Despite the recent rise in protectionist sentiment, Eurozone growth is showing some real momentum. Capacity constraints are close to being reached and if the strong demand for new orders is to be filled, investment will be a necessity. We expect Eurozone investment to pick-up both at home - and also abroad in the form of foreign direct investment
The Central and Eastern Europe (CEE) region has typically been a major beneficiary of foreign direct investment (FDI) from the Eurozone. And if protectionism is on the rise, the prospect of ‘near-shoring’ – or the outsourcing of services to companies in a nearby country - becomes especially relevant in 2018.
In this report, we look at the FDI proposition offered by Central and Eastern Europe. Its strengths are its geographical links, the quality of its human capital and its productivity. The provision of EU funds is also an important source of investment, particularly for Poland, Hungary and the Czech Republic.
We also focus on key areas of expertise in the region. Beyond the well-known outsourcing in the manufacturing sector – particularly auto and auto-parts in the CE3 countries – the broader region is making a name for itself in the outsourcing of services. Business Process Outsourcing (BPO) is becoming popular, especially in countries like Romania and Bulgaria.
The main challenge for FDI in this region is the increasing scarcity of labour. If reforms are not passed to encourage higher and broader labour participation, then the flow of investment may increasingly be directed to the next wave of EU entrants in the Western Balkans.