DecryptionThe challenges of relocation 3/5. Strong industrial base, cheap labor … Central and Eastern Europe could be the big winner when factories return to the continent. On the condition of going upmarket and developing in services so as not to be only a low-cost production center.
Tomislav Donchev, the Bulgarian Deputy Prime Minister, is convinced of this. In the wake of the Covid-19 crisis, Eastern Europe could become, a little more, the “Little China of Europe”. “The new member states will be even more important for European industry when it recovers from the external shock of the pandemic”, he told Euractiv, the European news website, in mid-April. Insisting on the speed with which Bulgarian companies are able to reorganize their production chains, he welcomes the “Opportunities” that the situation also represents for his country.
While the pandemic has underscored the importance of relocating strategic industries, will Central and Eastern Europe be the big winner when factories return?
“It is premature to speak about it, because, for the moment, local governments are mainly working to limit the serious economic and social damage linked to the crisis”, Dominik Owczarek, an analyst at the Institute of Public Affairs, an independent think tank in Warsaw, notes. The region, dependent on German car manufacturers, is indeed very affected by the recession of Germany, its main partner. “Still, in the medium term these countries have all the assets to benefit from such a movement”, says Grzegorz Sielewicz, economist at Coface, in the Polish capital.
Eldorado of automobile manufacturers
Starting with their solid industrial base. It weighs 23% of gross domestic product (GDP) in the Czech Republic, 20% in Slovakia, Slovenia and Romania, 19% in Hungary or 17% in Poland, according to the World Bank, against 10% in France.
“In Czech Bohemia, the industrial tradition has been established since the XIXe century, and it endured under communism “, recalls historian Roman Krakovsky, author of Populism in Central and Eastern Europe (Fayard, 2019). Elsewhere, the sector developed especially after the fall of the Soviet bloc, in the wake of more or less chaotic privatizations, then the arrival of Western investors.
As a result, in less than two decades, the region has become the home of car manufacturers. In 2018, 3.3 million vehicles were built within the Visegrad group (Poland, Hungary, Czech Republic, Slovakia), compared to 1.2 million in 2000. “These countries are very integrated in European production chains, and it is there that car manufacturers have located their most competitive factories”, explains Stéphane Colliac, regional specialist at BNP Paribas.
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