transition economies and the eu enlargement

Transition Economies and the EU Enlargement

Opportunities and challenges

INTL5331J

Abdelmoutalib AnkoudMar 7th, 2011

INTL5331J - Regional Analysis 2

Agenda

Introduction Evolution Of CEE Economies Historical Facts Of The Enlargement Opportunities For The Enlargement

For The EU Members For Non-EUs Investors

Challenges


Introduction

Transition Economy? Economy which is changing from a centrally planned

economy to a free market.

The main ingredients of the transition process?

Liberalization Macroeconomics stabilization Restructuring and privatization Legal and institutional reforms


Transition Economies

Central eastern Europe

Commonwealth of Independent States (CIS)

Some Eastern Asia (China, Vietnam … )

Recently, the former Yugoslavia federation countries (World bank)


Evolution Of CEE Economies

Shock reform therapy in Poland CMEA and Warsaw Pact formally dissolved EU and CEE bilateral trades and cooperation By mid-1997, 65% of the GDP was of private

sector $500 Cumulative FDI inflow per capita

between 1989-1996 $2000 Cumulative FDI Inflows per capita

between 1989-2003


Historical Facts Of The Enlargement

“Europe will not be made all at once, or according to a single plan.”

Robert Schuman, the former French Foreign Minister


Historical Facts Of The Enlargement

1988-89 : EC signed trade and economic cooperation agreement with Poland and Hungry

1990 : Free elections throughout CEE Jan 1990 : Poland implement shock reform therapy 1992-93 : EC interim trade agreement with Czechoslovakia,

Hungry, Poland, Bulgaria and Romania 1993 : Trade and economic cooperation agreement with

Latvia, Estonia, and Lithuania Feb 1994 : Europe Agreement with Poland and Hungry in force.

within 2 months both countries apply for EU membership

1995 : Slovakia, Bulgaria, Romania, Latvia, Estonia, and Lithuania apply for EU membership

1996 : Czech republic and Slovenia apply for EU membership

Mar 1998 : Enlargement negotiations began 2003 : End of negotiations and Membership referendums in nine

out of the ten states May 2004 : The ten countries became EU members.


Business Opportunities For Enlargement (for the EUs)

“Unified in diversity we will be stronger and better equipped to find solutions to common problems…we can work more efficiently for safety and prosperity for all”

Romano Prodi tenth president of the European commission

May 1st, 2004


Business Opportunities For Enlargement (for the EUs)

Extended EU bilateral trade agreements to the CEE states EU’s share of Russian trade increased from 35 to 50%.

Attractive sectors to inward FDI Wholesale, retail distribution, transport, communication and finance.

Large unexploited market for consumer and industrial goods

Accessible and affordable resources: Natural resources, labour…

Potential increase in efficiency: Serve a number of new markets (opening of borders) Reorganize production and logistic functions Beneficial for specific industries : Automotives, Telecom, transportation and

other forms of technologically advanced equipment


Example: Automotive Industry

The benefits from Investing in CEE?


Example: Automotive Industry

Low cost and highly skilled labour

Anticipated Long-Term strong regional demand

Proximity to the major markets of WE (Russia, Southeastern Europe)

Links with related industries (metals and plastics)


Business Opportunities (for the non-EUs) Single Market

The average weighted industrial tariffs decreases from 9% on average to 3.6%

New members became part of the WTO’s Government Procurement Agreement (GPA)

EU’s rules on freedom of establishment and the free movement of capital.


Challenges

Paradox of the increase in income Good to exploit the market Discouraging to the investment

Profit from the legislation vs compete The common agricultural policy Learn that it is easier to lobby for subsidies than to search

out new markets

The euro The new members have to peg their currencies to the euro


Challenges (contd.)

Can newcomers offer a powerful stimulus to existing members to renew efforts to cut costs, reduce benefits and reform economies?


References

Transition Economies: An IMF Perspective on Progress and Prospects: http://www.imf.org/external/np/exr/ib/2000/110300.htm

Bernhard Zepter, Ambassador and Head of Delegation Speech in the EU-Japan summit May 2004

European Business. Johnson, Turner. Chp16: Central and Eastern Europe, Response to a new

business Environment


Poland's economy booming 20 years after free elections http://edition.cnn.com/2009/BUSINESS/06/05

/poland.economy/#cnnSTCVideo

transition economies and the eu enlargement

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