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bne November 2017 Southeast Europe I 39
“Although Romanian workers earn less than CEE counterparts, the country
is not really cheaper than other CEE countries. The nominal labour costs per hour are lower, but if you account for productivity, this difference vanishes,” says Árokszállási.
Another problem is the quality of infrastructure in the south is inferior. Daimler’s selection of Poland over Romania and other destinations in the region for a new plant was attributed
by Romania’s then economy minister Costin Borc to the poor infrastructure in the Southeast European country. And the relatively small populations of most Southeast European countries (with the exception of Romania) means there is not a lot of choice when hiring new staff for employers looking for hundreds or thousands of workers.
Nonetheless, despite having lower pro- ductivity than the Visegrad countries, Romania was already on investors’ radar and attracted numerous manufacturers, among them major auto parts suppli-
ers Dräxlmaier and Continental. These investments are concentrated in the west of the country where exporters can take advantage of the proximity to Hungary’s much better road network.
And even in Romania, the pool of low- cost workers is already shrinking. One economy ministry official told bne Intel- liNews that manufacturers were increas- ingly having to look to smaller industrial towns to find workers. In the IT sec-
tor, the labour market is overheating dramatically, and firms are now looking beyond the capital Bucharest and second city Cluj Napoca (recently rated the pre- ferred destination for Romanians to relocate) to other university towns.
Elsewhere in Southeast Europe, EU-candidate and regional powerhouse Serbia has been seeking the mantle as “Europe’s low-cost factory” by offering tax breaks and subsidies to export- oriented investors.
Back in 2008, Serbia scored a coup when Fiat agreed to take over the
old Kragujevac car factory. However, production at the plant was recently shut
down by a strike over pay and working conditions, which only ended when Prime Minister Ana Brnabic stepped
in amid fears the Italian giant could
quit Serbia altogether. While this was averted, the three-week strike at Serbia’s top exporter is likely to hit the country’s export figures for this quarter.
The Fiat Chrysler Automobiles strike coincided with a separate strike by workers at another Serbian factory, owned by Slovenian domestic appliance maker Gorenje, which has located some of its production in Serbia as costs are considerably cheaper.
The two strikes threw the spotlight onto growing opposition to efforts by the gov- ernment to take advantage of Serbia’s low costs to bring in foreign investors.
VMRO-DPMNE was in power amounted to €225mn – or €11,000 per job created.
Converging economies
As citizens of the CEE countries have moved westwards, workers from Ukraine in particular and other countries to the south and east have come in to take
their places.
Czechia, Hungary and Slovakia all
have net immigration in 2015, the OECD’s latest International Migration Outlook showed. A fifth of the foreigners in Czechia were Ukrainian nationals
as of the end of 2015, with many more arriving from Russia and Slovakia. The Czech government is under pressure from business to allow even more Ukrainians into the country, something that unions have vowed to oppose.
“The Czech government is under pressure from business to allow even more Ukrainians into the country”
While the government hopes to tackle chronic unemployment, which is set
to worsen when IMF-required public sector reforms are launched, opponents say foreign investors are benefitting by exploiting Serbian workers.
This was one of the mixed bag of griev- ances voiced during the protests that followed Aleksandar Vucic’s election as president in April, where some protest- ers carried banners stating “We won't
be a cheap labour force”. Outrage has
also been sparked recently by allega-
tions about working conditions at a plant operated by Korean Yura Corporation, a long-term investor in Serbia that produces electrical components for the auto indus- try, where workers reportedly were made to wear adult diapers during their shifts to avoid wasting time with toilet breaks.
Efforts to attract FDI in neighbour-
ing Macedonia have also come under scrutiny as the new Social Democrat-led government declassified information on ad hoc subsidies paid by its predecessor to foreign investors. Subsidies and tax breaks extended in the 10 years the conservative
“If the talent shortage intensifies, it will force companies to be more creative and innovative in finding and keeping talent,” argues Janas.
Yet in the longer term, as the CEE econo- mies converge with those of their EU peers to the west, rising labour costs are inevita- ble. Keeping CEE as a low-cost destination will not only be difficult, it’s impossible.
“The countries in CEE are starting to realise that convergence is not possible if they stay low-cost destinations forever,” says Árokszállási. “There has to be an increase in wage levels, and what makes this possible is better healthcare, better education – not just university education but technical training as well, and more spending on R&D. And there are already clear signs the CEE economies are moving up the value chain.
At the end of the day these markets will have to follow China’s example of switch- ing from the low-cost, export-orientated model of growth to higher-value, domestic- demand model to drive economic growth and the switch has already started.
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