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Business Prospects in V4

31 Aug 2009 | Jana Liptáková | The Slovak Spectator
THE VISEGRAD Group represents a consistent geographical region on the eastern border of the European Union. This makes the region strategically important and also creates opportunities for the group's member states - the Czech Republic, Hungary, Poland and Slovakia--to utilise their partnership at the regional level as well as within the European Union, though they often regard each other as competitors rather than friends, even after 20 years of systemic changes.
Energy security is the most oft-mentioned challenge now facing the Visegrad Group (V4), while others include the further enlargement of the EU and handling the impacts of the global economic crisis. When looking more closely at economic aspects, experts cite the need to keep the Visegrad region competitive and secure a successful transition from traditional industries to knowledge-based ones.
"The gas crisis in January 2009 showed that energy security is of key importance for the economic development of the region," Alexander Duleba, the director of the Research Centre of the Slovak Foreign Policy Association (SFPA), told The Slovak Spectator. "There are no regional interconnections of infrastructure for transit of natural gas and crude oil within the V4. If the V4 arrangement is not used to bring about a change, this will cast doubt on the pure essence of regional cooperation within the V4."
Along with energy security, Krzysztof Szczerski, an expert at the Kosciuszko Institute in Poland, sees as an important challenge for the V4 in not being left outside the core of European integration following turbulence from global crises which threaten to divide the EU into several 'inner-circles'.
"If we fail in these areas we will become an unimportant part of the EU's eastern periphery," Szczerski told The Slovak Spectator.
For the Visegrad region it is of strategic importance to advocate the eastern dimension in the context of possible future enlargement of the EU, according to Szczerski.
The Visegrad region has also not escaped the impacts of the current global economic crisis.
"Looking at the current economic crisis, there is no doubt that the V4 region is affected by certain negative consequences from that crisis," Daneš Brzica, who works with the Institute of Economic Research of the Slovak Academy of Sciences, told The Slovak Spectator. "Among these is certainly the very critical continuing process of company relocations, general decline in industrial production, stagnation of the real-estate sector and cautious consumer behaviour. The challenge is therefore to avoid the further decline of national economies, promote confidence in those economies and to prepare for future opportunities when recovery occurs."
According to Brzica, the strategic importance of the region will depend critically on its ability to increase competitiveness and maintain and improve social cohesion.
"A successful transition from traditional industries to knowledge-based ones seems crucial for the region to remain competitive," he said. "Under some pessimistic scenarios one could also expect some worsening of the situation in regional competitiveness. Fortunately, despite some negative signs - like the increasing unemployment rate in Slovakia, and problems in Hungary--so far we have evidence of a rather good position across the region as a whole."
Joint progress in some areas
The major force behind the economic development of the V4 countries will remain their export orientation and foreign direct investment. But the V4 countries, except for Poland, lack domestic sources for sustainable and long-term growth, according to Tamás Novák, a senior research fellow working with the Institute for World Economics of the Hungarian Academy of Sciences.
"Due to this fact the economic development path of the countries is expected to be quite similar over the next few years," he told The Slovak Spectator. "These characteristics reinforce the competing nature of their economies. Only large-scale, region-wide investment project can be important for all the affected countries, in order to unite their forces, but it requires strong political will and a cooperative approach. The latter is obviously lacking due mostly to political problems between Hungary and Slovakia."
Brzica sees the largest potential for cooperation within the V4 in tourism, services, manufacturing, chemical production or agriculture. On the other hand, agriculture in particular is a sector where traditional national protectionism is fully supported by many politicians and, due to EU policy, competition is undermined, resulting in problems with competitiveness.
"Cooperation is useful when it is voluntary," said Brzica. "This is important in business and also in the public sphere. A certain institutional environment is needed, but it is critical to have enough individuals, firms and politicians willing to promote international and cross-border cooperation."
The V4 in the EU
While the territorial proximity of the V4 countries can be beneficial when pursuing cross-border cooperation, Novák does not see many issues as being common to all V4 members.
"Experience since EU accession clearly proves that the number of issues bearing a central European identity has been limited or non-existent," he told The Slovak Spectator. "The countries from the region still regard each other as competitors rather than friends and that, after 20 years of systemic changes, is not very promising. In spite of this, the four countries could certainly find issues of strategic and regional importance, such as environmental problems."
Szczerski views the benefits of V4 membership within the EU in the context of cohesion with regard to the EU budget--mostly via Structural Funds interventions but also via the Common Agricultural Policy.
"That is why it is very important to form a cohesion-friendly coalition among V4 states in the next budgetary negotiations," he said. "These negotiations in their early stages may begin during the Polish presidency of the Council (in the second half of 2011), together with the closure of the budget mid-term review which will occur under the Hungarian Presidency, preceding the Polish one. These circumstances show how important our common policy stands may be in the coming years."
Cross-border cooperation
Cooperation is not limited to V4 member states only given that psychological proximity among traditional partners promotes contacts of various kinds.
"We have Austria as a neighbour, with its high socio-economic potential, and our firms and other business actors naturally balance or diversify their territorial presence," Brzica said.
According to Brzica, territorial proximity is a good basis for cross-border cooperation, which can be beneficial for all V4 members and their many, especially smaller, firms. The same holds for local governments, as is known from European cross-border projects in which they actively participate to obtain funding for projects aimed at improving social and economic conditions as well as cultural relations with neighbouring cross-border regions.
The V4 regularly cooperates with other countries in central Europe--with Austria and Slovenia within the so-called Regional Partnership, and with the V4's eastern neighbours as part of the so-called V4+ concept. Moreover, the V4 closely cooperates also with various regional groups of countries in the EU, specifically the Benelux countries, the countries of the Nordic Council of Ministers and countries of the western Balkans, he said.
Duleba, from the SFPA, sees cross-border cooperation as being of key importance for the economic development and revitalisation of the region.
"Five years in the EU has shown that the importance of the single, border-free market for goods, services and capital is huge," said Duleba. "The V4 region represents a natural entity from the viewpoint of history and cultural mentality, and the values of the population. Large investment projects in the region would be possible only to a very limited extent if the V4 countries were not part of the single EU market and the market in the region was segmented into small national states."
According to Duleba, the single market is of high importance also for border regions, because it enables access to the markets of neighbouring countries. Here he mentions the industrial region of northern Moravia in the Czech Republic, which creates jobs also for Slovaks and Poles. The carmaker Kia Motors Slovakia near Žilina similarly offers jobs to Poles as well as new business opportunities to sub-contractors.
But the Bratislava-Gyor-Vienna region is considered to be the one with the biggest development potential in Europe, according to Duleba when asked about the most active and prospective regions for cross-border cooperation. But construction of transport infrastructure construction is crucial for the further development of cross-border cooperation.
Slovakia's euro and V4
At the beginning of 2009, Slovakia became the first V4 country to adopt the European single currency. Further extension of the eurozone across the other V4 members is unlikely in the near feature.
While at an official level adoption of the euro in Slovakia has hardly had an impact on the operation of the V4, some psychological effects can be identified, according to Novák.
"Between the central European countries there has been obvious competition for the title of "leading position" in the region," said Novák. "Each of the countries played the role of 'pre-eminent' for a while, from the economic point of view. The euro has meant that recently Slovakia occupied the leading position. However the advantage of having the euro now seems to be rather a disadvantage as Slovakia's competitiveness--because of exchange rate movements--may worsen significantly, hurting economic performance more here than in other V4 countries."
According to Brzica, the adoption of the euro has certainly increased the attractiveness of Slovak firms for foreign partners.
"But the adoption of the euro in itself cannot serve to attract foreign investors or partners as a substitute for well-performing firms with high-quality and innovative products," he said. "The European currency can only ease business by reducing transaction costs and making intra-EU price competition more transparent."
Brzica also sees some negative aspects to the adoption of the euro in Slovakia, for example the consumer spending drain to cheaper neighbouring countries like Poland and Hungary, but adds that these effects are only marginal.
Further east
Twenty years after the fall of the Iron Curtain and the collapse of economic cooperation within the Council for Mutual Economic Assistance--also known as Comecon--there remains the question of whether former members of the council and now clustered in the V4 can utilise some advantages when doing business with former Soviet republics.
Novák does not see any specific advantages in this respect.
"The advantages stem from economic development and EU membership," he told The Slovak Spectator.
Brzica thinks that while 15 years ago one would have immediately responded that such advantages were knowledge of language or traditional long-term business relations, the situation has substantially changed.
"Nowadays the situation is more structured--some firms have been active in continually developing existing relations with those countries since 1989, while other firms have gradually reoriented their operations towards Western markets," he said. "In any case, there is a huge opportunity to benefit from doing business with many post-Soviet republics, or, if the Soviet bloc is more broadly conceived, with other post-communist countries of central and eastern Europe. One example is from the Czech Republic. PPF group, controlled by Czech businessman Petr Kellner, maintains a presence in Russia and is developing business in the financial sector there. Many more similar examples can be mentioned."

The piece is part of the Visegrad Countries Special prepared by The Slovak Spectator with the support of the International Visegrad Fund.
Download: The Visegrad Countries Special [.pdf, 605kB]

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