Central and Eastern European companies remain upbeat

A survey, undertaken by the Economist Intelligence Unit on behalf Atradius shows that despite concerns about the regional economy, companies do not expect a significant deterioration of their business in CEE in the next three years.

 Over
the next 12 months only 40% of respondents expect a moderate impact and 30% a
large or very large impact on their company’s operations from the economic
downturn in CEE.

While
two-thirds of companies expect some difficulties in financing their CEE
operations, only 14% expect this to result in a reduction in their operations
in the region and only 15% are seeking to raise additional equity finance.

61%
of respondents estimate that their annual revenue from trade and investment in
the region would increase by more than 6% over the next three years and 90%
expect annual profit growth from the region over that same period. This may
partly reflect companies’ expectation that CEE economies will begin to rebound
in 2010-11 after a difficult 2009 or that many respondents have not yet fully
built the impact of the downturn into their plans.

Firms
already active in CEE are generally looking to diversify their presence in the
region over the next three years. Although Poland will remain an important
priority for companies, they are increasingly interested in the Balkans, which
has lagged the Central European markets in reform and economic development but
is set to narrow the gap in the coming years.

The
report ‘Testing times – investing and trading in Central and Eastern Europe’ is
the outcome of a survey of 300 senior executives from companies in Western
Europe, the US and emerging markets which currently do business or plan to do
business in CEE. This is the latest in a series of Atradius commissioned
reports focused on informing businesses of the opportunities and risks of trade
with emerging markets.
As CEE populations are expected to fall sharply in the coming decades, the
region is at a disadvantage to Latin America and South-East Asia, where earlier
surveys revealed that companies saw growing populations as a key advantage. The
negative effects of falling populations in CEE for companies may however be
counterbalanced to some extent by the increasing prosperity of these markets.
More encouraging, 25% of respondents cite the significance of changing
technologies as an opportunity: CEE retains considerable scope for economic
development through technological catch-up with advanced economies.
Despite respondents overall positive assessment, a range of shortcomings in the
regulatory environment were identified. Excessive or unclear bureaucracy is
still a major hindrance. Other leading concerns for businesses include poor
infrastructure, skills shortages, and rising wage costs. Corruption is a
particular source of difficulty in Romania and Bulgaria. EU accession is
generally recognised as having eased trading conditions within the new member
states, although non-tariff barriers to trade with the new EU members remain an
issue and trade with non-members has become more difficult. Further steps in
European integration — membership in the Schengen zone of free internal borders
and accession to the euro — are seen as highly important by respondents.