cee countries: international competitiveness and sector …€¦ · china and...

CEE Countries: International Competitiveness and Sector Performance

Vienna, 17 January 2007

UniCredit New Europe Research Network

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2

Executive Summary

Together with China, CEE countries are among the best performers in world trade and among those gaining most in terms of presence in the EU15 market in the last decade

Both CEE and China are increasingly considered as the production arms of the EU15. Still there is not full competition between the two – as they tend to follow different specialisation patterns

CEE countries are gaining market shares particularly in some medium-high tech sectors. They already experienced a clear change in their international specialisation and production structure during the last decade

CEE countries have attracted and continue to attract significant amounts of FDIs, which have a strong positive impact on their export performance

Strengthening overall competitiveness, out from a low – labour cost specialisation model, is the key opportunity / challenge for the future. Growing relevance in terms of dimension of the local market, proximity to the EU, opportunity to build pan European production centres, educated and dynamic workforce and business friendly operating environments represent the real driving forces for future CEE growth. Preserving such dynamism is the real challenge.

Our sectoral outlook for 2007-2008 shows the strongest perspectives for medium-high tech sectors. Service sectors are also likely to record favourable growth, as well as construction.

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Agenda

Foreign Direct Investments and CEE Attractiveness Factors

Sectoral Outlook 2007-2008: Best and Worst

CEE International Competitiveness and Sectoral Specialisation

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China and CEE gaining the most in terms of export market shares in the last decade at world level …

Source: UniCredit New Europe Research Network on IMF-DOTS1 CEE is including Poland, Hungary, Czech Rep., Slovakia, Slovenia, Turkey, Bulgaria, Romania, Croatia and the Baltics2 Emerging Asia includes India, Thailand, Indonesia, Malaysia, Singapore, Philippines, South Korea

Increasing relevance in world trade (export country i on world import, normalised 1995=100)

US8% CEE

4%Latin America

5%

Emerging Asia7%

China7%

Japan6%

EU1537%

Other26%

50

100

150

200

250

300

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

US CEE Latin AmericaEmerging Asia China EU15

Market share in world trade in 2005

China

CEE12

5

5

… and at the EU15 level

Source: UniCredit New Europe Research Network on IMF-DOTS1 CEE is including Poland, Hungary, Czech Rep., Slovakia, Slovenia, Turkey, Bulgaria, Romania, Croatia and the Baltics2 Emerging Asia includes India, Thailand, Indonesia, Malaysia, Singapore, Philippines, South Korea

Increasing relevance in European trade (export country i on EU-15 import, normalised 1995=100)

Intra-trade65%

Latin America2%

Em. Asia3%

China4%

Japan2%

CEE8%

US5%Other

11%

50

100

150

200

250

300

350

400

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

US CEE Latin AmericaEmerging Asia China EU15

Market share in EU15 import in 2005

China

CEE1

2

6

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China, some energy producers and most CEEcountries are the clear “winners” in EU15 markets

Top ten winners* in some EU15 markets: gain in EU15 import1 market share in 1995-2005 in pp. points

Country % Gains1995-2005 Country % Gains

1995-2005 Country % Gains1995-2005 Country % Gains

1995-20051 China 2.6 Netherlands 3.3 Russia 3.2 Czech Rep. 0.52 Netherlands 1.8 China 3.0 China 2.0 Slovakia 0.33 Russia 1.6 Czech Rep. 2.2 Netherlands 1.6 Germany 0.34 Czech Rep. 1.0 Hungary 1.6 Poland 0.8 Netherlands 0.25 Poland 0.8 Poland 1.3 Romania 0.8 Hungary 0.26 Hungary 0.7 Russia 1.2 Turkey 0.7 Poland 0.27 Norway 0.4 Slovakia 0.7 South Korea 0.6 Russia 0.18 Turkey 0.4 Norway 0.6 Czech Rep. 0.5 Romania 0.19 Slovakia 0.3 Kazakhstan 0.3 Kazakhstan 0.5 China 0.1

10 Romania 0.2 Mexico 0.2 Hungary 0.4 Kazakhstan 0.1

In Austriain Italyin Eu-15 in Germany

*countries that gained the most in terms of market shares in import in the period 1995-20051EU 15 imports means the sum of imports of each EU15 member country – intra EU 15 trade is includedSource: UniCredit New Europe Research Network on IMF-DOTS (current prices)

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Both CEE and China are gradually being consideredthe new production arm of the “old” Europe

Increasing role of CEE1 and China on European 15 imports (2000-’06)

Transport Equip.ElectricalEquip.

MachineryEquip.

Basic metals and metal pr.

Oth. non-metallic mineral pr.

Rubber and plastic

Chemicals

Coke, refined petroleum pr.

Furniture

Paper & publishing

Wood

Leather

Textiles

Food

-15%

-10%

-5%

0%0% 5% 10% 15%

Increasing role of CEE and China as suppliers to the EU15 (change of CEE and China market share in EU15 imports, 2000-'06)

Dec

reas

ing

role

of E

U-1

5in

tra

trad

e(c

hang

e of

EU

-15

intr

atr

ade

mar

kets

hare

, 200

0-'0

6)

1CEE is the sum of Poland, Hungary, Czech Rep., Slovakia, Turkey, Bulgaria, Romania, the BalticsSource: UniCredit New Europe Research Network on Global Insight data

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There are some clear complementarities among the two –CEE and China follow different specialisation patterns

Increasing relevance of CEE1 and China on European imports:

TransportEquip.

ElectricalEquip.

Machinery and Equip.



RubberplasticChemicals

Furniture

Paper & publishing Wood

Leather

Textiles

Food, beverages0%

5%

10%

0% 1% 2% 3% 4% 5%Increasing relevance of CEE in EU15 imports(change of CEE market share in EU 15 imports, 2000-'06)

Incr

easi

ng re

leva

nce

of C

hina

in E

U15

impo

rts

(cha

nge

of C

hine

se m

arke

t sha

re in

EU

15 im

port

s, 2

000-

'06)

1CEE is the sum of Poland, Hungary, Czech Rep., Slovakia, Turkey, Bulgaria, Romania, the Baltics; Source: UniCredit New Europe Research Network on Global Insight data

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CEE1 countries are gaining market shares, especially in some medium-high tech sectors

Change in export share of CEE countries on EU-15 imports (change in % points, 2000-’06):

0%

1%

2%

3%

4%

5%

6%

Food,

beve

rages

Textile

sLe

ather

Woo

d

Paper

& publi

shing

Furnitu

re

Coke,

refine

d petr

oleum

pr.Che

micals

Rubbe

r and

plas

tic

Oth. no

n-meta

llic m

ineral

pr.

Basic

metals

and m

etal p

r.

Machin

eryan

d Equ

ip.

Electric

al Equ

ip.

Transp

ort Equ

ip.

1CEE is the sum of Poland, Hungary, Czech Rep., Slovakia, Turkey, Bulgaria, Romania, the Baltics; Source: UniCredit New Europe Research Network on Global Insight data

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Agenda


Investments and CEE Attractiveness Factors



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CEE countries attract huge amounts of FDIs

FDI flows in CEE:

Not only privatisation related, but significant greenfield projectsCEE countries are also becoming a relevant market of destination, hence attracting FDI in the service sector, retail trade, communicationAn increasing contribution, in terms of FDI in the region, by Romania, Bulgaria, Turkey in the most recent years, and by the Western Balkans for the future

Finance, RealEstate, Construction(32%)

Transport &Communication(13%)

Wholesale andretail Trade

(14%) Electricity, gas, water (4%)

Manufacturing(37%)

ConsumerGoods (26%)

IntermediateGoods (39%)

InvestmentGoods (35%)

-

5

10

15

20

25

30

35

40

45

1999 2000 2001 2002 2003 2004 2005

Other CEE (Baltics, HR, BiH, Serbia, Slovenia)Turkey

Poland and HungaryCzech Rep. and Slovakia

Bulgaria and Romania

bn USD

22bn 23bn 24bn26bn

18bn

37bn

48bnFDI in CEE by sector 2005

Source: UniCredit New Europe Research Network, based on wiiw

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A clear positive relation between FDI attractiveness and success in export performance

TransportEquip.

Electrical Equip.

Machinery and Equip.



Rubber and plastic

Furniture

Paper & publishing

Wood

Leather

Textiles

1%

2%

3%

4%

5%

0% 50% 100% 150%Sectoral FDI attractiveness

(relevance of the sector in total FDIs normalised by the relevance of the sector in total production)

CEE

suc

cess

in e

xpor

t per

form

ance

(Cha

nge

% o

f CEE

mar

ket s

hare

in E

U-1

5im

port

s, 2

000-

'06)

*

Source: UniCredit New Europe Research Network, on Global Insight and wiiw data*the index is calculated as the weight of the sector on total FDI/weight of the sector on production

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Each country with different factors of attractiveness

Factors of attractiveness (2005):

PL HU CZ SK SI EE LV LT CEE-8 RO BG HR TK EU 15

Population (mn) 38.2 10.1 10.2 5.4 2.0 1.3 2.3 3.4 73.0 21.7 7.8 4.4 71.6 384.8

Average Age (years) 37 39 39 37 40 39 40 38 38 38 41 40 27 39

Students 15-24 years (%)

69 60 59 52 68 63 65 69 65 47 49 55 27 60

Tertiary graduates in science and technology per 1000 of population

9.4 5.1 7.4 9.2 9.3 8.9 9.4 17.5 8.9 9.8 8.5 5.4 5.6 13.6

GDP per Capita, € 6,384 8,689 9,785 7,084 13,699 7,825 5,493 6,010 7,412 3,659 2,758 6,965 4,058 26,730

Labour Productivity per person (EU25=100)

59 71 66 65 79 59 47 53 62 39 34 60 40 106

Monthly Labour Costs, €

808 875 949 620 1603 712 449 495 817 365 219 989 677 3431

Corporate tax (%) 19 16 24 19 25 24 15 15 20 16 15 20 20 29

EBRD Infrastructure reform index

3.3 3.7 3.3 3 3 3.3 3.3 2.7 3.3 3.3 3 3 n.a. n.a.

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2

Source: UniCredit New Europe Research Network, on Eurostat, EBRD1Monthly labour cost is as of 2004 for Hungary, Bulgaria and EU, as of 2003 for Slovenia2CEE-8 is the weighted average of the countries that are EU members since 2004

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Strengthening overall competitiveness is thekey opportunity for the future …

size of the local market proximity to the EUopportunity of building pan European production centresdynamic workforceflexible and business friendly operating environment

Preserving such dynamism is the key challenge for the future!

Key FDI attractiveness factors to leverage on for the future:

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… while further opportunities in new emerging areas arise

•Local market potential•Competitive labour market, skilled personnel next to the EU

• Important steel producer

FDI stock: EUR 112 bn

FDI stock: EUR 14.5 bn

•Convergence to EU standards•Well-qualified labour force •Lower costs•Pending structural reforms with upcoming privatizations in the banking, telecom, food processing, textile, utilities and oil sectors

•Target for SME

•Convergence to EU standards•Transforming economic base, with dynamic growth and opportunities both for production and services

•Ongoing privatisation process with opportunities mainly in banking, telecom and utilities

•Target for SMEFDI stock: EUR 2.3 bn

FDI stock: EUR 4.8 bn

Bosnia-Herzegovina

Serbia

Russia

Ukraine

•Role of energy supplier and geo-strategic relevance

•Huge local market•Dynamic growth

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Agenda




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2007-2008: a bright outlook for medium-high tech sectors, less positive perspectives for labour intensive industries

BEST STABLE WORSTAgriculture, Hunting, Forestry, Fishing PL, CZ, SK, HR, BG, RO, TK HUMining & Quarrying HR, BG, TK PL, CZ, SK, HU, ROManufacturingFood products; beverages and tobacco PL, CZ, SK, HR, BG, RO, TK HUTextiles and textile products SK, BG PL, CZ, HU, HR, RO, TKLeather and leather products CZ, BG PL, SK, HU, HR, RO, TKWood and wood products RO, TK PL, CZ, SK, HR, BG HUPulp, paper & paper products; publishing & printing PL, HR CZ, SK, HU, BG, RO, TKCoke, refined petroleum products & nuclear fuel PL, CZ, SK, HU, HR, BG, RO, TKChemicals, chemical products and man-made fibres PL, CZ, SK, HU, HR, BG, RO, TKRubber and plastic products PL, CZ, SK, HU HR, BG, RO, TK Other non-metallic mineral products PL, HR, BG, RO, TK CZ, SK, HUBasic metals and fabricated metal products SK, BG PL, CZ, HU, HR, RO, TKMachinery and equipment n.e.c. PL, CZ, SK, HU, TK HR, BG, ROElectrical and optical equipment PL, CZ, SK, HU, HR, BG, RO, TKTransport equipment PL, CZ, SK, HU, BG, RO, TK HRManufacturing n.e.c. SK, HR, BG, RO, TK PL, CZ, HUElectricity, Gas & Water PL, CZ, SK, HU, HR, BG, RO, TKConstruction PL, SK, HR, BG, RO, TK CZ, HUWholesale & Retail Trade, Hotels & RestaurantsWholesale & Retail Trade BG, RO PL, CZ, SK, HU, HR, TKHotels & Restaurants HR PL, SK, HU, BG, RO, TK CZTransportation & Communications HR CZ, TKTransportation & Storage PL, SK, HU, BG, ROCommunications BG, RO PL, SK, HUFinance, Insurance, Real Estate & Bus. Services BGFinancial Institutions & Insurance PL, HU, HR, RO CZ, SK, TKReal Estate, Dwellings & Business Services CZ, HR, RO PL, SK, HU, TKCommunity, Social & Personal Services PL, SK, HU, HR, RO, TK CZ, BG

PL = Poland, CZ = Czech Republic, SK = Slovakia, HU = Hungary, HR = Croatia, BG = Bulgaria, RO =Romania, TK = Turkey Source: UniCredit Group - New Europe Research Network

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Transport equipment (automotive and related components, ships, boats, locomotives, etc.): a very positive outlook, with full exploitation of new FDI related production capacity

Note 1: PL = Poland, CZ = Czech Republic, SK = Slovakia, HU = Hungary, HR = Croatia, BG = Bulgaria, RO=Romania, TK = TurkeyNote 2: CAGR = Cumulative Aggregate Growth Rate; GVA = Gross Value Added Note 3: Growth rates are in terms of Industrial Production in CZ, HR, PL, RO, TKSource: UniCredit Group - New Europe Research Network

Main characteristics:

Among the best performing sectors in almost all the countries, representing a significant share of total manufacturing production in CZ, HU, SK, RM, PL and TK and a significant driver for other economic sectors

With Fiat in PL, VW in PL and SK, Audi in HU, Skoda, Toyota PSA and Hyundai in the CR and Kia and PSA Peugeot Citroen in SK, Central European countries have gradually become a quite significant production centre for this sector at the whole European level

The sector is developing fast also in BG - despite the still low relevance for the economy – thanks to new foreign entry in car spare-parts production

In HR, Transport Equipment mainly means shipbuilding

BEST PERFORMER

Transport Equipment

ROTK

BG

HR

SK

CZPL

EU15

HU

0.0

5.0

10.0

15.0

20.0

25.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Share in GVA - 2005 (%)

CAG

R 20

05 -

2008

(%)

Central EuropeSEE

Transport Equipment - growth rates (%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

EU15 PL CZ SK HU HR BG RO TK

200620072008

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Electrical & optical equipment (electric motors, radio/ television eq., optical and medical instruments, computers, etc.): strong performance for an increasingly relevant mid-high technology sector


The sector is classified as best in all the countries, with the strongest growth recorded in Central Europe

The sector is attractive for FDI and highly export oriented, despite increasing competition from the Far East. Still, growth prospects are associated to the strong foreign and domestic demand

PL and SK are becoming production centres at the EU level for TV-sets, LCD screens, while the CR is the only country of the region with a significant computer production specialisation

Possible impact from raw materials price-increase and from the EU directive about restriction of hazardous substances

BEST PERFORMER

Note 1: PL = Poland, CZ = Czech Republic, SK = Slovakia, HU = Hungary, HR = Croatia, BG = Bulgaria, RO= Romania, TK = TurkeyNote 2: CAGR = Cumulative Aggregate Growth Rate; GVA = Gross Value Added Note 3: Growth rates are in terms of Industrial Production in CZ, HR, PL, RO, TKSource: UniCredit Group - New Europe Research Network

Electrical & Optical Equipment

RO

TKBG

HR

SK

CZ

PL

EU15

HU

0.0

5.0

10.0

15.0

20.0

25.0

0.0 1.0 2.0 3.0 4.0 5.0


CA

GR

200

5 - 2

008

(%)

Central EuropeSEE

Electrical & Optical Equipment - growth rates (%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


200620072008

20

20

Machinery & equipment (industrial machinery and households appliances): quite positive dynamics, supported by widespread investment demand


One of the long lasting traditional industries, classified as Best in Central Europe and TK - where a substantial shift towards higher engineering productions already occurred

Widely export oriented – the sector is gaining export shares on the international markets. Still, the sector is also characterized by high imports (with strong domestic investments in new production capacities)

The sector looks attractive for FDI

Manufactures of household appliances is the most accelerating segment, together with production of machinery and engines, supporting the investment activity

In HR, BG and RM, the sector still needs further modernisation and restructuring

BEST PERFORMER


Machinery & Equipment n.e.c.

HU

EU15

PL

CZSKHR

BG

TK

RO

0.02.04.06.08.0

10.012.014.016.018.0

0.3 0.8 1.3 1.8 2.3 2.8


CAG

R 20

05 -

2008

(%)

c

Central EuropeSEE

Machinery & Equipment n.e.c. - growth rates (%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


200620072008

21

21

Construction: still very good prospects, mainly driven by infrastructuralprojects


Generally a fast developing sector all over the region, considered Best everywhere apart from HU and CZ

Main drivers of growth: widespread investment activity in infrastructuralprojects, other than residential and corporate building

EU countries benefiting also from inflows of EU funds, but in CZ and HU, fiscal concerns and lack of public funds dampen the sector activity

BEST PERFORMER

Note 1: PL = Poland, CZ = Czech Republic, SK = Slovakia, HU = Hungary, HR = Croatia, BG = Bulgaria, RO= Romania, TK = TurkeyNote 2: CAGR = Cumulative Aggregate Growth Rate; GVA = Gross Value Added Source: UniCredit Group - New Europe Research Network

Construction

RO

TK

BG

HR

SK

CZ

PL

EU15HU0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

4.5 5.0 5.5 6.0 6.5 7.0


CA

GR

200

5 - 2

008

(%)

Central EuropeSEE

Construction - growth rates (%)

0.0

2.04.0

6.08.0

10.012.0

14.0

16.0

18.0


200620072008

22

22

Textiles & textile products: negative outlook on increasing labour costs


The industry is very relevant in RM, BG, and especially TK, where a long lasting tradition is present

Generally we see a negative outlook all over the region, based on increasingly strong competition from the Far East and consequent relocation of production

Still, in BG foreign companies in the short to medium term are managing to remain competitive

In SK, the automotive boom seems to support a temporary recovery, though we remain cautious on the long term

WORST PERFORMER


Textiles & Textile Products - growth rates (%)

-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0

10.0


200620072008

Textiles & Textile Products

HU EU15

PL

CZ

SK

HR

BG

TK

RO

-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0

10.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0


CA

GR

200

5 - 2

008

(%)

Central EuropeSEE

CEE Countries: International Competitiveness and Sector Performance

UniCredit New Europe Research [email protected]

Vienna, 17 January 2007

cee countries: international competitiveness and sector …€¦ · china and...

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