Markets

The Baltic States

Estonia and Latvia have been members of NATO and the EU since 2004. In the ten years since independence, they have made good progress towards a full market economy. Further to several years of dynamic economical growth (5-11% a year) both countries' economies are now regressing due to internal factors such as a large share of credited money in the market that facilitated their economic boom and, of course, the global financial crisis.

The Baltic States currently offer a good opportunity for foreign businesses. They are politically stable, with well-educated and easily adaptable labour forces, and labour costs are still lower than those in more established Western countries.

Estonia

Estonia's economic success in the past few years was built on a stable currency, a liberal foreign trade regime, liberalisation of prices, abolition of state subsidies, fast privatisation and effective bankruptcy legislation. As a result, Estonia has advanced rapidly in terms of stabilising and restructuring the economy and has been rewarded with high levels of foreign direct investment. The economy is boosted by close relations with Finland and Sweden and a liberal economy that is favourable to foreign investment. Since 2000, Estonia has been enjoying a 0% Corporate Income Tax (non distributed profit). Rapid development of the communications infrastructure has created a situation where mobile technologies and the internet are used more widely in Estonia than in other EU countries.

According to the Estonian Statistical Office, in 2009 the gross domestic product (GDP) decreased by 14.1% compared to the previous year and the rate of unemployment reached 13.8%. In 2010 the Estonian GDP is expected to show a 0.1% decline and in the next year experts predict a 3% growth. During 2011 Estonia is preparing to adopt the Euro.

Latvia

In the pre-crisis period, supported by cheap and accessible credit and a boom in domestic consumption, Latvia's economy experienced a period of remarkably rapid growth (of more than 10%) and transformation enjoying growing FDI inflows. Along with expansion of the service sector as a proportion of GDP and decrease in the agricultural sector share, the economy continued to develop its own niche in global markets.

In 2008, due to unsustainable economic policy and the global financial crisis impact, the country entered into a phase of severe economic downturn. In 2009 Latvia’s GDP decreased by 18% year-on-year mainly due to a fall in the retail trade sector, manufacturing and a decrease in government spending. The rate of unemployment reached almost 23% resulting in weakened consumer spending.

In 2010, the country’s economy is expected to start reviving. According to the Latvian Ministry of Foreign Affairs, in February 2010, Standard&Poor's changed the future perspective of Latvia's rating from negative to stable based on the following main reasons: the ongoing economic recovery, reduction of the global imbalances, government's efforts in stabilisation of the state financial sector. In 2009-2011 international financial support of EUR7.5 billion is available for Latvia. During 2010 experts predict the Latvian GDP to decrease by 4% and in 2011 grow by 2%.

Russia

Russia is the largest country in the world by land mass and has the world's eight-largest population (143 M). Russia has been an independent country since the dissolution of the Soviet Union in December 1991. In the last few years, the GDP has been growing in Russia by an average of 6% per year. The favorable changes took place in processing industries and infrastructure, manufacture of machines and equipment, metallurgy, pulp-and-paper and chemical industries, food production, pipeline transit and in communication sector. A great number of foreign companies are looking to establish a presence in this huge market.

Based on the results of 2008 Russia's GDP grew by 5.6%. In 2009 the crisis had its full effect facilitating a 7.9% decline of Russia’s GDP. In 2010 the Russian economy is expected to start recovering with the predicted GPD growth not exceeding 1-1.5%.

Ukraine

Ukraine is a country with a population of ca 47 million and a perfect geographic location in the Centre of Europe. Recent changes in the country's political situation have led to positive changes in its business environment. The Government is committed to reform, to accession to the World Trade Organisation, and eventually to joining the EU and NATO. The country was granted Market Economy Status by the European Union as of 1 December 2005 and by the United States of America as of 1 February 2006. FATF withdrew its enhanced monitoring regime from February 2006. The growth of Ukrainian GDP slowed down during 2008 to 2.1%. During 2009 the Ukrainian economy faced the most dramatic impact of the economic recession reflected in a 15% drop in GDP. In 2010-2011 experts anticipate a 3-5% growth of GDP accompanied by ca 10-13% inflation.

The Ukraine offers a good opportunity to foreign companies to market their products to less competitive markets than those in more established EU countries. There are many business opportunities in areas such as Construction, Real Estate, ICT, Industrial Manufacture, Food, Textiles, Transport and others. The country has a well-educated multilingual labour force, and labour costs are low compared to EU countries.

Slovakia

Ten years ago, 5 million Slovakians embarked on an ambitious project of deep structural reforms in order to become one of the top business locations within the European Union. These reforms focused on reduction of bureaucracy and tax burdens together with an emphasis on lower and effective government expenditures, and are often presented as a model for other emerging CEE markets, highly praised by respected institutions such as IMF or World Bank. Early after the reforms came into effect, Slovakia experienced a boom of FDI and fast growth of the economy, which peaked in 2008 when GDP growth hit a record level of 10.4%, the highest in the EU. Following accession to the EU in 2004, Slovakia’s great economic performance was crowned with the introduction of the Euro currency in 2008.

Favorable business conditions attracted flocks of foreign investors and bolstered existing Slovakian businesses. This resulted in fast expansion of industries such as automotive (per capita car production in Slovakia is now the highest in the world), machinery and precision engineering, metallurgy and metal processing, electronics, chemistry and pharmaceuticals, and ICT as well as the service sector.

Even at time of the global crisis, Slovakia keeps its economy growth above the EU average despite the fact that external conditions significantly curbed its outstanding performance. Data of the final quarter of 2009 indicate a turn-over of the negative trend, together with a positive international rating which is one of the highest in Central Europe. According to the Slovak Statistical Office, in 2010 the development of the Slovak economy will depend a lot on foreign demand. The development of the economies of Slovakia’s main export partners, Germany and the Czech Republic, will influence the development of Slovak export. According to The Slovak Central Bank’s forecast, in 2010 Slovakia can expect a 3.2% growth in GDP.

Czech Republic

The Czech Republic builds its reputation on long industrial tradition dating back to the first half of the 20th century when former Czechoslovakia ranked one of the 12 most developed countries in Europe. Its strategic central position, proximity to wealthy Western European markets, as well as economic and political stability made it a first class target in the CEE region for a number of companies looking for qualified cost-effective labor or a new pool of consumers.

Local manufacturing with major shares in the automotive, electrical engineering/electronics and engineering industries together with fast developing services sectors such as IT and BPO made the Czech Republic one of the economic leaders of the CEE region. Similarly, the retail sector, driven by growing incomes of local citizens which grew four times in U.S. dollar equivalent between 1998 and 2008 (from USD350 to 1,380 both due to soaring wages and appreciation of the Czech crown) has been quickly expanding and there is hardly any major retail brand missing in the market or neglecting it for further business development in the region.

In the pre-crisis period the 10-million-strong country was supported by strong macroeconomic policies, its membership in the EU and large FDI inflows boasted the second highest GDP per capita in the CEE region (USD 26,800) and recorded 10 years of consecutive growth vastly exceeding the EU average. The Czech Republic entered the European Union in 2004 and it also now enjoys membership in NATO, WTO, and OECD.

The current global financial and economic recession that also affected the country’s main trade partner Germany in particular, resulted in a collapse of FDI, a significant decrease in total productivity growth and rising unemployment that in turn caused a drop in consumer spending. The Czech economy revival in the future will be reflecting the global recovery trends. In 2010 experts predict a 1.5% growth in GDP.

Poland

Poland is the largest country in Central and Eastern Europe and the biggest amongst countries of so called “New Europe”, with a population of over 38.4 million people and good age statistics. Over 71% of the population is aged between 15 and 64 years and 15% is under 15 years old. The total Polish labor force is approximately 17 million.

The Polish economy grew by 1.7 % in 2009, the best result in the whole of Europe, which plunged into economic crisis. According to International Monetary Fund (IMF) data, Poland experienced 19 years of interrupted growth of GDP and its last recession year was 1991. No other country in Europe experienced such a long period of economic expansion. Good economic conditions in Poland in comparison to other European countries were mainly due to a healthy banking sector and relative low debt, big internal market and flexible currency rate against the euro, which helped local companies to compete successfully on the pan-European market.

Total Polish GDP in 2009 amounted to USD686 billion in terms of purchasing power parity, which ranked the country on 21st in the world. Poland is still relatively undeveloped in terms of GDP per capita (approx. USD17.8 thousand in 2009, purchasing power parity) but the distance to wealthy Europe is diminishing gradually. The total value of foreign direct investment amounted to 167.9 billion US dollars at the end of 2009, which gives Poland 23rd place in the world.

Poland joined NATO alliance in 1999 and the European Union in 2004. The country is a member of major economic organizations, including IMF and Organization for Economic Cooperation and Development (OECD). The national currency (zloty) is fully convertible. Poland plans to join the Euro Zone in years to come.