Tradeflow Study - UNDP Black Sea Trade and Investment Promotion ...

III. Investment Potential
III.1. Investment in the BSEC
The Black Sea region is a strategic region to foreign investors, though it has primarily
attracted investment in the energy sector and in the privatisation of former state enterprises.
The analysis of the performance of FDI reveals however that the region presents great
opportunities that remain mostly unutilized because of several factors, including
administrative barriers and the lack of legal security for trade and investment.
The region’s principal assets to attract foreign investments are its richness in natural
resources, its position at the crossroads of continents, and its large market size. However,
these characteristics must be further complemented by other factors to create an attractive
pool for investments, such as confidence in avoiding a government policy reversal with regard
to nationalization, expropriation, taxation policy, trade policy, etc.
The global investment climate in the BSEC countries has progressively been improved by
offering assurances and specific mechanisms that protect and promote the foreign
investment. Multilateral, regional and bilateral instruments have been enacted to that effect,
and each country has progressively directed its legislation to the attraction and protection of
investments in the last decade.
Tables 16 and 17 display the trends in FDI net inflows and outflows between 2001 and 2004.
Even though a growth in net inflows of FDI is generally observed, the inflows remain low and
sometimes even unimpressive in comparison to the size of the economy. This is the case for
example of a large economy like Russia, for which FDI corresponds to only 2% of GDP. Other
countries have only experienced a drop in investment over the years, such as Moldova.
Statistics show, however, higher levels in most of the other BSEC countries, with a
considerable increase for Azerbaijan between 2001 and 2004 in both FDI net inflows and FDI
net outflows.
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