Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence – new report on FDI
The Czech Republic, Romania and Ukraine in Central and Eastern Europe and Japan, Kazakhstan and Malaysia in Asia are the most promising countries for foreign investors, according to the report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence”, co mpiled by PFR TFI and PwC in cooperation with KUKE.
The value of foreign direct investment by Polish companies reached a record high of over PLN 130 billion in 2022. This is PLN 20.8 billion more than a year earlier. As much as 87 per cent of Polish investments were made in Europe. The authors of the report point out that when planning investments it is worth taking a broader perspective, They direct investors' attention to the East, in particular to the countries of our region and Asia.
What does the report contain?
The report provides a comprehensive analysis of potential business opportunities, taking into account macroeconomic and geopolitical factors, as well as changes in the global economy. It consists of several parts and includes:
- a ranking of attractive investment destinations,
- an analysis of key market trends,
- results of surveys conducted among entrepreneurs,
- an analysis of the Ukrainian market in the context of the impact of the war and the planned reconstruction process,
- an overview of foreign investment financing instruments offered by development institutions.
New light on international business directions
For the third time, PFR TFI and PwC Poland, in cooperation with KUKE, present a ranking of the most promising expansion directions for Polish companies, this time focusing on the markets of Central and Eastern Europe (CEE) and Asia. Central and Eastern European countries have experienced dynamic growth over the past three decades. They have also shown stability and resilience to the geopolitical and macroeconomic turbulence of the past few months. In 2022, they recorded an almost 8 per cent year-on-year increase in the value of inward FDI. The investment potential of most Asian countries is indeed rated very high. Large, fast-growing markets with affluent populations mean huge business opportunities for almost half of the companies surveyed.
This year's edition of the ranking takes into account two categories of destinations – those that are obvious (1st circle) and those that are less well-known but very promising from the point of view of foreign investors (2nd circle). The dividing line is the value of capital invested by Polish companies (EUR 100 million). In the first group, comprising mainly the countries of Central and Eastern Europe that are geographically and culturally closest to us, the Czech Republic, Romania and Ukraine ranked first. In the case of the latter, considerable opportunities may open up for Polish companies in the context of the country's reconstruction process. In terms of second-circle countries, the top three were Japan, Kazakhstan and Malaysia. The identified Central and Eastern European markets are a safer choice, while Asian destinations may be an opportunity for companies that accept higher risk in exchange for higher return on investment.
"I am convinced that in such a dynamic economic environment we can find room for the development of Polish direct investment abroad. Such an opportunity is now opening up for our companies in the CEE and Asian regions. The CEE countries, which are geographically and culturally closer to us, as well as the less obvious but rapidly growing Asian markets, are characterised by great resilience and high business potential, which can make them attractive expansion destinations for Polish investors. We want Polish companies to develop on the global market, taking full advantage of the potential offered by foreign expansion. By offering co-financing for international investments, the Polish International Development Fund enhances the financial capabilities of Polish companies so that they can use their potential more effectively and build a sustainable competitive advantage in international markets"
- explains Piotr Kuba, Board Member for Investment at PFR TFI.
Macroeconomic challenges shaping the FDI market
During their work on the report, experts identified key trends shaping the international FDI landscape. The challenging macroeconomic and geopolitical environment means that the impact of foreign direct investment on global economic processes and corporate business decisions is growing.
"The year 2023 saw a marked slowdown in global GDP growth, followed by a reduction in FDI flows. The new reality brings changes in the balance of power in the global economy and growing protectionism. In addition to geopolitical turmoil, the foreign direct investment market and business sentiment is currently being influenced by nearshoring, energy transition and digital transformation. It is worth taking a closer look at them to understand the challenges, but also the business opportunities they present"
- stresses Paweł Oleszczuk, PhD, deputy head in the Public Sector & Economics department at PwC Poland...
Inspired by business
In addition to an analysis of key trends and a ranking of attractive investment destinations, the report includes the results of a survey of a sample of 240 large and medium-sized companies. The survey clearly shows a change in the perception of key risk factors compared to the previous survey. 90 per cent of companies identify geopolitical risk and market size as key factors in their analysis of a potential investment location. Companies are also more cautious when it comes to planning overseas projects, although there is clearly more interest in expansion from those companies that already have experience in this area. 41 per cent of companies that have already invested abroad plan to expand further in the next three years, compared to a figure of just over 26 per cent for all businesses.
"There is an opportunity for our companies to finally become more active abroad, because although we are successful in attracting investment from other countries, our regional neighbours, for example, are better at capital expansion. We want to share our knowledge on the benefits and opportunities of foreign expansion and show Polish entrepreneurs promising markets worth looking at for investment opportunities. At KUKE, we see growing interest from Polish companies in entering the global market. To reinforce this trend, we offer attractive instruments to secure investments as well as their financing, which significantly increases the security of the venture"
- explains Janusz Władyczak, President of the Management Board of KUKE.
The research conducted confirms that entrepreneurs are aware of the benefits of capital expansion. As many as 55 per cent of companies surveyed cite geographical diversification and risk reduction as the main benefit of direct investment abroad, followed by the ability to secure supply chains (more than 47 per cent of respondents).
The report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence” was compiled by PFR TFI and PwC in cooperation with KUKE. The full version of the report can be downloaded HERE.
About PFR TFI
PFR TFI is part of the Polski Fundusz Rozwoju Group, which manages more than a dozen investment funds investing in the Polish economy and enterprise development and supporting the foreign capital expansion of Polish companies. The entity also manages the Polish International Development Fund 2 FIZ AN with a target capitalisation of PLN 600 million. The fund was established in 2023 and continues the mission of the Foreign Expansion Fund FIZ AN, which had been operating since 2016 and had already been completed, with more than 20 investment agreements and more than EUR 100 million invested during that time. The fund offers Polish companies the opportunity to co-finance their foreign investment projects through financial instruments adapted to their scale, as well as to the capabilities and needs of Polish investors. It can finance the acquisition of a foreign company, the establishment of a new one or the development of an existing foreign subsidiary of a Polish company, both in EU and non-EU countries, including developing ones, in virtually all sectors.
About PwC Polska
At PwC, our goal is to build public trust and respond to the key challenges of contemporary world. We are a network of companies operating in 151 countries, and employing a total of more than 364,000 people who provide our clients with the highest quality business, technology, tax and legal advice and audits. In Poland, PwC has offices in 7 cities and a Financial Crime Unit in Gdansk, Warsaw and Lublin, two Shared Service Centres in Katowice and Opole and a PwC IT Services branch in Lublin. PwC's Polish companies employ almost 7,000 people, including almost 2,000 in technology teams.
About KUKE
KUKE has been insuring the commercial transactions of Polish entrepreneurs at home and abroad for more than 30 years. It is the only institution in the country to offer instruments with State Treasury guarantees to insure exports of goods and services, foreign investment projects and domestic investments by exporters. The factoring company KUKE Finance finances foreign and domestic receivables under all types of factoring available on the market.