The Covid-19 pandemic has had major economic ramifications through the entire world. With a few from the globe's strongest economies one of the hardest hit, major flaws within our economic structures happen to be exposed.
Chinks within the global logistics became readily apparent as overseas supply shocks had knock-on effects with major consequences – for developed countries particularly.
These factors have prompted much talk about supplier diversification and nearshoring, to increase resilience to such unexpected, unavoidable shocks.
This presents a chance for countries in Central and Eastern Europe. Using their proximity towards the major European economies, cultural similarities and well-qualified workforces with lower labour costs than their Western European counterparts, the region is well-positioned to benefit in the problems exposed through the pandemic.
Foreign direct investment (FDI) has predictably fallen throughout the world because of the pandemic, and manufacturing was particularly badly hit.
In Central and Eastern Europe, FDI inflows within the first half of 2022 declined by 58 percent – greater than the world average of 49 percent.
FDI in Central and Eastern Europe hasn't ground to some complete halt, however. In November 2022, Korean corporation Doosan announced it would be constructing a second factory near Tatabanya, west of Budapest, in Hungary. Worth over 200 million euros, the project is anticipated to create an additional 200 jobs and more than double the amount company's production of copper foils for electric batteries.
The same month, Shanghai-based Semcorp, another manufacturer of parts for electric vehicle batteries, announced a 180 million euros purchase of a commercial park in Debrecen, also in Hungary. The plant will be Semcorp's first outside China. The 100,000 square metre facility is expected to employ 440 people and it is projected to become carried out 2023.
Serbia rolls out the red carpet
On March 7, German automotive parts manufacturer Continental opened a 140 million euros factory in Novi Sad, Serbia, complimenting a research and development centre established within the same city in 2022. Likely to employ a minimum of 500 people, the factory is part of a trend to maneuver supply chains nearer to home. The factory would be to produce hi-tech parts for cars, for example instrument panels, displays and smart control systems.
According to Sasha Cioringa, general manager of Continental Automotive in Serbia, one factor which made the country a perfect place for the factory was its proximity to the Eu and also the well-developed infrastructure connecting the nation to the remaining continent. Furthermore, Cioringa believes that Serbia has ample human capital.
“The working culture is extremely advanced. People are working very hard here. The worst thing you can do to one [Serbian] guy would be to keep him unoccupied.”
Cioringa seemed to be filled with praise for that Serbian government for providing a practical environment for the project to consider off.
“The government was very supportive and did exactly what they promised. Even today, with the factory, they supported us with everything else essential for an even start.”
The project was also subsidised by the French government, which provided funds for that hiring of 100 engineers specialising in automated driving. Cioringa believes this is because the sorts of technologies being developed and utilised within the factory are in demand, even just in developed countries like France, because of the prevalent thought that this is the way forward for automotive technology.
“This financial support is a type of commitment from both sides…it gives us more confidence that all sides are supporting the work and not leaving us alone. This also has a symbolic significance, not just financial,” he says.
He continued to describe how the Serbian president, prime minister, economic minister, local mayor and German ambassador all attended the outlet of the factory.
“Our colleagues from Germany saw this and liked it. You are feeling respected and important – and perhaps they will wish to invest more in the future.”
On April 12, steel company ArcelorMittal made a one billion $ $ $ $ investment to upgrade its facilities in Ukraine to make them more eco-friendly. This comes nearly 2 yrs after the company was fined for violating Ukrainian environmental standards, and subsequent pledge to reduce emissions by a minimum of Half within the next five years. Also in Ukraine, Chinese company PowerChina in October signed a 1 billion euros deal to construct continental Europe's largest wind power station in the Donetsk region.
The overall trend is worrying
However, despite hope the disruption of global supply chains would trigger more purchase of the region, the data so far don't back this up.
Exports from Central and Eastern Europe to the EU15 (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, along with the UK) declined by 35 percent within the first 1 / 2 of 2022. In comparison, imports from China through the EU15 fell by just 16 per cent, coupled with already reverted to pre-2022 levels by April 2022.
This is backed up by figures in the United Nations Conference on Trade and Development's (UNCTAD) latest world investment report.
In the emerging Europe region, FDI inflows are in their lowest level since 2003. In Albania and the six former Yugoslav republics, FDI inflows have fallen by typically 16 percent. The Caucasus saw a level sharper decline: Georgia and Armenia's inflows were reduced by over fifty percent, while Azerbaijan saw a virtually threefold decrease. FDI flows to Ukraine decreased by nearly seven billion US dollars, producing a net divestment well over 800 million US dollars, despite the investment from PowerChina. Of the region's EU countries, Lithuania and Romania were the worst hit, each recording a decrease of around 60 per cent.
Of the 27 countries in Central and Eastern Europe, the Caucasus and Central Asia, only Bulgaria, Estonia, Hungary, Montenegro, Belarus and Kazakhstan recorded a rise in FDI inflows from 2022-20. Of those, only Bulgaria and Kazakhstan saw increases above 10 per cent.
Given the region saw significantly bigger falls in FDI inflows compared to world average, it may be several years before inward FDI reverts to pre-pandemic levels. The host of political issues which have sprung up in the region because the start of pandemic – like the anti-government protests in Belarus, the war in Nagorno-Karabakh and also the skirmish between Kyrgyzstan and Tajikistan – have only exacerbated the pandemic-driven economic downturn.
And although the economic ramifications vary over the region, the popularity is apparent.