Page 28 - BNE_magazine_04_2019

28 I Cover story
bne April 2019
Central Europe has been enjoying a boom for the last few years driven by investment into export-oriented sectors. The region’s relatively low costs, high skills base and its proximity to Ger- many and other West European markets make it a highly attractive investment destination, especially for big carmak- ers and components manufacturing. But the fast pace of growth cannot continue. Countries in the region are starting to experience serious labour shortages. The boom has passed its peak and all the economies of the region are going to have to reinvent themselves once again.
A raft of statistics recently released in the region already shows the pinch set- ting in. Unemployment in the Visegrad countries has plummeted to levels not seen since immediately after the collapse of communism nearly three decades ago. Wages are rising to record levels.
www.bne.eu
Clare Nuttall in Glasgow
And the slowdown isn’t limited to Cen- tral Europe; Southeast Europe’s largest economy Romania had the fastest grow- ing labour costs in the EU in 4Q18, and there are reports of a tightening labour market in fellow EU member Bulgaria.
The magic recipe of low costs and high productivity is wearing off as the Central European economies emerge leading investors to start to look past Central Europe in the never-ending quest to find new, cheaper destinations. Cheap labour flooding in from a collapsed Ukrainian economy has brought some temporary relief – a fifth of Ukraine’s workforce
is now overseas in the EU looking for work, 2mn of which are in Poland alone – but this won’t last forever.
The obvious place to go is to fan out southeast towards Romania and Bul- garia, then perhaps further afield to the
Western Balkans countries, all of which are aspiring EU members. Arguably, the prospect of EU accession is the single most important factor driving reforms
in the former communist countries. Cer- tainly the only strategy that has been a stand-out success for the former socialist block countries has been a very simple one: join the EU. States have to dem- onstrate sufficient reforms and democ- ratisation to secure candidate status, then go through the lengthy accession negotiation process that comprises doz- ens of chapters on areas from movement of goods and labour, to agricultural policy to the judiciary. The pay-off is off- the-shelf functioning institutions, huge grants for infrastructure investment and unfettered access to one of the largest and richest markets on the planet.
This isn’t to say EU accession is a panacea to all the problems faced by