Growth Challenges in the CEE
On the 8th of November 2022, the Euroatlantic center held the second e-learning focused on the Growth challenges in the CEE. This e-learning is part of this year’s project Visegrad Youth Forum 2022. The e-learning began with the introduction of the speaker who was Aleš Chmelář. Then the host described the course of the e-learning. It was explained that this would be a panel discussion with room for questions from the audience at the end.
The discussion began with a question about the transformation process and its overall evaluation. Mr. Chmelář described the main issues and benefits of the transformation process, such as the dependencies of CEE countries on foreign direct investments (FDI). FDI boosted the economies of CEE countries. But on the other hand, it was just temporary, and now it is up to domestic capital to support economic growth. Also, the process of privatization was mentioned. There were issues with this process, the state lost power in key sectors, like energy, infrastructure, financial sector, etc. Another fact is that CEE countries did not build up enough capital when there was a chance. The issue is that money is flowing out of the country and only a small percentage is spent there. Research and development in CEE are commonly owned by foreign investors. Then there is a lack of domestic investment in the CEE. To combat these issues the CEE has two possibilities. The first one is to develop a functioning financial market with a stock exchange (US model). Secondly, Public institutions would cooperate with private companies (German model). Currently, CEE is not using any of these. Mr. Chmelář also pointed out that during the recession countries that are dependent on FDI are more vulnerable to the recession and are more affected by it.
The second part of the e-learning was focused on the demographic changes in the CEE. It was mentioned that the stagnation of the population will not have any macroeconomic impacts. However, it can make a little dent in the healthcare and pension budgets of the countries. Overall these demographic changes will be very similar to those we are already seeing in the west. In the west, we already see solutions to how to fight the drain of the workforce, like better childcare systems or more affordable housing. Also, the question arose, if it is possible to supplement the lack of workforce from other countries. Foreign workers can supplement the needed workforce but, the issue is that they take the money out of the domestic economies and send it home to their families. That creates a situation where we have a foreign company and foreign workers and the money spent in the country is minimal. So to combat these we should invest in those countries of the origin of the foreign workers.
In the third part, the speaker described the situation during the corona crisis in the CEE. Mr. Chmelář explained that CEE economies did well during this time and were able to quickly bounce back. Also, the promises of future investments from the EU helped stabilize the economy as well as the quick introduction of vaccines. After the end of the main part of the e-learning, there was space for questions from participants
Mr. Chmelar, what do you think about the idea of decreasing taxes to a level of 9% to encourage IT Growth in the CEE?
It was explained that due to the nature of the global market if one nation decreases this tax others would do the same and race to the bottom to see which country can survive on the lowest corporate tax. Consequently, the competitive edge is lost.
What is China’s influence in the western Balkan?
It was pointed out that CEE countries missed their chance of investing in the region after the Balkan wars. But there were the issues of not having enough capital for investing and now is too late. Even though there are some minor regional investments the situation is often complicated by political factors. Future developments will to a large degree depend on the political trajectory of Serbia.
Concerning the war in Ukraine. The region is going to be met with an ecological crisis, because of the river and air pollution. Is immediate action needed?
There are 2 aspects linked more to climate change than to the war in Ukraine and those are soil erosion and extreme weather events. We also should try to mitigate the pollution caused by the war, but it is still unclear now how much pollution will come from this war.