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30 I Cover story bne February 2019
the inflow of EU funds to CEE countries is likely to slow down after 2020.
“What does that mean for the countries of CEE? If they hope to continue on their path to general prosperity, they urgently need to redefine their growth strategies."
Companies across CEE are already responding to the labour market squeeze by becoming more creative in how they attract and retain workers. In the IT sector, for example, companies offer flexible working hours and lifestyle benefits modelled on those provided by Silicon Valley firms. In an interview with bne IntelliNews last year, serial Roma- nian entrepreneur Cezar Nourescu, creator of silo monitoring technol-
ogy Silometer, said the trick of getting the best people is to know how to attract them. He described his workspace as “Google-ish” with Wiis and Playsta- tions, flexible hours and free food.
Firms are also increasingly looking to cross border recruitment. The pres- ence of Ukraine, with its 44mn strong population, immediately to the east of the Visegrad countries has been
a pressure valve for Poland espe- cially. Ukrainians started flooding into Poland and other EU countries in 2014, but numbers increased sharply after Kyiv secured a visa-free travel deal with the EU in November 2016.
Poland became a favourite destina- tion for Ukraine’s Gastarbeiters,
with wages in CEE’s largest economy four times higher than at home. And Warsaw sought to take advantage, offering special work permit schemes that grant limited right to work per- missions. As a result, millions of Ukrainians left their homeland, albeit many of them only for a few months to earn extra cash in EU countries.
Recently, however, the flood of Ukraini- ans leaving the country to look for work in the EU countries has peaked, and will stabilise or start to decrease next year, said a report by the Centre for Eastern Studies (OSW) released in October. “The increased wave of migration from Ukraine to Poland, which began in 2014 is slowly beginning to decelerate. This
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migration is still mainly temporary in nature, and it is difficult to assess to what extent it may become fully residen- tial. Probably over the passage of time, the current circular migration model will stop attracting new people,” wrote OSW analyst Marta Jaroszewicz in the report.
Ukraine isn’t the only source country
for migrant workers moving to CEE, however, reports from countries in
the region document migration from countries as far away as India, Nepal and
by 2025. That would mean up to 30% additional GDP growth, the equivalent of one extra percentage point on GDP growth each year over the period.” Specifically, digitisation would help by improving the region’s productivity by boosting e-commerce and offline con- sumer spending on digital equipment.
On the other hand, “[t]he alternative “business as usual” scenario is one in which the digital economy in CEE main- tains its historical growth rate, expand-
“CEE region “are uniquely positioned to capture the digital opportunity”
Southeast Asia. The arrival of new work- ers can help CEE economies continue to offer a low cost alternative to Western Europe, and wages in the region remain below those in most West European economies, despite years of conver- gence. Romania's hourly labour cost,
for example, rose 15.6% y/y in the second quarter of the year, marking the highest annual increase in the EU, data from Eurostat showed, but wages in the Southeast European country remain among the lowest in the bloc.
A different approach
However, economists say that to con- tinue to be competitive internationally, what companies really need to do is start investing seriously into advanced new technologies and processes.
“Today, CEE has the chance to make
a strategic choice that will determine its growth path for decades to come. Our analysis shows that developing the region’s digital economy across all sec- tors would bring significant economic benefits, given the resulting productiv- ity gains,” says the McKinsey report.
“By closing the digital gap with Northern and Western Europe, CEE could earn up to €200bn in additional GDP by 2025 –
a gain almost the size of Portugal’s entire economy in 2017. In this aspirational scenario, the region’s digital economy would grow to represent 16% of GDP
ing by just €60bn and representing 8.7% of GDP in 2025,” the report continues. “In this scenario, CEE countries would miss out on the additional one percent- age point of annual GDP growth and remain a long way from the “digital frontier” represented by the countries
of Northern Europe, for example.”
Economists from the Vienna Institute for International Economic Studies (wiiw) also stressed the importance
of investment into productivity in a new report on the region. In a webinar to present the report on November 7, wiiw economist Richard Grieveson referred to the current “very signifi- cant” labour shortages as “the main positive risk for the region” – should they force a rethink of investment.
“Vacancy rates are very high. There
is really substantial unmet labour demand, which has never been seen before,” said Grieveson. “One pos- sibility which we are seeing, and are cautiously optimistic will continue, is that firms are paying higher wages and investing in productivity upgrading.
Well placed to invest
McKinsey analysts consider countries in the CEE region “are uniquely positioned to capture the digital opportunity”. It describes the 10 countries covered in the report as “digital challengers” given their strong potential for growth in digi-