PwC report reveals lack of discussion on EU
A study on European Union (EU) enlargement released by PricewaterhouseCoopers (PwC) this month concludes that accession has great economic implications for companies doing business in the region, but the move is still widely underestimated.
"One of the key conclusions of the study is that there is insufficient emphasis among member states, on the part of the commission and businesses, on the economic implications and benefits of accession," said Rosemary Radcliffe, chief economist at PwC. "There are very important political and social implications (of enlargement) and it would be quite wrong to ignore those but as we see it at the moment, economic issues are underplayed in the debate."
Accession negotiations started in March 1998 with six countries: the Czech Republic, Hungary, Poland, Slovenia, Estonia and Cyprus. In February of this year six more countries began talks: Bulgaria, Latvia, Lithuania, Malta, Romania and the Slovak Republic.
PwC's study, "The Strategic Impact of European Union Enlargement," examines how businesses around the world view enlargement. It contains interviews with senior executives from 40 different companies representing international businesses headquartered outside Central and Eastern Europe (CEE). Interviews were also conducted with CEE businesses, but no small or medium-sized firms.
According to the study's results, the benefits of accession are real and already available, although businesses' responses varied. According to Radcliffe, large global companies have already anticipated many of the benefits of enlargement. "They have made investments and are now earning a return on those investments," she said. "If we look at consumer products, there has already been quite a significant investment into Central and Eastern Europe over the last few years in anticipation of enlargement."
Small international businesses, however, painted a much different picture, according to the study. "They are much more cautious and more concerned about whether the accession will actually proceed according to plan," Radcliffe said. "So we think there are many more opportunities to be exploited by such businesses."
While international companies view enlargement as a means of gaining a foothold in Central and Eastern Europe, local businesses tend to be more fearful of accession, seeing competition growing more intense. Few local businesses have made much international impact without the help of multinational strategic partners.
"Our perception is that local businesses are excessively fearful," Radcliffe said. "They are not positioning themselves adequately to exploit opportunities either by means of partnership with businesses outside Central and Eastern Europe or by seeking a regional leadership position."
At the same time, enlargement could improve awareness of international businesses on specific characteristics of various candidate countries, which are now often perceived as one single market together with Russia.
"It's one of our key findings, that there is inadequate information about important distinctions that exist between the different countries, between the different sectors and different regions," Radcliffe said. "Some international businesses tend to think of the CEE as just one region brigaded with Russia, but one needs to look at it not as one market but as a number of different markets."
Despite the candidate countries' progress, improvement must still be made in business infrastructure, law, management of intellectual property and physical infrastructure such as roads and railways. Continuing to restructure industry and agriculture is also a must.
As the PwC report emphasizes, the per capita gross domestic product (GDP) levels of all candidate countries lag behind those of the 15 EU member states. And the gap between the candidates and EU countries exceeds that of previous countries when they joined the union. When Greece entered the EU in 1981, its per capita GDP based on PPP (purchasing power parities) was 69% of the EU average. Most of the present candidates' per capita GDP is less than half of the EU average. But Radcliffe was optimistic about enlargement.
"The union enlarged before by bringing in countries whose income per head is substantially lower than that of the existing group," she said. "As history has shown, the poorer countries can as a result of accession embark on a period of catch up. I am not saying that it (rapid growth) will happen overnight, but over a certain period of time."
As the study showed, many businesses expect that once CEE countries join the EU, their GDP and income growth will be faster than it would have been otherwise. Many businesses take such prospects into account when making long-term investment decisions.
"But I think most businesses are realistic about that and see GDP growth above what it otherwise would have been, as something that will happen over a period of five or 10 years," Radcliffe said. "It doesn't mean they are not supportive of the need to press ahead with accession, but they are not necessarily arguing for earlier entry, they are arguing for clarity about when accession will take place."
