Southeast Europe lags on EU competitiveness index

By bne IntelliNews September 12, 2014

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EU member states in Southeast Europe have the lowest levels of industrial competitiveness in the 28 country bloc, according to a new report from the European Commission. Countries such as Bulgaria, Croatia and Slovenia are being held back by poor access to finance and a lack of investment into research and development. 

The Reindustrialising Europe: Member States' Competitiveness Report 2014 released on September 11 puts the three Southeast European countries together with Malta and Cyprus in the lowest of four categories, ‘member states with modest and stagnating or declining competitiveness’. 

Only Romania has a more positive ranking; it is in the third group of countries deemed to have ‘modest but improving competitiveness’. The same group includes all countries in the Central and Eastern Europe (CEE) region, plus Greece, Spain and Portugal. Bucharest is hoping to build on this; the government is currently drafting a 2014-20 National Strategy for Competitiveness that is intended to address areas including industry, research and innovation and the business environment. However, in terms of R&D investments, Romania still “lags significantly behind other EU countries, including its regional peers”, and the European Commission report also criticises Romania’s “complex regulatory and administrative environment, widespread corruption and poor transport infrastructure”. 

The top two categories on the European Commission’s ranking are exclusively made up of west European states. The best-performing countries on the index are the Netherlands, Germany, Denmark and Ireland, which have ‘high and improving competitiveness’. Meanwhile, countries including the UK, France and Sweden are considered to have ‘high but stagnating or declining competitiveness’. The European Commission report says that while EU manufacturing “possesses a number of competitive strengths”, to ensure that growth continues, “the EU and member states urgently need to address a number of areas of concern: investment, access to finance, public administration, access to foreign markets, innovation and energy prices.”

"I appreciate the efforts made by member states to improve their industrial competitiveness. However, a lot still needs to be done,” European Commissioner for Industry and Entrepreneurship Ferdinando Nelli Feroci said in a statement. “Tackling lack of investment, limited access to finance, high energy prices and inefficient public administration will put our companies and SMEs in a stronger position to compete in the global market place."

These issues are particularly acute in member states from Southeast Europe, the report finds. GDP growth in Bulgaria, Croatia and Slovenia have all been held back by a lack of competitiveness. 

In Slovenia, economic activity continued to slow in 2013, with real GDP remaining 10 per cent below  its peak in 2008, and is only expected to stabilise this year. Obstacles include a fragile banking sector, low foreign direct investment - inward FDI stock in Slovenia has remained the lowest among the new EU member states since 2000 - and a difficult operating environment for businesses. Competitiveness is also hindered by the high level of state owned and state controlled enterprises in the economy. Despite efforts by the former government of Alenka Bratušek to sell off big state owned enterprises, Ljubljana has faced  heavy political pressure against privatisation  and it is unclear how the incoming government under Miro Cerar will handle this. 

The picture is not all bleak, since the report points out that Slovenia performs “exceptionally well” in terms of exporting medium and high-tech manufacturing goods. It adds however, that the country “performs poorly in terms of exporting knowledge-intensive services”.

Croatia is in a similar position, with the economy expanding by just 1% in 2013, and a contraction of 0.6% forecast this year. Labour productivity dropped in 2013. “Innovation performance has not improved in recent years and industrial production has been falling since 2009, and, in contrast to most other member states, did not recover in 2010-11,” the report adds. 

Lack of innovation and low productivity are the key problems facing Bulgaria, which also has the most energy-intensive economy in the EU. Along with neighbouring Romania, Bulgaria has the lowest level of investment into research and development  in the EU. While the “medium-high technology sector” has grown “relatively robustly”, development of the high-tech sector has been weaker. Since the start of the crisis in 2008, Bulgaria’s higher value manufacturing sectors such as chemicals and pharmaceuticals have declined as a percentage of GDP, while raw materials exports have thrived. “The share of chemicals and pharmaceuticals, classified as a high value-added sector, shrank from 22.0 % (2008) to less than 15.7 % (2011), whereas metals, which account for a large proportion of primary raw material exports increased from 11.5% (2008) to 17.6% (2011),” the report says. 


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