The Investment Activity in the Transition Period: Trends, Problems, Possibilities

The research examines the state and problems of the investment activity in the transition. The trends and determinants of the investment activity in the national economy are analyzed. The financial sources for accomplishing of the investment activity in the non-financial public and private enterprises are characterized and the possibilities in this field are indicated. The conclusion is that their own investment funds, which depends on the size of net profit and depreciation charges are with highly limited potential. In the conditions of Currency Board, due to the danger of liquidity problems, the commercial banks follow a more careful and rather restrictive credit policy (especially for investment credits). This has a negative effect on the investment activity of enterprises, the managers of which rely mostly on credit resources. The foreign investment still remain main financial source for accomplishing the restructuring and technological renovation of the enterprises in the real sector. The main directions of investment promotion in the economy are outlined. First, providing conditions to enterprises to form their own financial resources, directed by adequate investments towards structural and technological renovation of production, so as to achieve competitive development in future. To this end, the tools of tax and depreciation policy shall be used in compliance with national goals and priorities. Second, creating favorable investment climate, with relevant legal, institutional and economic framework. The implementation and strict abiding to the rules of the Currency Board will have a positive effect for the gradual formation of a more favorable economic environment. Given the present situation in the country, however, this is quite insufficient. The reduced investment risk, which is an important factor for potential investors, is related most of all to the success in fighting criminal and corruption phenomena. Third, creating better conditions for the attraction of strategic foreign investors. Fourth, increasing budget investments to the highest possible extent in the conditions of the currency board. Fifth, accomplishing the structural reform in the banking system, so as to restore it and make it able to perform its due functions, i.e. accumulation of savings and credit activities in the real sector on the basis of efficient rate of return.