Investing in Europe
PART 5: Despite some lagging standards and regulatory challenges in Europe's emerging economies, major investments in infrastructure and production capacity across Central and Eastern Europe are boosting the fortunes of the European Union.
The historic strength and stability of the major western European economies coupled with the new economic energy being generated in the emerging markets of Central and Eastern Europe have combined to create a vast, redefined European economic region poised for major growth and wealth generation.
While the contraction in the United States is expected to temporarily reduce growth in Europe's advanced economies, the direct impact on emerging Europe is projected to be quite muted, according to the International Monetary Fund's regional economic outlook published in November 2007.
However, emerging European economies could be affected by an increase in risk aversion among foreign investors and slowing foreign demand. A prolonged deterioration of the financial conditions in Europe's mature markets could also lead to a cutback in lending to Europe's emerging markets, especially if parent banks reassess their
exposures to subsidiaries in emerging Europe, says the IMF.
The IMF considers emerging Europe to include Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia FYR, Malta, Moldova, Montenegro, Poland, Romania, Russia, Serbia, the Slovak Republic, Slovenia, Turkey and Ukraine.
Nevertheless, says Dr. David Fung, chair of Canadian Manufacturers & Exporters (CME) and chairman and CEO of Vancouver-based global supply chain aggregator and manufacturer ACDEG International Inc., the emergence of the central and eastern European economies has made the world a better place.
"There has been a massive release of energy among people who have been trained and educated to generate wealth, but prevented from doing so by the yoke of central planning," says Dr. Fung. Growth in Europe's emerging nations is providing a major boost to the fortunes of the European Union, whose performance of late has otherwise been somewhat stagnant. In addition, says Dr. Fung, emerging European economies are ideally positioned to interact with the booming Asian economies.
He says the economic integration of the broader European region has dramatically increased its importance in the global economy, and the focus on investment in new infrastructure is a lesson for North America, which is lagging behind in infrastructure renewal.
The EU has invested heavily in several emerging European nations, rebuilding rail and road infrastructure, modernizing production capacity, and rehabilitating water and wastewater facilities to meet EU environmental standards. Significant investments in the energy sector, particularly renewable energy such as wind, water, solar and biomass generation, have further generated robust economic activity.
According to Export Development Canada, the automotive sector has been a key driver of economic growth in Central Europe since the fall of communism. Initially, Poland was the favoured destination for European automotive manufacturers to combine lower-cost production with strong manufacturing capabilities.
The Czech Republic and Slovakia, however, are now also attracting significant automotive investment, strengthening the region's prominence as a new global hub for auto manufacturing.
EDC notes, however, the application of EU standards varies between countries in emerging Europe and between sectors within the countries. Further, the lack of regulatory tradition also means there is less transparency and a higher degree of uncertainty about application and enforcement, which means investors need to be careful and do their due diligence. Yet there is little doubt that, overall, Europe's opportunities are extremely attractive.
EDC chief representative in Central Europe Marzena Koczut, for example, says Central Europe's true potential is now becoming apparent. "The focus has been and remains on rebuilding and rehabilitating the core infrastructure and providing the support systems for industries relocating to a lower-cost region. Central Europe combines the energy and vitality of an emerging market with the developed talent and ability of a mature economic player."
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