Czech Republic once again the most attractive business location, a certain disillusion to be recognized in the Baltic States
The business climate for German companies in Central and Eastern has changed in 2008 and in some countries new challenges for doing business occurred. Especially in the Baltic States the euphoria of recent years has ceased and a certain disillusion can be observed regarding the macroeconomic expectations, while in the Balkan States optimism is on the rise. The Czech Republic has held its position as the most attractive business location in the region. These are the main results of the annual survey of the German Chambers of Commerce in 13 Central and Eastern European States, characterizing the current situation from the point of view of 928 German companies.
Central and Eastern Europe is the strongest economic growth region on the continent. The new member states and increasingly also the countries of the CIS and the Balkans are showing an dynamic economic development and getting more and more integrated in the global economy. German companies consider the region to be an attractive market for their economic activities. Over the last years already existing close trade relations between Germany and Central Europe had expanded further and have achieved new heights – both in quantity and quality. In 2007 Germany’s exports to Central and Eastern Europe reached 154 billion EUR. The trade volume with the region rose to 16 pct of the total German foreign trade – and is making the economic relations even more intensive than with the traditionally biggest trade partners France and the USA. German foreign direct investment has continuously increased as well. Last year German companies invested 15 billion EUR in the region. In total the investment amounted to 95 billion EUR by the end of 2007 – more than 10 pct of all German foreign direct investment.
The economies of Central and Eastern Europe – with the exception of Hungary – reached growth rates between 5 pct and 10 pct in 2007, in Latvia and Slovakia the annual growth rate was even higher. But the dynamic and positive development shows also some negative side effects in form of macroeconomic imbalances. Within the region the inflation rate exceeds 5 pct in almost every country. In the Baltic States the price increase has been even higher. And also the current trade deficits of most countries reached unfavourable levels - especially in Estonia, Latvia and Lithuania, but also in the Western Balkan. The deficits in these countries rose to 20 pct of GDP and more.
The existing macroeconomic imbalances have raised concerns of German companies in Central and Eastern Europe about the economic prospects for their respective host country. While in 2007 the respondents predominantly predicted good times, this year’s positive and negative expectations are almost balanced. Especially in Estonia, Latvia and Lithuania German companies are rather pessimistic than optimistic with respect to the current situation – regarding both the national economies and their own sector. “The evaluated expectations of German companies in the Baltic States are definitely influenced by the economic slowdown and macroeconomic risks. The euphoria of recent years has ceased and a certain disillusion can be recognized”, Maren Diale-Schellschmidt, CEO of the German-Baltic Chamber of Commerce, comments on the results of the survey. But in Poland and Slovakia the respondents are more worried than last year as well. Sole exception is Hungary. In the Magyar country the confidence of German companies had already been so low in 2007 that this year noticeable less investors expected a further decline of the economic situation.
Despite existing problems and a more complicated economic situation the markets of Central and Eastern Europe will continue to be a strong momentum for German companies. More than 80 pct of respondents would repeat their engagement in the chosen country. The confidence of German companies in Central and Eastern Europe is also reflected by their investment and employment plans. The majority of respondents are ready to increase their investment volume or at least keep the current investments at the same level as last year, in which companies that expanded their investments clearly outnumbered those that reduced it.
“German investors are not reacting mechanically on economic fluctuations by cutting jobs and investments, but are rather following their own long-term strategy and business plan”, explains Diale-Schellschmidt. “Especially the countries in Central und Eastern Europe are viewed under strategic aspects.”
The most attractive business location for German companies is the Czech Republic. Among the countries in the Central and East European region, the Czech Republic turned up with the best results in the third consecutive year, followed by Slovakia and Slovenia. The Baltic States remain unchanged on positions 6 to 8. A pan-baltic comparison shows that especially Lithuania has increasingly developed into an attractive business location. For the first time the country is placed first by German companies. Estonia slipped down to the second position as both its two Baltic neighbours and the Czech Republic, Hungary and China are expected to be better business bases by respondents in Estonia. But also in Latvia and Lithuania respondents evaluated their own business location with less confidence than in previous years. Diale-Schellschmidt: “German companies in Estonia, Latvia and Lithuania are noticeably more critical towards the economical situation in the Baltic States than in recent years. Existing macroeconomic imbalances, increasing costs and a lack of workforce are considered the most problematic factor for doing business according to our survey.”
While Poland is the shooting star of this year’s ranking by advancing from rank 10 to 5, China moved the other way round and lost 8 places. The only non-European benchmarking country fell from second place down to position 10. Besides these changes there had been no fundamental shifts in the evaluation with the Western Balkan still considered to be the least attractive countries.
Alexander Welscher, information and communication, alexander(at)ahk-balt.org, Tel.: +371 67320718
The German-Baltic Chamber of Commerce in Estonia, Latvia and Lithuania (AHK) is part of a network of 120 offices of the German Chambers of Commerce and now has a membership base of about 400 companies from the Baltic States and Germany spread across a broad range of sectors.