SOFIA (Bulgaria), November 7 (SeeNews) – Global financial turmoil heralds slower growth and an outflow of foreign capital for emerging southeast Europe (SEE) economies and means they must focus on more value-added projects and reshuffle priorities to make the region more attractive for business, industry officials say.
Global turbulence could create new opportunities as most of the corporations in Western Europe will reconsider business strategies and move operations to countries with better business environments, Deutsche Bank Group Executive Committee member Juergen Fitschen said in a recent Sofia lecture.
“We are all aware that every financial crisis affects the real economy as well. That is why governments should focus on the measures which would support the real sector and secure needed finances for it to go on,” Fitschen said.
According to Fitschen “the quality of people” should be upgraded as “no investor would go to the cheapest labour if he doesn’t get high quality.”
Other financial and industry officials think that investors still find the region attractive in general and its key advantage - a crossroads geographical position, which has not been exploited enough so far - could help it weather the crisis. They also underlined that investors want to see less bureaucracy and corruption, major obstacles to doing business in the region.
For that reason, SEE countries should first focus on long-term investment projects, like developing transport links and logistics, officials agreed during the Euromoney Regional Finance Investment Conference for Southeast Europe held in the Greek city of Thessaloniki last month.
The countries in the region need to invest in transport, education, knowledge and activities that are not based solely on low-cost labour, Nikos Efthymiadis, president of Greek agriculture group Redestos Group and co-chairman of the Business Advisory Council for Southeast Europe of the former Stability Pact for SEE, told the conference.
“We [as a region] will be good in trading, services, IT, health technologies, logistics centres, science, agriculture,” Efthymiadis said.
“Unlike services where a significant expansion was noticed in recent years, retail and tourism have still a way to go,” according to Panos Gavras, head of policy and strategy with the Black Sea Trade and Development Bank.
The region should build on its “catch-up potential” - relatively cheap labour, low price levels and eight years of spectacular growth, the financial publishing and events organiser Euromoney Institutional Investor managing director Richard Ensor told the conference.
The financial maelstrom across the globe will cause an average 2.5 percentage point slowdown in economic growth in the countries in the region next year, according to National Bank of Greece (NBG) vice-president and deputy chief executive officer Ioannis Pechlivanidis.
According to NBG’s latest monthly bulletin on SEE, in 2009 the economies of Romania and Serbia will grow by 5.2% each, Bulgaria’s – by 4.2%, the economy of Albania by 6.0% and that of Macedonia by 4.6%.
The region has a sound banking system as lending penetration, particularly to private sectors, is not as high as in the rest of Europe. According to Pechlivanidis, lending penetration in the private sector is 43% in the region, less than half that of the EU.
Its diversified banking system, with foreign-owned banks which are not from a single country is another advantage for the region.
“SEE markets are still far more resilient – can resist anything but the severest of external shocks,” Pechlivanidis said.
The European Union and Eurozone perspectives for the region could be a driving force for it and on the other side the region could become a driving force for the rest of Europe, Gikas Hardouvelis, chief economist with the Greek banking group Eurobank EFG Group, told the conference.
Bulgaria, Romania and Slovenia are the only EU members in the region. Croatia and Macedonia have candidate status. Albania and Bosnia signed Stabilisation Association Agreements with the 27-member bloc in late 2006 and mid 2008, respectively, and Serbia could get EU candidate status in 2009 if it fully cooperates with the Hague war crimes tribunal and makes significant legal and economic reforms.
REFORMS, REFORMS
Officials agreed that the region should continue carrying out structural reforms to secure a safe business environment.
According to Nikos Zaharis, director of Greek-based SouthEast Europe Research Centre, the offering of tax incentives by governments is not that important but the fight against corruption and making it easy to do business are for investors much more important.
Officials said investors want to see less corruption and bureaucracy, more competitiveness, credibility and transparency.
Structural and institutional reforms will attract capital flows, said Marko Skreb, chief economist of the Croatian commercial bank Privredna Banka Zagreb.
All southeast European countries have relied on foreign direct investment to finance widening current account gaps in recent years.