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bne February 2019 Cover story I 29
High tech investment the answer to CEE’s labour crisis
growth has also been driven by factors from ranging from traditional indus- tries, strong exports and EU funding.
Overall, “[t]he CEE region has become one of the most attractive places to invest in globally,” says the report.
Slowdown ahead
Recently, however, this trend – com- bined with mass emigration from the region to Western Europe – has led to a sharp tightening of the labour mar- kets especially in the Visegrad Four, with unemployment rates plummeting to post-communist lows in countries such as Czechia, where it dropped
to a 21-year-low of 2.8% in October, and Poland where the rate of 5.7% recorded in September hasn’t been seen since the early 1990s. While
this is mainly a phenomenon in the most advanced economies in the region, a tightening labours market has also been seen to some extent in Southeast Europe’s largest economy Romania, where a ManpowerGroup survey released in June found that more than four out of five employ- ers in Romania are facing difficul- ties in finding employees with the skills they need, putting the country among the greatest sufferers from the global talent shortage identified by the international recruitment firm.
McKinsey lists rising workforce costs and limited labour reserves among the reasons for an expected weakening of
Clare Nuttall in Glasgow
As labour markets tighten across Central Europe and employers struggle to fill vacancies, econo- mists say the best outcome for the region is for companies to respond to worker shortages by investing into new technol- ogies to make their businesses more effi- cient and move away from the old low cost model to a higher value added one.
Since the fall of communism, the countries to the east of the former
Iron Curtain were seen as attractive manufacturing destinations for West European companies thanks to their combinations of much lower costs, their proximity to Germany and other western markets, and their skilled workforces.
This type of investment was ini-
tially focussed on the most developed countries in Central Europe, leading
to Slovakia, for example, becoming
the world’s top country in terms of
car production per capita. The auto assembly and components industries
in particular have focussed on Central Europe, although companies of all types – from clothing production to aviation
– have targeted the region, gradually fanning out southwards and eastwards
as business conditions improved in less developed markets and costs started to rise in the Visegrad region.
A new McKinsey report refers to a “golden age of growth” in CEE during this period. The report, titled “The rise of Digital Challengers: How digitization can become the next growth engine
for Central and Eastern Europe", looks at 10 countries across Central and Southeast Europe – Bulgaria, Croatia,
“By closing the digital gap with Northern and Western Europe, CEE could earn up to €200bn in additional GDP by 2025”
the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia – which, it says, recorded on average a 114% increase in GDP per capita between 1996 and 2017, com- pared with an increase of just 27% in the EU’s “Big Five” economies, France, Germany, Italy, Spain and the UK. As well as labour cost advantages, this
CEE’s growth trajectory. On top of this, its report says, “CEE economies are generally undercapitalised compared with their more advanced European peers. The capital stock, measured as total gross fixed assets per employee, is 60% lower than the average for the EU Big Five ... Labor productivity still lags behind Western Europe. Furthermore,
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