the globe pursue the highest levels of integrity, quality and professionalism to provide clients with a broad array of services relating to audit and risk-related services, tax, and transactions.

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About Ernst & Young

In Austria Ernst & Young is one of the leading professional services firm with more than 400 people in our offices in Vienna, Linz, Salzburg and Klagenfurt.

We closely cooperate with the Ernst & Young member firms in the Central Europe (CE) Area which comprises Austria, Croatia, Czech Repbulic, Estonia, Germany, Hungary, Latvia, Lithuania, Poland, Russia (including the member states of the CIS) Slovak Rebublic, Slovenia, Switzerland and The Netherlands and in the South East Europe (SEE) Sub-Area which comprises Albania, Bulgaria, Cyprus, Greece, (F.Y.R. of) Macedonia, Malta, Moldova, Romania, Serbia, Turkey.

South East Europe Attractiveness Survey 2007

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Objectives

A survey combining reality and perceptions

To measure the attractiveness of South East Europe versus other European regions

To measure the attractiveness within South East Europe

To compare the perception of 200 international executives with the reality of actual Foreign Direct Investments (FDI) in South East Europe provided by the Ernst & Young’s European Investment Monitor

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Profile of respondents

A sample offering a comprehensive picture of business models

200 international respondents

120 established in SE Europe

80 not established in SE Europe

Asia 5%Oceania 1%Central and

Eastern Europe 6%

North America 17%

Western Europe 71%

< 150 €M 60%

> 150 €M < 1.5 €B

27%

> 1.5 €B 13%

Telecom, high-tech 12%

Pharma, chemicals 9%

Other 5%

Consumer29%

Industry, automotive, energy

23%

Business services 22%

Sectors Country of origin

Size Sample

Introduction: the reality of FDI in Europe(with a focus on South East Europe)

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FDI in Europe – East and West – at a record pace

3,500 investment decisions by foreign investors across Europe 2006

74% in Western Europe 26% in CEE

Split of FDI between Western Europe and Central & Eastern Europe(number of projects - 2002/2006)

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South East Europe6% of all FDI projects in SEE

Top five European investment destinations situated in Western Europe

Growth is in Central, Eastern and Southern Europe

South East Europe attracted the same number of projects as Germany and Poland

Source: Ernst & Young European Investment Monitor 2006 in number of foreign direct investment projects in Europe in 2005

559

538

UK

F

Irl 67

EP14729

B

180NL

82

D

181PL

180

RUS111

I 49

CH93

TR 29GR 8

BG 33

RO 85

CZ116

H115

SK 76

DK 55

S96

A 59

SB 19

*FDI: foreign direct investment

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SE Europe’s Top 3 countries account for 85% of regional FDI 2001-2005

285

174141

6229

40%

25%20%

9%4%

Romania Bulgaria Turkey Serbia Greece

Source: Ernst & Young European Investment Monitor 2001- 2005 Market share in number of projects – Top 5

Number of projects

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Job creation through FDI in Europe

Investment projects in Central & Eastern Europe Central and Eastern Europe attracted 26% of investment projects BUT: benefited from 51% of new jobs created by foreign investors 217 jobs per project in Central and Eastern Europe vs 64

jobs per project in Western Europe

Job creation by project

(average 2006)Total job creation

by regionMarket share

Western Europe 64 102,578 49%

Central & Eastern Europe 217 108,795 51%

Total 101 211,373 100%

Job creation split between Western Europe and Central & Eastern Europe - 2006

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Heavy manufacturing projects are the source of job creation

More than 25,000 jobs created by FDI in SE Europe in 2006 Romania: 13.969 jobs Serbia: 5.212 jobs Bulgaria: 4.080 jobs

High average job creation per project Serbia: 372 jobs / project Romania: 191 jobs / project Bulgaria: 128 jobs per project)

Domination of labour intensive projects In the automotive sector From Germany and USA

Investors’ perceptionof CEE and SEE versusother European regions

16

Central and Eastern Europe finds new competition on a global level

Central and Eastern Europe has ceded its second position to China in the ranks of regional attractiveness

Evolution of interest in the most attractive areas (total superior to 100% - 3 possible choices)

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Central and Eastern Europe has more of a local following

39% of all voters identify CEE as top three preferred location

BUT: only 30% of North American companies and 23% of Asian companies do

The main foreign investors in CEE come from Western Europe

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Most attractive European regions

South East Europe is gradually building its attractiveness

8% of international investors(not established in SE Europe) spontaneously ranked South East Europe as the most attractive European region in terms of locations where to establish operations

Western Europe

8%South East

Europe

18%

Central Europe

11%Nordics

34%

Source : Ernst & Young South East Europe Attractiveness Survey 2007- 80 international executives not established in SouthEast Europe – First quotations - Maket share in number of projects

Image

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Most attractive regions by location criteria

A region primarily attractive for its cost competitiveness…

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South East Europe

Central Europe

12%

40%

9%

2Western Europe

Labour cost

13

South East Europe

Central Europe

20% 17%

2Western Europe

31%

Productivity increase

Source : Ernst & Young South East Europe Attractiveness Survey 2076- 200 international executives

Image

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Most attractive regions by location criteria …but presenting a challenge to Central Europe on quality and infrastructure

NOTE: undisputed domination of Western Europe on local environment and qualitative criteria

South East Europe and Central Europe compete for 2nd rank:

South East Europe best for labour skills level and telecom infrastructures

Central Europe best for political stability and transport infrastructures

South East Europe

Central Europe

Labour cost 40% 12%

Productivity increase31% 20%

Labour skills level 22% 16%

Social climate 14% 14%

Political stability 12% 14%

Transport infrastructures

17% 18%

Telecommunication infrastructures

16% 13%

=


Attractiveness within South East Europe

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Leading FDI sector / function Relative competitive advantage within SEE

o FDI job creation 2001-2005

Turkey

Romania

BulgariaSerbia

Manufacturing, consumer goods

Labour skillso 6,440 jobs

Manufacturing, consumer goods


FDI profile 2001-2005

Manufacturing, Logistics, call center


Manufacturing, Logistics, call center


Manufacturing Domestic market Labour flexibilityo 28,400 jobs

Manufacturing Domestic market Labour flexibilityo 28,400 jobs

Energy and transportation

Corporate Tax Labour costo 17,500 jobs

Energy and transportation

Corporate Tax Labour costo 17,500 jobs

Source : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executivesSource : Ernst & Young European Investment Monitor 2006

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Most attractive countries in terms of perception

Romania leads the way, ahead of 3 competing challengers

58%49% 48%

44%

26%

Romania Turkey Greece Bulgaria Serbia

Source: Ernst & Young South East Europe Attractiveness Survey 2007200 international executives

Image

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Image vs. Reality: the big gap

Romania: “What you see is what you

get”

Turkey & Greece: “Overpromising?”

Bulgaria & Serbia: “Deserving a better image”

Reality ranking

Image ranking

Romania 1 1

Turkey 3 2

Greece 5 3

Bulgaria 2 4

Serbia 4 5

=

Source: Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives

Source: Ernst & Young European Investment Monitor 2006

25

56%

59%

62%

68%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Greece

Turkey

Bulgaria

Romania

3 year improvement

50%Serbia

44%

48%

49%

58%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Greece

Turkey

Bulgaria

Romania

Perception 2007

26%Serbia

Most attractive countries in terms of perception

Encouraging perspectives for Bulgaria

Source : Ernst & Young South East Europe Attractiveness Survey 2007 - 200 international executives

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SEE – Country preference The location sites considered :

Respondents : 65 considering establishing or developing activities in South East Europe

Bulgaria

Greece

Serbia

Can’t say %7

%8

%9

%12

%14

%23

%28

Moldova

Turkey

Romania

27

6%

2%

3%

5%

15%

19%

50%

Can't say

Provide loans to localcompanies

Other

Provide local companies withequipment and capital

Purchase companies or plants

Extend existing locations

Establish subsidiaries

Type of investments

What type of direct investments is your group mainly planning?

Respondents : 62 considering establishing or developing activities in South East Europe and quoting a location country

28

Greece Turkey

Romania

Bulgaria

South East Europe2007 Attractiveness scoreboard


Bulgaria

“surprising and rising”

Bulgaria

“surprising and rising”

Greece

“quality not transforming into reality”

Greece

“quality not transforming into reality”

Romania

“in line with first-wave

accession countries”

Romania

“in line with first-wave

accession countries”

Turkey

“the sleeping giant”

Turkey

“the sleeping giant”

Romania

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Romania leader of the region

Opportunity Romania is perceived as the most attractive South East

European country International investors are confident in Romania’s future: 68%

believe it will improve within 3 years (# 1 in the SE region)

Threats Romania is not in a leading position in the SEE region on

infrastructures (telecom and logistic), political environment stability, quality of life and R&D availability, which could be an issue when competing with Central European countries in the EU 27

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Opportunities

Promising destination

Romania is perceived as the most attractive country for potential productivity increase

Romania is perceived as the most attractive country for site availability

Romania Greece Serbia

Productivity increase

Turkey

27%20%

11% 9%

Romania Turkey Greece

Site availability

Bulgaria

26%

12% 12% 11%


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Threats

Doubts on high tech

Respondents perceive Romania as weaker than Greece and Turkey on R&D availability and quality

Romania is also perceived as weaker than Greece and Turkey on telecommunication infrastructures

Greece Romania Bulgaria

R&D quality

Turkey

22% 17%

13%6%

Telecom infrastructures

37%

16%12%

Greece Turkey Romania

5%

SerbiaSource : Ernst & Young South East Europe Attractiveness Survey 2007- 200 international executives

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Investors’ expectations for Romania

Connectivity and stability

Ensure political environment stability

Implement more flexible and simple administrative procedures

Meet with the European economic regulatory standards

24%

28%

28%

29%

0% 10% 20% 30% 40% 50% 60% 70% 80%

21%

Investor’s expectations

Further improve transport and communication infrastructures

Improve the education system


Can’t say = 21%

Bulgaria

35

Building Bulgaria´s international image

… but high expectations from the international investors

62% of the respondents are optimistic about Bulgaria´s improvement within 3 years: # 2 in the region

Reality ranking

Image ranking

Romania 1 1

Turkey 3 2

Greece 5 3

Bulgaria 2 4Serbia 4 5

=

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New Confidence, New Challenges

… yet puts Bulgaria in a challenging league:

Hungary Slovakia Czech Republic …

Accession to the EU is building investors´ confidence

Stability (# 6 in the SEE region)

Infrastructures (# 6) Quality of life (# 5)

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Competitive advantages

Cost factors

Bulgaria is perceived as the 2nd most attractive country for labour cost

Bulgaria is perceived as the 2nd most attractive country for corporate taxation

Romania Turkey Greece

Labour cost

Bulgaria

23% 19%11%

9%

Romania Cyprus Greece

Corporate Tax

Bulgaria

15% 12% 12% 11%


38

Investors’ expectations for Bulgaria

Stability and quality

Meet with the European economic regulatory standards

Ensure political environment stability

Implement more flexible and simple administrative procedures

23%

25%

27%

29%

0% 10% 20% 30% 40% 50% 60% 70% 80%

20%

Investor’s expectations

Further improve transport and communication infrastructures

Improve quality of life


Can’t say = 25%

Future challenges

40

Investor monitor Europe at a crucial time of change – Eastern prospects

Executive’s perception of Europe’s attractiveness over the next three years East will meet West Russia and Ukraine – „future atractiveness“

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South East Europe future challenges

Play together as a region, like Central and Eastern Europe

Match image and reality

Make regional diversity a competitive advantage

Showcase for EU accession

Meeting high expectations on quality and stability

42

Thank you for your attention

2007. Helmut Maukner. Attractiveness of South East Europe for foreign Investors. CEE-Wirtschaftsforum 2007. Forum Velden.

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