Foreign direct investment: a tool or a target for industrial policy in Eastern Countries?

/ BIBLIOGRAPHY - Everett, J.; Sterling, B. and Longton, P. (1982): "Some evidence for an international managerial culture". Journal o f Management Studies, n° 19, pp. 153-162. - Gordon, G. (1985): The relationship of corporate culture to industry sector and corporate performance. En Kilmann et alia (Eds.): "Gaining Control o f the Corporate Culture". Jossey- Bass, San Francisco, pp. 103-125. - Hofstede, G. (1980): "Culture s consequences: international differences in work-related values". Sage Publications, London. - Hofstede, G. (1985): The interaction between national and organizational value systems. Journal o f Management Studies, n° 22, july, pp.347-357. - Hugonnier, R. (1982): "Prendre L’entreprise comme système de valeurs". Direction et Gestion, n° 6, pp. 19-30. - Janieson, I. (1985): The american company in Britain. En Lawrence, P. and Filing K. (Eds.): "Introducing Management". Penguin Books, Middlesex, pp.245-259. - Leal, A. (1991): "Conocer la cultura de las organizaciones: una base para la estrategia y el cambio ". Actualidad Editorial, Madrid. - Likert, R. (1986): "Nuevas formas de solucionar conflictos". Trillas, México. - Malinowski, B. (1977): "Los jardines del coral". Labor, Barcelona. - Malinowski, B. (1984): "Una teoría científica de la cultura". Sarpe, Madrid. - Parsons, T. (1970): "The system o f modem societies". Prentice Hall, Englewood Cliffs, N. Jersey. - White, M. (1985): Japanese Management. En Lawrence, P. and Elliot, K. (Eds.): "Introducing Management". Penguin Books, Middlesex, pp. 260-280. 228 Foreign Direct Investment: A Tool or a Target for Industrial Policy in Eastern Countries? REFLECTIONS UPON EMPIRICAL EVIDENCE FROM HUNGARY, POLAND AND BULGARIA* M. Isabel R.T. Soares l aculdade de Economía, Universidade do Porto Is there any linkage between industrial policy and the inflow of Foreign Direct Investment in Eastern European countries? This is the core question which is analysed and discussed in this paper. The transition process of Central and Eastern Europe to a market economy has raised a lot of challenging questions both to Applied Economics and to Management Science. Enterprise adjustment remains one of the most interesting and complex as it is closely related to a wide range of economic, policy and management issues. Foreign Direct Investment, privatisation and industrial policy and their sort of linkage, remain some of the most interesting factors in the transition process. It seems that no sharp distinction can be presented between FDI as a target and FDI as a tool for industrial policy, but national differences remain significant as well as enterprises adjustment capacity. -------------------- 229 ' Most of the research presented in this paper was prepared in the framework of the ACE programme (PHARE) of the Commission of the European Communities (ACE N° 92-0419-R), being the author a member of the international research team. Foreign Direct Investment: a Tool or a Target fo Industrial Policy in Eastern Countries? Reflections upon empirical evidence from Hungar Poland and Bulgaria* M. Isabel R.T. Soares Faculdade de Economía, Universidade do Porto 1 - Introduction The transition process of Central and Eastern Europe to a market economy h raised a lot of challenging questions both to Applied Economics and t Management Science. Enterprise adjustment remain one of the most interesting and comple questions, as it is closely related to a wide range of different issues. Enterprise adjustment remains a core problem of the transition process and it is also connected to some of the main vectors of that process such as: Foreign Direct Investment, Privatisation and Industrial Policy. Then, it seems quite useful to enquire about the linkage between the above three important factors of Eastern transition to a market economy. The purpose of this paper is to analyse and discuss this subject for three Eastern countries: Poland, Bulgaria and Hungary. 2 - Legal Framework of Foreign Investment The International Monetary Fund (IMF) defines Foreign D irect Investm ent as follows: “Investment that is made to acquire a lasting interest in an enterprise operating in any economy other than that of the investors.” This definition is quite vague mainly as the question of which percentage of ownership may be considered to give the investor a lasting interest. And differences between direct investment and portfolio investment remain unclear. Then as the worldwide practice does, we will consider that a minimum of 10% ' Most of the research presented in this paper was prepared in the framework of the ACE programme (PHARE) of the Commission of the European Communities (ACE N° 92-0419-R). ownership will correspond to a lasting interest. We will define as well, case by ease, Foreign D irect Investm ent. In POLAND, foreign capital was first considered officially a relevant factor of economic growth in 1976 through a regulation of the Council of Ministers. However, legal guarantees to potential investors were not enough: the investment should be made in a convertible currency, no credits were available from Polish banks, 30% of expected costs of the project had to be paid into a non-interest account at a Polish bank, as an advanced deposit, before a permission was issued, then being this deposit frozen until the project was executed up to 50% of its value. However, unexpected interpretations of ambiguous tax laws by fiscal officials and discouraging regulation concerning profits transfer, profits utilisation and ownership rights turned the investment environment quite hostile. In 1982, a new attempt was made by the Parliamentary Act on Principles of Running Small-Scale Businesses on Poland by foreign legal and natural persons. By this Act, not only a state guarantee for invested capital was created, but also a scope of activities of foreign entities for “small business” was defined. Setting up a minimum entry capital of 50 000 US$ and a maximum employment of 200 people, it became a very important exercise for FDI in a centrally - planned economy (SZPRINGER, S., 1994). The next legal step was most import® for the inflow of Foreign Capital in Poland. In 1986, the Polish Parliament passed a law enabling foreign investors to undertake business activities also in the public sector, allowing them to set up joint-ventures with Polish public enterprises. Companies were allowed to be run as commercial firms, being then subject to the Commercial Code, and foreign small manufacturing companies were regulated by the Civil Code. Although there was no interference with relations between joint ventures (JV) partners and with the company’s internal relations, the law established some relevant restraints: • The total value of the Polish contribution to the company’s equity should exceed that of foreign partners. Exceptions to this rule could be considered if there was no threat to the state security, but the permit was denied whenever an industry was perceived as strategic. That meant not only those activities linked to state security and to the protection of state secrets, but also those, where foreign presence could be considered a threat to social and state economic interests. Joint-ventures were completely banished from the Defence Industry, Railwa and Air Transport, Telecommunications, Insurance, Publishing (exc Printing) and Foreign Trade. • Only registered shares were allowed. Land could be attributed only in the form of right to use it (RPU - Right of Perpetual Usufruct). • A company was forced to resell a certain amount of its export revenuei in foreign currencies to a Polish foreign exchange bank, but tho remaining foreign exchange earnings could be freely used. Despite a privileged position granted by the legislation - which included also free distribution of foreign currency profits among partners, freedom to transfer profits (by foreign partners) without a separate foreign exchange permit, foreign exchange credits (including mercantile credits) granted and exemption from corporate income tax during the first two years of business activity (and later, also from fax on the part of profits to be reinvested) among other advantages - there was a small interest of foreign investors in this form of cooperation. Environmental, economic and organisational variables seemed to have been more relevant than legislation. Among those variables, some of them have been decisive: company’s accounting system, cost-base pricing, central raw materials distribution, information requirements, land transport facilities. In 1988, the Polish Parliament passed a new Act, later modified in 1989 and again in 1990, in connection with the Privatisation Act. This law (1988) became the only legislation under which FDIs could be undertaken. Any natural person in possession of convertible currency - except Polish citizens permanently living in Poland - and any economic entity - except Polish enterprises - could be a foreign investor in Poland. New participated (by foreign investors) ventures could be set up either in the form of a limited liability company or a joint stock company. However, only registered shares could be issued (by those companies) and the transfer of shares or stock among the shareholders required a permit from the central administrative organ. Those companies could retain a great amount of their export earnings and they were exempted from paying corporate income tax, enjoying tariff preferences as well. The shareholders had the right to sell their shares after notifying the President of the Foreign Investment Agency, and the foreign partner had the right to transfer abroad the proceeds from the sale of his shares or from the dissolution of the company. The minimum contribution of a foreign partner to a company’s equity was set at $US 50000Mhich was to constitute at least 20% of the starting capital of the firm. finally, in 1991 the Parliament passed a new Act regulating the principles of foreign direct and portfolio investments in Poland. Not only this new legal framework reflected political changements in the Polish economy and society •.¡nee 1989, but also a clear breakage with the inherited central planning legal \ystem. Companies with foreign capital participation should assume the form of companies and only some - although quite a few - cases required a permit prior from the Minister of Privatisation to be registered (SZPRINGER, S. 1994). Most important in this law was that it ended the automatic 3 year period of exemption from corporate income tax, introducing, simultaneously, tax incentives for those investors whose start-up capital contributions exceeded 2mn ECU. Two other very important features were: (i) On one side, tax relief also granted to investors: • who locate their companies in high structural unemployment regions, or • who introduce modem technology into the economy, or • whose exports amount at least 20% of produced goods and services (ii) On the other side, the 1991 Law allowed to transfer the total net profit, being the foreign employees of the company allowed to transfer their salaries without a separate foreign exchange permit Foreign investment security is guaranteed by international agreements on mutual protection and investment promotion. In 1987, the so-called FDI legislation was first published in BULGARIA. Although rather limited as it concerned only joint-ventures, it has established rather flexible conditions to that kind of investment. Later, in 1992, the Parliament of BULGARIA passed a law on the economic activity of foreign persons and on the protection of foreign investments. For the Bulgarian law, foreign investment shall be every investment of a foreign person or through a branch or a company with foreign participation exceeding 50%. Foreign investments should assume different forms (CHANKOVA, L. 1994) • stocks and shares in companies • ownership, rights and limited real rights in property (immovable) • company ownership • bank deposits • debentures, government bonds and other securities issued by the state or by the Bulgarian legal persons credits with a core than 5 years term ownership of immovable property by a participation exceeding 50% company with a foreign Registration is obligatory, but as the Las^sdoesn’t foresee any consequences in its absence, the result is that only 30% of the accomplished FDI are registered. The most common form of registered FDI are companies with foreign participation and a minimum capital according to the Trade Law. As later investments don’t increase the company capital, they are not considered in the final amount of foreign investment. Information on a Foreign Investments has been done by three different institutions - the National Statistical Institute, the Ministry of Finance and the Bulgarian Chamber of Commerce which have not any kind of coordination between them. Although a certain change of the situation is expected in the near future, the present situation makes evident that, both the legal framework and the FDI control also contribute - together with macroeconomic stabilisation problems - to the poor performance of FDI in BULGARIA. In HUNGARY, FDI is defined as “all the money inflows throughout the National Bank of Hungary - except loans and deposits, plus non-cash contribution registered by the registration court as part of the establishment of new business organisations or that of official capital increase” In this sense, the Hungarian definition of FDI is similar to the Portuguese definition and different from the Spanish definition. However, an accurate estimation about the size of foreign capital invested in HUNGARY remains difficult due to some statistical problems: different data sources, different methods and different registration units. The National Bank of Hungary (NBH) registers only the money inflows then excluding loans and deposits. The Registration Court registers non-cash contributions as part of the establishment of new business organisations or that of official capital base increase. The Ministry of International Relations estimates on the basis of the National Bank data (cash contributions) and on the foreign trade statistics (registered non-cash contributions). Even more complicate, is that the real amount of Foreign Capital inflow can be different from that registered, by three main reasons: • the Registration Court doesn’t sum up the amount of registered equity capital of the business organisations and doesn’t make any special registration of foreign investments. • there are no data about changes in the capital base of foreign-owned (fully or partly) companies • about 10% of the total registered capital inflows are speculative (SASS, M. et all, 1994) Although there is a legal possibility to establish a company with foreign capital since 1972, the legislation (and macroeconomic conditions) remained quite restrictive until 1989. This has been translated into a very small amount of foreign investment in HUNGARY in the period 1972-1989: only 227 joint ventures (about 23 million US$). foreign investment in Hungary may take currently different forms : • joint ventures (JV)* ** • a company set up by a foreigner • acquisition, by a foreigner, of the equity of a company ’Hiere is a close connection between FDI, the privatisation process and the legal framework (Act XXIV / 1988 - which came into force on the 1st January 1989 - later amended in December 1990, March 1991 and September 1993). While noticing is that foreign participation in association is subject to some restrictions, namely: • foreign participants must pay cash for shares in hard currency • in a limited liability company, foreign participation is allowed only in registered shares, not bearer shares • foreign participation in a Hungarian financial institution exceeding 10% of the share capital is subject to the approval of the Hungarian authorities Non-cash contributions may take the form of any marketable tangible asset, a new tangible result of creative activity or an individual right representing money or the value of money. The most common form of foreign capital investment in HUNGARY is the Joint Venture (JV). The latest reliable information about the number of wholly 233 * It is possible to establish a 100% foreign owned company ” Jvs may buy real estate required for their activities or partly foreign-owned companies exceeded 17500 in October 1993 (SASS, M. et all, 1994). The legal regulatory framework was an important tool to attract foreign investment: 1990 was the starting year of a significant wave of capital inflow, when the regulatory framework concerning investment was almost ready, together with irreversible changes into a market economy and a democratic society. Compared to other countries of the region, HUNGARY presents - beyond other advantages- a well established legal framework concerning foreign investments, as well as a rather generous system of financial incentives up till the end of 1993. When we establish a comparison between FDI conditions in HUNGARY with its main competitors in this field - CZECHOSLOVAKIA first and now the CZECH Republic and the other countries - we notice that besides some common features, such as free repatriation of earnings and possible 100% ownership, the Hungarian system has become similar to them because no significant form of incentives is to be offered after 1993. However, even after 1993, it’s still an open question to know if some of those incentives should be articulated with strategic options of industrial policy issue. 3 - FDI and Macroeconomic Environment: A Survey POLAND may be considered a moderately attractive country for foreign investors. Table 1 presents an overview of the Polish recent economic evolution. 234 Table 1 - Recent Evolution of the Polish Economy (1989-1993) Real Growth (%/year) 1989 1990 1991 1992 1993 GDP 0.2 -11.6 -7.6 1.5 4.0 EXPORTS 2.6 15.1 -1.7 1.4 -0.2 IMPORTS 4.3 -10.2 31.6 9.2 15.1 Total Consumption = Private Consumption + Public Consumpt. -1.3 -11.7 3.3 5.0 6.7 Private Consumption -0.3 -15.3 7.4 5.2 7.8 Government Consumption -4.6 0.5 -6.5 4.5 3.5 Total Investment 5.1 -24.8 -14.2 -2.5 15.3 Gross Fixed Investment -2.1 -10.6 -4.5 2.8 8.5 Á Stocks 26.0 -56.7 -59.4 -61.2 213.6 A Stocks as a % of GDP 9.3 4.8 2.0 0.7 2.1 GDP (billion zlóti) 115.3 592 824 1143 1546 EXPORTS 19.8 161 190 242 319 IMPORTS 14.9 110 188 255 375 Trade Balance 4.9 50 2-12 -56 Trade Balance (mn USD) 3.4 5.3 0.2 -0.9 -3.1 GDP per capita (th zl) 2910 14025 21489 30118 41646 GDP per capita (in USD) 2015 1498 2040 2113 2270 GDP Deflactor (annual average) 398.5 580.1 150.9 136.6 130 Consumer Prices (year end) 639.6 249.3 60.4 44.3 37.6 Consumer Prices (average) 251.1 585.8 70.3 43 35.3 Net Monthly Wage (ths zl) 206.8 1030 1756 2439 3263 Net Monthly Wage (in USD) 143 108 166 182 179 Wage in Real Terms (%) 10.9 -27.4 0.2 -2.9 -1.1 National Bank of Poland (NBP) Refinancing Credit Rate 61.3 103.8 53.9 39.0 35.4 Commercial Credits - Prime Rate 68.0 119.8 62.0 49.0 39.0 Exchange Rate of USD Official - average in year 1446 9500 10583 13631 18145 Free market - average in year 5565 9570 10726 13647 17983 Source: Calculations by J. Rajski and Z. Szpringer, Institute of Finance (Warsaw, 1994) Although GDP has been increaâfif significantly and price growth rate decreasing (see Table 1), the inflation rate remains high and the balance of 9 payments deficit is still impressive (in 1993, POLAND had a deficit about US$ 2,3 bn). For most international business sources, POLAND has a low rating on the “country risk” list which - together with the performance of some economic indicators - doesn’t encourage foreign investment. According to SZPRINGER (1994) only three factors are considered as being favourable to Foreign Investment: • the market size • the right to purchase real estate • low wage level, unit wages and labour supply On a three level scale of factors (unfavourable, moderately favourable and favourable), most of those factors as well as the most important, are considered unfavourable to Foreign Investment: from problems concerning raw materials supply and lack of labor skills, to the inefficiency of different levels of public administration, social instability and poor international economic links, among many others from a total of sixteen pointed out by SZPRINGER, (1994). In short, foreign capital represented only 3.5% of GDP in 1993 (1,8 of GDP in 1992), while foreign owned (totally or partially) companies accounted for 8% of total revenues of economic entities (1992) and even increasing in 1993 (although no available reliable data can be presented). As well as the above impact, that of FDI on foreign trade and on current account balance wasn’t rather strong, either. The share of foreign participated companies on total exports was 10% and the % on total sales was 21,6% (1992 data). The share of foreign participated companies on employment was about 2% in 1992 (1,3% in 1991) but this share was higher in industry (4,0% in 1992). Despite the flexible conditions of the Bulgarian joint venture legislation, the performance of FDI in BULGARIA remains disappointing. Since 1990 (beginning of the political and economic transition process) till the mid-1993 (latest available data), FDI didn’t exceed 167 billion USD, hardly corresponding to 1.6% of BULGAM^l GDP for the same period. If we consider that BULGARIA laggs much behind the rest of European countries, being Albania the only country with a worse performance, that can be quite significant. Perhaps BULGARIA geopolitical position shouldn’t be undervaluated as an important explaining factor for the small FDI inflow. But, to be realistic, other ! actors must be taken into account, namely the difficulties of the macroeconomic stabilisation carried out in a very unfavourable external environment and the slow process of systematic structural transformation of ownership forms. The macroeconomic stabilisation has started in February 1991 under an agreement with the IMF. At the beginning of the 90’s, the situation denoted a deep macroeconomic disequilibrium, provoking a sharp drop of GDP, shortages of goods, a declaration of a moratorium on the external debt and the intensification of the inflation rate. The three main targets of the economic reform - the introduction of an efficient market system based on incentives and adequate institutional infrastructure, the monetary stabilisation and the structural adjustment of the economy - have been hampered either by internal and external factors. Among them, we may quote: • the moratorium on foreign debts (since April 1990) • the lack of negotiation on debts to foreign private banks • the costs of the embargo to ex-Yugoslavia which involved significant losses in trade and services (sustained only in 1994) Recent evolution on the Bulgarian economic situation may be summarised by two contrasting features: • on one side, a certain progress, although modest, in the institution of a market economy • on the other side, a deep recession of the real sector, mostly as a result of the poor performance of the state companies and the small growth of the newborn private sector Foreign Direct Investment faces several obstacles, some of which may be assumed as a paradox. For instance, the privatisation process remains delayed and biased against foreign control*. But the confusion of property rights and its restitution also present severe implementation problems. _________________________ 237 * For example, there is reluctance to permit outright foreign control of land and foreign investments in some branches have a case-by-case analysis and administration Also, both the price liberalisation and the loss of former external markets, h fl negative effects on capital stock and human capital. High debt positioB towards the banks and between companies have delayed the privatisât» process and foreign investors evaluation of assets has become highly c riticj risk considerations as well. Positive features of stabilisation and economic reform have been the creatiafl and functioning of the foreign exchange market, as well as the advancement ill the domestic convetibility of the national currency. All of them are criticw factors related to FDI, as the technical ability to repatriate profits depend onl them. In this field, advancements have been important, although foreign! investors still face the risk of the Bulgarian currency (levs) being beset by j inflation rate (about 70%/year) with unavoidable depreciation devaluation. But these risks have become more predictable, as rapid moves to liberalize domestic prices have been implemented systematically. The monetary sphere has suffered one of the most radical changes. The implementation of a restrictive monetary policy has raised considerably the mterest rates, then avoiding hyperinflation, helping stop the dollarization of the economy and helping to create/recover (?) confidence on the national currency. Then, stabilisation has brought two main changes in the monetary situation: • a considerable raise of interest rates • a rapid development of commercial banks However, economic stabilisation is far from being achieved. Transition costs have been / are increasing, which is closely related to severe problems of state budget deficits and to the restrictive monetary policy. Deviations between targets and results remain impressive for GDP growth rate and GDP structure, balance of payments and foreign debt, inflation rate, unemployment, budget deficit and domestic debt, real income and consumption (Tables 2, 2-A, 3, 4 and 5, annex I). The economic situation in Bulgaria has determined the forms of Foreign Investment penetration: “greenfield” investments, cooperation with Bulgarian partners and participation in the privatisation. Greenfield investments are still dominant, by a set of reasons we have discussed before. FDI is small and most representative in those sectors where smaller investment amounts are required (and a better ratio investment profit ma^be achieved): trade, services, tourism and food industry. Larger investments are still in a preparatory stage. Kjp t¡n 1993, H U N G A R Y was the most successful country in Central and ■ustem Europe concerning Foreign Capital. Despite some statistical problems ijiioted before, the whole amount of foreign capital (including other than cash Upport) was estimated to exceed 7 billion USD in February 1994. A comparison can be made between HUNGARY s position in international hade and capital flows. In 1990, the share of HUNGARY in international trade amounted to 0.2% while its share in capital flows was about 1% (INOTAI, A. 1993). throughout the eighties no significant macrostructural shift were evident in the I ! tingarían economy (Table 6). Table 6 - Structure of GDP (%) Industry Consumpti on Agriculture and Forestry Transport and Communications Commerce Other Services Total 1980 37.2 8.0 19.6 9.1 9.7 16.4 100.0 1988 1991 36.2 26.8 6.5 5.3 21.1 10.0 9.2 8.4 43.8% 18.6 Sources: KSH Statistical Pocket Book 1989, p 101 (for 19080 and 1988) Economic Survey of Europe in 1992 and 1993, ECE, Geneve - NY, 1993, p.78 However, 1991 data is already meaningful, particularly for agriculture where the government efforts to create a legal framework for the transition from a cooperative based property structure to a smaller private forms system have acclerated the decline of agricultural production. In 1992, the volume of agricultural output was 47.4% of the 1987 level. For industry the current scenario is apparently that of a “de-industrialisation . While industrial sales and output presented a small growth from 1980 to 1985, by the end of the decade (1988-89) a deep crisis has already started to be evident. The crisis covered practically all sectors of the Hungarian industry at the end of decade, without dramatic changes in the branch structure of gross output. For most branches, 1988 was the bottom of a negative trend: in 1988, the overall industrial investment had decreased by almost 20% of its 1980 level. 239 Only one subsector (the brewery industry) has shown some growth along the 1987-1992 period, presenting 1.5% growth rate in 1991 and 4.9% in 1992, Most companies in the subsector are foreign controlled. Between 1987 - the last year of real output growth- and 1992, the output volume decreased by impressive amounts, as we can see in Table 7. Table 7 - Decrease (%) of Output Volume in the Hungarian Industry for the period [1987-1992] Mining 42.4% Electricity Industry 16.5% Metallurgy 56.2% Engineering 60.0% Building Materials Industry 45.0% Chemical Industry 35.2% Light Industry 47.2% Food Industry 23.0% Total Industry 37.4% Source: Statistical Information Industry, March 1993. CSO of Hungary, Budapest, May 1993, in Tôrôk, A. (1994) In the last 4 years, capital inflow had a positive effect on macroeconomic variables, mainly because it smothered the generally negative macroeconomic trends associated with the economic transition. These positive effects were mostly felt on GDP growth. However this impact was not uniforming. Greenfield investments and the purchase of state-owned enterprises assets during their privatisation. In the first case, the impact was twofold: on one side production increase and on the other side a weaker production decrease in those branches where the share of foreign capital exceeded the average one*. The only case of a reduced positive impact of greenfield investments, can be found on inward oriented joint-ventures as a consequence of a crowding-out effect on domestic producers. However, most of greenfield investments are export oriented due to the small domestic market. Therefore, foreign capital contribution is clearly positive. 240 ' SASS, M. 1994 remarks on this issues call the attention for the difficulty to distinguish between the impact of capital inflow on the production and other factors. A more complicated case concerns the impact of capital inflow through the privatisation of state-owned enterprises. As a matter of fact, privatisation is generally accompanied by the reduction of production, with adverse consequences as income and employment, but also by, an improvement of efficiency in the middle-term although it is too soon, there is already some empirical evidence about the net effect winch depends on three main factors: • the viability of the sold companies • the market segment where they are operating • the capital intensity of production (after being restructured). I lowever, it must be clear that, in the short term, Eastern experience proves that the net effect of foreign capital on domestic production through privatisation has been negative, being associated with structural changes. Under a macroeconomic perspective, that decline must not be isolated from a clear improvement of efficiency, both on resource allocation and on production. And, at least in the Hungarian case, it seems clear that structural changes are more common on the reallocation of production factors within a given sector than in a sectoral basis. 4 - FDI, Privatisation and Firm Restructuring Privatisation remains the most important way of foreign capital penetration in transition economies. Although the inflow of foreign capital through the privatisation process has declined since 1993, foreign investment still plays a definitive role in the Hungarian privatisation process compared with other Eastern European countries. Between March 1990 and October 1993, foreign capital inflow through the privatisation of 269 companies* represented 40% of total Foreign Capital inflow. Among the reasons for that decline - worlwide economic recession, a certain loose of attractivity by compared to other countries, ..... - it must be emphasized that the option(?)/only feasible solution in many cases was privatisation prior to restructuring. In many cases, foreign investor has realised by now, that it is cheaper to realise greenfield investments**. * Greenfield investments are excluded from the dais. ** So far. more than half of the foreign investments in Hungary has been of such type (NOVAK, T., 1993). Privatisation before restructuring, means that the new owner will take care of the crisis management and the company restructuring. Of course, the sales of a company reflects this situation. However, most of the Hungarian companies suffer from some or all of a set of problems which would always imply restructuring and crisis management. As a matter of fact, most of them have financial, technological, marketing problems, as well as human resources serious constraints and they are working under uncertainty concerning privatisation or transformation. Bankruptcy legislation has also been forcing the need to restructuring and to crisis management. But, for opposite reasons restructuring and crisis management may also, by “good” reasons, be linked to takeovers by foreign investors. This was the case of LEHER (Electrolux), TUNGSTRAM (General Electric), INTERCSOKOLADE (Nestlé), the OROSHÁZA GLASS FACTORY - HUNGUARD (Guardian Glass), DEBRECEN TOBACO FACTORY (Reemtsma) and TELEFONGYAR (Siemens) (TÔRÔK, A., 1994). Scarce or missing data and still a short time period, remain major handicaps to fully evaluate privatisation contribution (Annex 2) either to companies restructuring or to restructing of those sectors where greenfield investments are more relevant. As far as joint ventures their are coencemed impact on creating domestic supply networks remain rather limited. In the case of POLAND, in 1992 - according to the Ministry of Privatisation -, foreign investors took part in the capital privatisation of 25 large state companies. In the same year, about 70% of sold companies have suffered agreement with foreign investors concerning • modernisation investments • environment protection investments • social commitments limited to a certain period of time: job maintenance, social rights preservation. In 1991, only 40% of sold firms had signed that kind of agreements. In 1992, about 60% of foreign-participated companies used technology and machinery not older than 1 year. These companies were mainly participated by Belgium (92.9%), France (76.5%), Netherlands (72%), USA (70.6%), Canadá (69.2%) and Denmark (68.4%). Elec£$gic industry and printing industry were the most technological advanced sectors. Meanwhile, about 16_% of companies used technology older than 10 years (SZPRINGER, S., 1994). Only 10% of large companies with foreign participation imported machinery and equipment which gives us an idea of how small technology inflow is! As we have already described, the second phase of foreign investments in Poland is connected to the economic transition to a market economy. Ifrivatisation and greenfield investments are key factors of this transition, foreign investors participation is mainly in privatisation and building up the market environment through greenfield investments (creation of new private economic entities). Considering Central-Eastern Europe investment risk POLAND is in the middle of the ranking list (quoted by SZPRINGER, 1994) East Germany Hungary Czech Republic POLAND Slovakia Slovenia Bulgaria Romania In 1992 and 1993 the evolution of Commercial Law partnership was the following: 1992 1993 Joint - Stock 248 332 Limited Liability 9883 14835 Foreign Small - Scale Companies 686 647 Source: Polish Statistical Office Most of foreign investment concern trade services (architecture) and transport. Meanwhile according to the State Agency of Foreign Investments (SAFI), foreign investment in POLAND is still growing: 1991 ____________ 0.6 bn USD 1992 _____________1.5 bn USD 1993 _____________ 2.8 1MUSD March 1994 3.5 bn USD Table Share of foreigners in enterprises under SPA control on December 1993 state share million Ft. Foreign share million Ft. % Food industry 96.450 14.361 13 Textile industry 11.778 1.246 8 paper industry 2.950 489 14 Cheramical production 6.726 1.047 14 machine industry 21.178 462 3 Electronical production 3.551 999 22 Furnitur eind. 4.402 81 2 Constrution industry 19.047 1.332 7 Trade 76.625 1.681 2 in privatization.Mimeo. IWE HAS, 1994 Table Foreign share in enterprises sold in 100 % in industrial sectorial division, 31 December 1993. state share million Ft. Foreign share million Ft. % Food industry 13.362 32.631 71 Tobacco Industry 212 5.375 96 Textile industry 3.694 1.092 23 paper ind. 630 1.673 72 Cheramical products 334 962 74 Machine industry 1.663 5.450 77 electronical production 164 999 86 Furniture industry 1.770 219 11 Construction industry 2.004 3.510 63 Trade 16.368 2.203 12 in privatization.Mimeo. IWE H A ^ 5 1994. STATISTICAL BACKGROUND 1. Table Foreign investments In privatization Companies nr. Companies Bn Ft Share % Germany 74 77,18 27,73 USA 25 59,39 21,34 Austria 99 39,43 14,17 Great-Britain 30 20,78 7,47 France 34 19,38 6,96 The Netherlands 13 18,29 6,57 Sweden 89,67 3,47 Svitzerland 12 9,33 3,35 Italy 21 6,49 2,33 Belgium 75,84 2,10 CIS 13 5,24 1,88 Other 28 7,33 2,63 Altogether 364 278,35 100,00 Source: Nepszabadsag, 19 May 1994 2. Table The yearly increase of the foreign direct investments in Eastern— Central-Europe Million US dollar Country 1989 1990 1991 1992 Slovakia 520 53 130 Bulgaria 10 20 100 130 Romania 20 18 187 240 The Ukraine 10 50 100 280 Poland 60 88 470 830 Czechoslovakia 10 166 200 12 10 Hungary 120 311 1538 13 17 Altogether 235 673 2648 4137 — Source: East-West Investments and Joint Ventur 1989- 1993. UN ECE GenêvÊ. ’t Table I Branch Structure of Companies with Foreign Participation In 1992 (branches In which economic activity was led by at least 20 companies) I----------------------------------------------------------------------------------------------------------------------------------- ¡ Branch Number of Companies 1. wholesale trade In consumer goods 737 2. trade with foreign supllers and customers 443 3. miscellaneous services 282 4. production of textile clothes and underwear 259 5. domestic trade In consumer goods 236 S. trade In means of production 229 7. general Investment construction 195 3. production of plastic Items 140 9. public car transport 110 10. publishing of books and periodicals 98 11. furniture and carpentry production 92 12. computer services 82 13. bakery and pastry production 81 14. catering 79 15. fruit and vegetable processing 77 16. fat Industry, household chemistry, cosmetics 62 17. International spedltion 58 18. woodwork Industry 56 19. printing Industry 55 Ü20. Ironware for Industry 54 fof. metal constructions for Industry 54 |)22. organization of tourist services 54 IJ23. meat Industry 53 |}24. electronic Industry 50 Ü2S. maintenance and services for means of transport 50 |¡26. concrete industry 43 i |J27. metal constructions 40 28. non-alcohol drinks 39 29. production of other foodstuffs 39 30. hotels 36 31. dairy products processing 36 32. general use ironware 35 I 33. fur and leather clothes Industry 34 34. computer Industry means of Informatics 33 35. other textile Industry products 33 36. sawmill Industry 30 p 7. knitting and stockings Industry 30 I 38. manufacturing of wood (paper industry) 30 39. shoes Industry 29 40. electro-engineering production 28 D41. production of general purpose cars 28 |42. banks and other financial Institutions 26 43. production of wooden packages 26 44. maschlnery and tools for others branches of industry 24 45. fish Industry 23 46. medical and veterinary equipment 22 Í47. reparings and services of electro-engineering and electronic production 21 (48. pharmaceuticals 21 M9. production of other wooden and willow It^r&f? 20 Source: Data from Central Statistical Office TableE Foreign Investment In Poland In 1989-1993 Previous year =100 1992 211 260 299 XX 1991 170 197 447 XX 1990 460 375 X\ X 05 CL 05 End of: 31.12. 1993* 0 0 0 CO 0 0 0 CO 1592 375 * estimate Source: Inwestycje Zagraniczne w Polsce, Foreign Trade Research Institute, Warsaw 1S 31.12. 1992 10131 5740 1409 937 245 31.12. 1991 4796 2207 471 365.8 213 31.12. 1990 2799 1119 105.2 77.2 94 31.12. 1989 241 28 0 CM 116.2 OT O O *0 CL To TJ O 1— O CL No. of registered projects No. of Companies Value of invested foreign capital (on accured base) US $ million Inflow of foreign capital in a year (US $ million) Value of capital per Company thousands US $ 259 Table III Incomes In Economic Entities and in Companies with Foreign Participation In 1992 ___________________ Structure of Incomes Economic Entities Companies with Foreign Participation In % Sectors of National Economy Incomes In Economic Entitles Companies with Foreign Participation Share in % in bn zl 1845151 145412 67526 50938 6305 7.9 28343 Source: Data from Central Statistical Office 380 1.5 TablelV Cost Level Indicators and Profitability Rate In Economic Sectors ol National Economy Cost Level in: Profitability Rate in: Profitability in: Economic Entitles Companies with Foreign Participation Economic Entitles Companies with Foreign Participation Economic Entitles Companies with Foreign Participation | in % in % In % I Total 96.0 97.2 2.2 2.0 -15.0 ----------------- - -------------^ in which: Trade 98.3 95.2 1.7 4.9 227 Construction 95.2 95.4 4.8 4.2 830 Transport 98.3 96.4 0.5 3.1 -25 28 Communication 75.3 183.7 40.1 -47.0 182 -862 I Industry 96.7 97.9 1.5 0.7 -34 ---------------------------------- A •Coal 109.6 92.4 •13.2 12.1 -194 112 -Fuel 95.7 116.0 5.7 -15.0 4-174 -Power 90.8 88.9 11.7 12.5 48 -17 -Iron and Steel 99.4 99.1 -3.7 1.1 -86 8 | -Non Ferrous Metallurgy 86.4 97.5 16.1 2.5 49 23 -Metal Products 95.2 93.7 3.0 6.2 •23 47 I -Engineering 97.0 98.3 -2.6 0.1 -85 ~ 7 | -Precision Instruments 96.6 96.8 -0.2 2.3 -48 14 •Transport Equipment 105.4 93.5 -11.2 6.0 -160 46 -Electrical Engineering and Electronics 100.5 109.6 -4.2 -10.7 -82 -124 -Chemical 91.8 95.2 7.3 4.6 238 I -Building Materials 93.7 91.4 3.3 9.0 -55 72 -Glass Products 94.2 98.4 2.1 0.7 -24 0 -Pattery 92.9 160.6 3.7 -11.3 -41 -181 I -Wood 97.9 102.2 •0.9 -5.0 -39 -54 I -Paper 95.0 93.4 2.8 4.4 -22 20 I -Textile 104.8 92.8 -11.9 7.0 -158 60 I -Wearing Apparel 95.1 95.7 3.3 3.3 124 -Leather 103.8 99.8 •9.9 •2.2 •127 •34 I -Food 196.3 97.8 3.1 0.8 0T |l Table V Branch Structure of Foreign Investment (end of March 1994) Brandi Equity 1 Loans Commitments Total investment Companies US $ mn Share % US $ mn Share % US $ mn Share % No. Share 1 Industry Total 2166 61.5 3506 81.9 5672 72.7 '131 60 Electro-engineering 725 20.6 2024 47.3 2749 35.2 30 13 Finance 580 16.5 73 1.7 653 8.4 19 8 Food 532 15.1 326 7.6 859 11.0 42 19. Construction 357 10.1 172 4529 6.8 17 7. Cellulose and Paper 279 7.9 255 5.9 534 6.8 12 5. T elecommunication 237 6.7 413 9.7 650 8.3 11 5. Chemical 236 6.7 40 0.9 276 3.5 15 6 Trade 155 4.4 116 2.7 270 3.5 31 14.: Fuel-Power Industry 117 3.3 313 7.3 430 5.5 94.' Mineral 117 3.3 196 4.6 313 4.0 731 Light industry 103 2.9 199 4.6 302 3.9 83.1 Metal Products 40 1.1 150 3.5 190 2.4 411 Other branches 16 0.4 30.1 19 0.2 41.8 Transport 15 0.4 0015 0.2 52.3 Agriculture 80.2 008 0.1 20.9 Insurance 40.1 0040.1 10.5 ¡Other production 000000.0 00.0 Municipal Economy 00000 0.0 00.0 Forestry 00000 0.0 00.0 Total 3521.7 100 J 4279.7 1 100 | 7801.4 100.0 I 217 100.0 Source: Data of State Agency of Foreign Investment 262 VII Jornadas Hispano-Lusas de Gestáo Científica, Sevilha, 29 a 31 de Março de 1995 POSIÇÂO DE CÂMBIO POR DIVISAS E MÉTODOS DE CONTABILIZAÇÂO UNIMONETÁRIOS E PLURIMONETÁRIOS Resumo Para ser um recurso válido a informaçâo obtida a partir dos sistemas contabilísticos deve apoiar as necessidades de informaçâo da Gestâo. Neste trabalho abordamos urna informaçâo contabilística indispensável à gestâo operacional do risco de câmbio - o mapa da posiçâo de câmbio por divisas. Este mapa pode ser obtido utilizando quer sistemas contabilísticos unimonetários (procedem mediatamente à conversâo para moeda nacional de todos os montantes em divisas), quer sistemas contabilísticos plurimonetários (registam em partida dobrada as operaçôes na sua moeda de origem). Num período de intemacionalizaçâo crescente das empresas e com as novas possibilidades que resultam da detençâo de divisas e da cobertura do risco de câmbio, a maior segurança que decorre do registo em partida dobrada justifica que defendamos os sistemas de contabilidade plurimonetária, pelo menos em empresas com um volume elevado de transacçôes em divisas. Lucia María Pórtela de Lima Rodrigues. Universidade do Minho. Janeiro 1995. 263