Investing in Central Europe 2016
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Investing in Central Europe Your move in the right direction December 2016 Investing in Central Europe | Your move in the right direction Content 1. Investing in Central Europe 3 Introduction The investment process 2. Why Central Europe? 9 3. Comparison of selected data 10 Basic facts Main macroeconomic data GDP growth in CE Taxation 4. Country guides for Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia 15 General overview of economy Tax structure Legal entities Labor and wages Education Infrastructure The most active industries / sectors Industrial parks Investment Incentive Foreign Direct Investment (FDI) Expatriate life Weather and climate 5. The Social Progress Index and Foreign Direct Investment in CE Region 149 6. Deloitte Central Europe 164 Deloitte Central Europe Our expertise 7. Contact us 168 2 Investing in Central Europe | Your move in the right direction Introduction The economic and business outlook Indeed, Romania is “the new sexy” and we • When the Eurozone grows by an extra for Central Europe have “taken Romania out of the Balkans”. 1%, then the CEE region grows by In 2016-17 the core/central CEE region Growth exceeds 4% and a large majority an extra 1.3%. looks like a “safe haven” globally. When of companies report excellent business • But South-eastern Europe (SEE), with many emerging markets and developed and this is across most sectors. Romania the exception of Romania, was not ones face strained economic and is not as roller-coaster as it sued to be and performing as well due to structural political developments, core CEE looks the recent 18 months have been some economic issues such as budget comparatively much better. of the best for business in the last 20 years deficits, debt levels and poor allocation with the economy recording some of its of funding, with Serbia pressing Hungary, Poland, the Czech Republic best figures in 20 years for indicators such for austerity measures against a soft and Slovakia (the core CEE region) did as unemployment and inflation. growth back-drop. go through a very tough 5 year period economically and commercially from The timing of the core CEE revival is rather • The SEE markets were about “9-18 2009 to May 2013. The core CEE region good as critically Russia and Ukraine months behind” the core CEE ones, and south-eastern Europe were badly obviously went through recessions in 2015 but by mid-2016, the SEE markets have hit and business confidence was poor and in 2016 or with very low growth while embraced that catch-up with GDP growth for most of 2009 to spring 2013 with Turkey is experiencing a softer patch. Over levels at close to 3%. occasional exceptions. The region was the last 18-24 months and for the next performing sub-par and most business 15 months, at least, more companies are executives were certainly disappointed putting more focus on the core CEE region. and despondent with the region. Hungary When • The core CEE region is booming relatively and the Czech Republic were slumped in and core CEE grew at 8 times the GDP recession or sub-par growth just 2-3 years of Latin America in 2015 and in 2016! the Eurozone ago. Poland, which along with Russia and Turkey, was a key regional market. Poland, • Poland is one of the best performing grows by an extra for reasons we outline below, has always transition markets in the world. been a growth market and has experienced • Consumer confidence in Hungary and fewer cycles than its neighbors and fewer 1%, then the CEE the Czech Republic during 2014-15 cycles in recent years than most markets saw some of the best improvements in globally. region grows by the world and in Europe. an extra 1.3%. 3 Investing in Central Europe | Your move in the right direction CEE and other regions comparative GDP growth The CEE/SEE region will attract more attention this year and through to 2020 and of course this will make the markets more 2015 2016 2017 competitive and attractive. Core CEE region 3.7 2.9 3.0 The only major cloud on the horizon is Southeast Europe 2.8 3.0 2.9 corporate headquarters (!): they are seeing Eurozone 1.8 1.4 1.0 many markets globally soften and with the CEE region posting good economic USA 2.3 1.6 2.2 numbers and a reasonable business rally, Latin America (-0.2) (-0.5) 1.9 headquarters tend to say: “Well done, congratulations and now give us even Asia Pacific 4.6 4.4 4.3 more top line and bottom line”. We witness a similar trend in parts of the MEA region Sources: Consensus Economics, Ceemea Business Group, IMF. where the actual business recovery is not as strong as in the CEE region. The comparative numbers still speak The core CEE region will remain a more for themselves with the core CEE region mature single-digit sales market for most There are several key reasons growing faster than any region in the world companies and we are seeing this trend for the turnaround: with the exception of Asia Pacific. in 2015-17. But we can confirm that more As we noted above, one axiom is that when companies than ever are reporting a mild/ the Eurozone grows by an extra 1%, then But some minor qualification is required: steady uptake in business. One major US the CEE region grows by an extra 1.3% the core CEE markets are now witnessing conglomerate reports organic top-line and in 2014 the Eurozone added an extra a slower 2016 than 2015 and this is due sales growing at 8-10% and as the regional 1.5% and stabilized in 2015. The rally in to the slower cycle of EU funding this managing director notes: “For such markets, the Eurozone is the key driver for CEE year. 2016 is an “in-between” year for EU this is very sizeable and helps buttress other exports, investment and industrial output. funding budgets and so public investment slower markets in the EMEA region”. But from mid-2014, we also started to see has slowed in the CEE region and entails a positive contamination from exports and slightly softer growth. And, of course, we And there is more good news: unless there investment into consumer spending which now have the Brexit scenario which will is a serious downturn in the Eurozone has usually been the weak link in these impact the region more in 2017. As we or eastern Ukraine turns into something markets. Unfortunately, unemployment noted above, whenever the EU falters, much more serious, the consensus then was slower to recuperate but even these then there is risk for the CEE region. We is for these markets to grow steadily and stubbornly negative figures have started now expect the Eurozone to decelerate sustainably for the next 5 years. So far, events to improve across the region from late to about 1.0% GDP growth in 2017 and in eastern Ukraine and sanctions on Russia 2014 (in Hungary, thanks to government this will mean lopping off about 0.3% from have only had a marginal impact on CEE programs unemployment tumbled more most of the CEE (and SEE) markets. This GDP figures: trimming off 0.1% or 0.2% from quickly and earlier). means that 2017 will be weaker but not growth of 2.5% to 3.5% for these markets in 1. Improvement in Eurozone: low oil prices a catastrophe and by 2017 EU funding will 2015-2017. help disposable consumer spending on once again be kicking-in and compensating non-energy items, low inflation helps for the Brexit effects. But Brexit and the consequent Eurozone real wages, weak Euro helps exports slowdown in 2016 and especially in 2017 and quantitative easing will help stock The key point to make is that the economic combined with weaker EU funding in 2016 markets and property sectors. numbers are improving but this does not does mean that the CEE region will not shine automatically mean that the business quite as much as in 2014 and 2015. But results are therefore booming immediately. the point remains that as a region, core CEE These core CEE markets are mature, and now combined with an improving SEE, will transitioned markets (although they do stay a decent growth region compared with retain regions which are still emerging). other emerging markets and developed ones 4 Investing in Central Europe | Your move in the right direction 2. Bank credits are flowing better: Minimum monthly wages in selected EU member states as of 1 January 2012, for a while in 2009-10 the banking 2013, 2015 and 2016 sector did look like a weak link but the worst was soon over and new credit 2012 2013 2015 2016 emission is now rising 2-4% which Romania 162 158 217 278* is quite decent and in Poland such new credits are rising at 4-6%, close Bulgaria 138 159 184 215 to record levels. Latvia 286 287 360 370 3. Several CEE governments are imposing Lithuania 232 290 300 350 softer austerity programs on their economies. Czech Republic 310 312 331 365 4. Inflation (or deflation) is extremely low Estonia 290 320 390 430 (or deflationary) in all the CEE markets. Hungary 296 335 332 358 5. This allows the central banks in Slovakia 327 338 380 405 the region to keep interest rates at record low levels which, in turn, kicks Poland 336 393 409 430 back and stimulates the investment and Portugal 566 566 589 618 production outlook. Spain 748 753 756 764 6.