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38 I Southeast Europe bne November 2017
Southeast Europe steps up its FDI challenge
FDI has been pouring into the region for a couple of decades now, since before the first wave of accession 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 Slovakia into the world’s top carmaker in terms of car output per capita. Outsourced IT followed for the same reasons.
Now automakers are struggling to
find workers, and often looking south
to Serbia or east to Ukraine to fill the gaps. Earlier this year, Volkswagen’s Slovak unit reportedly had to bring in around 500 workers from Audi’s factory in neighbouring Hungary, while Kia imported workers from Bulgaria. Similar stories are coming out of Czechia, most recently that vehicle backseat producer Adient was unable to meet unexpectedly high demand from Skoda Auto due to a shortage of workers, daily Hospodarske noviny reported.
The situation has not yet reached crisis point. Iwona Janas, regional managing director Manpower Group Poland
and Russia, points out that while “the market is shortening and we are seeing an increasing talent shortage... still compared to more developed countries of Western Europe we are not seeing the same level of talent shortage”. Janas also believes the ongoing tightening
of labour markets in the region is a natural evolution that is closely linked to economic growth.
Shifting south
Investors may shift south to meet the challenge of rising costs and a shortage of workers to the even newer EU member states of Romania and Bulgaria, or the prospective member states of the Western Balkans.
In the last few years, there has already been an increasing flow of export- oriented FDI into countries such as Romania, Bulgaria, Serbia, Macedonia and Moldova. But they are not yet relocating, and the relative low labour productivity undermines the rationale for moving from CEE to SEE
in search of lower labour costs.
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Comparatively, low labour costs and proximity to Germany have made a compelling case for international firms to locate manufacturing and IT operations in Central Europe for the last couple of decades. Now rising wages and low unemployment in the region are changing the equation. How long can the EU member states of CEE remain popular and will the lower-cost countries to the south-east will usurp their place?
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 swelling job vacancies are already pushing up wages. Czech wage growth reached the fastest pace in the last decade in Q2, and wages are set to rise further after Prime Min- ister Bohuslav Sobotka announced pay hikes for public sector workers as the country heads for a general election in October. Wage growth is also accelerat- ing in Poland, reaching 6.6% in August.
“We see labour markets tightening across CEE, mostly because of cyclical
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developments; as the economies grow more workers are needed. The lack of skilled workers, which has been more
or less a problem in CEE for the last 10 to 20 years, 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 unemployment levels have been falling in most cases and tend to be pretty low," agrees Leon Podkaminer, senior economist at the Vienna Institute for International 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.