The manufacturing sectors of Central and Eastern Europe (CEE) are becoming increasingly importance to the continent’s economy, according to the German Marshall Fund
In Rethinking Industrial Policy for Central and Eastern Europe, the US public policy thinktank attributed the region’s increasing importance to the amount of foreign direct investment (FDI) facilitated by EU funding.
Among the leading hubs on the continent identified was Hungary, which the report said was now one of the bloc’s leading areas for batteries. It also singled out Czechia for its efforts to attract large amounts of investment since the Covid-19 pandemic.
“Its semiconductor industry is now well-placed to draw in new investments in the micro and nanoelectronics value chain,” wrote the report’s authors. “Czechia has started to support the industry through state aid for a handful of domestic and foreign companies, due to its strategic importance, its high value-added in production output, and the opportunity for stimulating R&D and high-skill employment.”
Advantage China
This comes, however, against a backdrop in which the importance of European and US manufacturing has declined, the authors added, pointing to the increasing strength of China through that government’s overt support of its domestic manufacturing base.
“Although market interventions have been increasing across the globe for more than a decade (and have been ever-present in the PRC), only the aftermath of the COVID-19 pandemic and Russia’s full invasion of Ukraine in 2022 prompted real action by the EU, whereas the US had been coping with the ‘China shock’ through various policies for many years already,” they said.
Both the EU and the US have been translating their renewed interest in industrial action into policy, the report noted – pointing to the recent Inflation Reduction Act in the US and the European Chips Act, the Green Deal Industrial Plan and the Net Zero Industry Act in the EU.
Risks abound
Risks abound, however, with the potential for fragmentation of priorities within Europe through the challenges of green and digital transformations, balancing economic security, and maintaining fiscal discipline. This means, argued the German Marshall Fund, the bloc’s Cohesion Policy still has a key role to play.
“In this context Central and Eastern Europe finds itself in a difficult starting position for recovery and building resilience after the pandemic and supply shocks related to the war in Ukraine, including higher prices and decreased availability of energy,” the report’s authors concluded.
At the end of 2022, PA Europe reported on management consultancy Bain & Company’s prediction that private equity in central and eastern Europe was about to ‘enter a period of strong growth’. The firm’s analysis Private Equity and Venture Capital in Central and Eastern Europe said the region had seen “continued strong economic growth” and has “rich opportunities” for the private equity and venture capital industry.
