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Central & Eastern Europe

Staying ahead of the curve – Navigating the Central & Eastern Europe ecosystem & choosing the right advisor

During the past two decades the key nations of Central and Eastern European (CEE) have grown significantly following moves to liberalise their economies. On average Poland, the Czech Republic, Hungary, Bulgaria and Romania, to name a few, increased their per capita GDP by 115% between 2004-2020. Employment was at its lowest ever at a mere 4.6% and productivity levels were catching up with the developed states of the EU.

In CEE countries growth has been the result of several factors such as the prosperity of the traditional industries, competitive exports and foreign investment, as well as the significant inflow of various funds from the EU and others.

However, this growth ground to an abrupt halt last year with the onset of the Covid-19 pandemic. As elsewhere, the pandemic hit the CEE region on several fronts, with disruptions to the regional services sector and global supply chains – this was particularly damaging to those countries with large vehicle manufacturing sectors. Nevertheless, the CEE economies are known for their economic resilience and many believe they are better positioned to cope with the aftermath of the Covid-19 crisis than their West European counterparts.

Indeed, many analysts predict that the next year or so will be only a temporary setback as CEE economies quickly find their feet again. With this gradual re-opening, the economies in the region are forecast to grow by a healthy 4.1% in 2021 from what was a severe 5.1% contraction last year, according to Moody’s Investors Services.

Overall, economic growth is expected to be more robust in the region compared with countries to the West due to the regional economies’ reliance on traditional manufacturing and heavy industry, with less exposure to hospitality and tourism. The collapse of the latter sectors has had devastating effects on countries such as Croatia and Greece but has spared the majority of CEE countries.

Interestingly, analysts also believe the Covid-19 pandemic has become the catalyst for far greater economic and technological diversity in the region, particularly regarding the digital transformation of almost every aspect of the economies – from the public sector to private sector SMEs/start-ups. This transformation of the CEE has been continuing apace in the past decade, but many businesspeople now see the digital transformation of industry sectors and businesses accelerating at warp speed in the years ahead.

And the facts back these predictions. Astonishingly, the digital sector in the CEE region actually grew 14.2% from January to May 2020 compared to just 7.8% in the same period of 2019, according to McKinsey. Regional businesses were already deploying technology and digital transformation before the pandemic, but remote working and reliance on technology as a quick-fix for problems faced by all areas of the economy have quickened the pace of transformation.

This is a signal that the CEE is not just open for business as usual, but eager to embrace business opportunities offered by technology deployed across all business sectors.

According to McKinsey, CEE countries will benefit from the digital transformation of their economies by up to euro200 billion in additional GDP by 2025.

Of all the nations in the CEE region, Poland has the most competitive tech sector and digital business start-ups are appearing across the country. Others following in Poland’s footsteps are Hungary, the Czech Republic and Romania where local entrepreneurs are buying into innovation and creating partnerships with tech hubs in global markets. As the private sector continues to flourish and younger entrepreneurs enter the market, many are viewing this burst of innovation as a positive sign for business growth right across the region.

Cautious optimism is also reflected in the confidence of regional CEOs who believe economic growth will continue in the next few years despite the ups and downs during the Covid- 19 crisis, according to a recent PwC survey of almost 700 CEOs in the CEE region. Combined with this cautiously optimistic view on the future of commercial opportunities, regional CEOs also agreed that successful business communities will become the most trusted institutions, driving good leadership, innovation, upskilling the workforce and delivering kinder, fairer more equitable societies across the region in the years ahead.

In the following pages, IR Global members share their expertise on key countries in the CEE region. They go into detail about the different areas of business activity and provide invaluable insights for any businesses or organisations considering Central and Eastern Europe as a destination for business and investment.