CEE countries’ GDP has risen to levels never before enjoyed, yet the validity of their growth models built on low-cost labour is being brought into question; the critical challenges of demographics, migration and digital disruption loom ahead. The region as a whole has made huge strides and ranks 38th worldwide in terms of prosperity, although it lags behind when it comes to economic openness, finds The CEE Prosperity report produced by the Legatum
Institute together with Erste Group. Three distinct prosperity zones are emerging in CEE, depending on the respective countries’ competitive strengths. At the same time, all CEE countries are challenged to rethink their strategies to ensure that future prosperity is sustainable. Whatever path they follow, rule of law, government integrity and performance and an engaged citizenry are going to be critical to success.
“Being at a crossroads means asking a couple of tough questions: What kind of future do you envision? And how do you start planning for it today? As a bank, we would add a third one: Where will the financing you need to build this future come from? CEE countries have come a long way and at Erste we’ve witnessed that progress first-hand. But as they enter a new phase, with challenges that are very different from before, they need to start thinking of themselves differently: as players on a bigger, global stage who compete for higher valueadding businesses, skilled talent and smart capital. Each of these is a serious task in itself. We welcome the second edition of the Legatum Institute CEE Prosperity report as an opportunity to keep the ball rolling on these strategic conversations. And we will do our share
to make sure CEE countries, their businesses and people have access to the diversified capital they need to step up their game in this new era,” says Andreas Treichl, CEO Erste Group.
Also commenting on the findings of the report, the Legatum Institute’s Senior Fellow James Sproule said:
“This report has shone a spotlight on the challenges and opportunities facing a region in transition. Our findings tell a compelling story of an economic model built on comparatively low-cost labour under terminal pressure. “Looking to the next stages of economic growth requires businesses to be further integrated in the wider European and Global supply chains, but also to be far more entrepreneurial. This can be achieved through the creation of new ventures, or the facilitation of entrepreneurialism within existing businesses.”
If it were a single country, Central and Eastern Europe would, according to the Legatum Institute Prosperity Index, be comparable to Chile, South Korea and Israel. Breaking this overall ranking down into its constituent parts: for economic openness, Central and Eastern Europe is ranked 44th, due in part to the fact it was judged to have a weak business environment. The region overall scores poorly in labour market flexibility, ease of resolving redundancy, perceptions of the value of hard work, and being a good place to start a business. In terms of an inclusive society, Central and Eastern Europe is ranked 36th – comparatively strong in safety and security, but weak in social capital. The countries of Central and Eastern Europe scored just above their overall rank in terms of empowered people – ranked 37th – comparatively strong in education, but weaker in health.
Three different zones of prosperity have emerged – the Baltic ‘entrepreneurial sea’, the central “industrial hinterlands”, and a southeast “food hub”. The report also shows what that future is beginning to look like, with three distinct zones of prosperity emerging: the Baltic ‘entrepreneurial sea’, the central “industrial hinterlands” adjacent to Germany and Austria, and a south-east “food hub”. Each area has different advantages and challenges, and each will likely follow a distinctly different path in future. What underpins all successful paths is effective governance which stops corruption, property rights that facilitate investment, and a competitive landscape that promotes the best ideas.