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Opinion
September 29, 2017 www.intellinews.com I Page 19
Southeast Europe steps up its FDI challenge
Clare Nuttall in Bucharest
Comparatively low labour costs and proximity to Germany, and other major West European mar- kets, have for the last couple of decades made a compelling case for international firms to locate manufacturing, and to a lesser extent IT, opera- tions in Central Europe. Now, however, rising wages and low unemployment in the region are raising questions about for how long the EU member states of CEE can remain popular among manufacturers and whether lower-cost countries to the south-east will usurp their place.
Recent data from the Visegrad Four countries confirms the changing situation. Both Czechia and Slovakia reported record low unemployment this summer, while Poland’s unemployment rate fell to a 26-year low. At just 4.0% in August, Czechia’s unemployment rate is now the lowest in the EU28.
Falling unemployment and a growing number of unfilled vacancies across the region, where GDP is uniformly showing robust growth, are pushing up wages. Czech wage growth reached the fast- est pace in the last decade in Q2, and wages are set to rise further after Prime Minister Bohuslav Sobotka announced pay hikes for public sector workers as the country heads for a general elec- tion in October. Wage growth is also accelerating in Poland, reaching 6.6% in August.
“We see labour markets tightening across CEE, mostly because of cyclical developments; as the economies grow more workers are needed. There are also some structural phenomena behind
this, specifically the lack of skilled workers which
has been more or less a problem in CEE for the last 10 to 20 years but has come to the surface given the current fast economic growth,” Zoltán Árokszállási, chief analyst, CEE macro/FI research at Erste bank told bne IntelliNews, attributing this at least partly to the departure of hundreds of thousands of CEE citizens for Western Europe.
“Labour markets have tightened — the unemploy- ment levels have been falling in most cases and tend to be pretty low," agrees Leon Podkaminer, senior economist at the Vienna Institute for In- ternational Economic Studies (wiiw). “Shortages of (skilled) labour are felt throughout the region. This has much to do with large numbers of the region’s nationals working in the West.”
There are some other factors at work — for example the unemployment rate in Hungary has been pushed down by the government’s massive state-sponsored employment scheme — but overall this represents a radical change of the picture that first attracted international investors to the region.
FDI has been pouring into the region for a couple of decades now, since before the first wave of ac- cession of post-Communist countries to the EU. The auto assembly and components sector was one of the first to relocate production to CEE on a large scale, a phenomenon that turned Slova- kia into the world’s top carmaker in terms of car output per capita. But automakers are not the only industry to find CEE attractive; a wide range of manufacturing operations are now located in