The outcome of the Copenhagen Summit
On the 12th and 13th December last, the European Council of Copenhagen closed the negotiations with ten countries (Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovak Republic, Hungary, Slovenia, Cyprus and Malta), their accession date being set at 1st May 2004.
A financial agreement was reached after last minute concessions had been granted to the new entrants. First of all, Poland obtained a transfer of one billion euros from the structural funds towards direct budgetary aid and, for all the new entrants, the financial package was increased by 408 M euros (cash flow facilities and the Schengen envelope). The total enlargement cost will thus rise to 40,8 bn euros during the period 2004-2006. Postponing the accession date from 1st January to 1st May will also reduce by one third the annual contributions in 2004 and will lead to a shortfall of 1,64 bn euros in the EU budget.
This deal answers the future members’ two-fold concern of reducing their budget deficit and allowing a better spending of European subsidies. On the other hand, the reduction in the volume of the structural funds, mainly spent through open tenders, may diminish the potential returns for companies. Finally, taking into account the contributions made to the EU budget by the new entrants, the net flows to the new members will amount to 10,5 bn euros during the first three years of accession, which represents a cost of a little under 10 euros per annum for the inhabitants of the current Member States.
Copenhagen also ratifies the closure of all the chapters under negotiation. The issue of the free movement of capital and workers was resolved by the setting of transition periods ranging between 7 and 12 years. The tax negotiations had made it possible to limit the number of VAT exceptions, but they had a lesser impact on corporate taxation. As regards financial services, future members have only limited transitional periods within which to bring themselves up to European standards, and in the meantime their access to the European internal market will be restricted. Company law has been brought into line with the acquis communautaire, but its actual application remains unsatisfactory. Until the last moment there were problems with competition policy and state aid, in particular with regard to Poland (the iron and steel industry), the Czech Republic, Hungary (the motor industry), the Slovak Rep. and Malta.
The strong presence of the major French groups
The 1756 subsidiaries of French companies in the CEEC employ more than 300,000 people. Attracted by the size and growth of the central European markets, but also by the quality of their work force, French companies have mainly invested in Poland, the Czech Republic, Hungary, Romania and Slovakia. These five countries account for 88% of all the French-owned companies and 95% of the employees. Even though in terms of numbers SMEs form the majority, the big companies greatly outweigh them in terms of amounts invested. Country by country, the situation is as follows :
- Since 2000, France has consolidated its position as the largest investor inPolandthanks to the dynamism of its big groups. The main investments are in the telecommunications and retail sectors. But capital goods, construction, consumer goods and the food processing industry have also attracted investment. However, France still suffers from a lack of SMEs compared to her German or American competitors.
- Approximately 270 French companies have been set up in theCzech Republic, the total foreign presence there being estimated at 1200 businesses. The average size of the French-owned companies is around 200 employees. It is in industry that French companies are chiefly present (35%), in particular in the construction sector, the food processing industry or ch emicals. The establishment of PSA, associated with Toyota in the setting up of largest new company in the Czech Republic, should reinforce this preponderance in the industrial sector. Services and commerce account for 30% each. The former will be consolidated by the Société Générale’s takeover in 2001 of one of the country’s major banks.
- The French presence inHungaryincreased remarkably in 1995 and 1996 thanks to the arrival of big companies, mainly following privatization. Today France is the 3rd biggest investor in the country. Six sectors (energy, food processing, motor industry, distribution, pharmaceuticals and water/environment) concentrate more than two-thirds of the total investment and 60% of the jobs. The most recent operations show that investment in new companies is gradually replacing privatization.
- France is the largest investor inRomaniawith 216 companies. Approximately 40% of these are in industry (capital goods, consumer goods and the food industry), 32% in the services sector and 18% in commerce. SMEs are becoming increasingly numerous, taking advantage of a market with great potential.
- InSlovakia, the number of large establishments is more significant, a phenomenom reinforced by the recent investments by EDF and GDF. The French-owned companies established inSloveniaare few in number but have dominant positions in sectors like the automotive industry, engineering, retail and banking. InLithuaniathey are also small in size, apart from two subsidiaries of the Dalkia group, which is the main French entity in the country since the recent investment to restore the heating network in Vilnius.Cyprus,Latvia,BulgariaandEstoniaattract almost exclusively SMEs; the average size of the French establishments there being less than 70 people.Maltahas a special profile due to the presence of a large manufacturing unit belonging to the Franco-Italian group STMicroelectronics, which opened in the 80’s.
Continued improvement in the regulatory framework and the macroeconomic environment, together with incentives at European level, should enable French SMEs to reinforce their presence in the CEEC, in the wake of the big groups which are already well established there.
Chronicle of industrial operations
- The Norwegian telecoms company Telenor became the outright owner of the Hungarian mobile ‘phone company Pannon GSM after acquiring the remaining 74,2% shareholding from its Dutch, Finnish and Danish partners for a total of 44M (February). It has also set up a new Hungarian subsidiary, Digitania Communications, to provide technology for Premium SMS (March).
- The Hungarian incubator operator Matáv stated that the Greek telecoms company CosmoTelco, its partner in the purchase of a stake in Macedonia’s MakTel, had accepted 7 M in exchange for waiving its option to buy shares in Matáv (April).
- Mitsubishi Electric has decided to build its third plant in Slany, Central Bohemia (Czech Rep.), investing more than 15M in the plant, which will manufacture automobile steering components, creating 120 new jobs (April).
- South Korea’s Samsung has built a new plant in Göd, northern Hungary, to manufacture 2,6 million cathode ray tubes per annum, mostly for export. The investment amounts to around 80M, and will create 700 new jobs (June). It will also transfer part of the production of its combined DVD, TV and video sets from Barcelona to Jászfényszaru, about 50 kilometres east of Budapest, and it plans at the same time to move its production of computer monitors from this same factory to Slovakia, where it will build a 60M plant (July). Meanwhile, Picture Tube Kft will cease production of PC monitor tubes in Szombathely, western Hungary, and make its 270 employees redundant, demand having fallen by a third in the last two years (November).
- Having transferred the manufacture of X-Box from Hungary to China, electronics manufacturer Flextronics is to terminate production at its Brno site in the Czech Republic and make about 1,000 employees redundant. This firm, which had received state aid for its investment, explained its withdrawal by reference to the present economic recession (July).
- Seiko Epson, one of the world’s largest producers of computer printers and peripheries, has opened its first subsidiary in Poland. Despite the tough competition it faces from its two main competitors, HP and Canon, which control more than 75% of the Polish market, it hopes even as early as this year to gain a 15% share of the market (September).
- German firm Maxdata, one of Europe’s 10 biggest IT producers, is entering the Polish IT market with a range of PCs, laptops, servers and an ambition to generate revenue of about 5M in 2002, and 10M in 2003 (September).
- Philips is considering closing its plant at Newport in South Wales, U.K., and moving production to the Czech Republic (September).
- Citing falling demand, IBM, Hungary’s sixth largest company and second largest exporter, has decided to close its hard disk drive plant in Székesfehérvár, with the loss of 3,700 jobs (November). In June, Hitachi announced it would pay $ 2 bn for the bulk of IBM’s loss-making business, which produced seven million units last year and had exports of $ 1,5 bn.
- After having operated in Poland for 10 years, Microsoft has just completed the merger of its two subsidiaries Navision and Great Plain Software.
- U.S. printer manufacturer Lexmark has this time postponed indefinitely the construction of a $ 50 M production facility in Tatabánya, some 60 kilometres west of Budapest, although it had been offered a 1,3M state subsidy (December).
- The Franco-Italian group STMicroelectronics is seeking a location near Aix-en-Provence, in the South of France, for a 1 bn investment in a nanotechnology research centre. Synergies should be possible due to its recent 2,8 bn joint investment with Motorola and Philips in the Grenoble area, 250 km further North.
- Aster City Polska was among the cable television assets sold by Elektrim Telekomunikacja to three private equity funds. The deal was worth 110M, of which ET will retain 29M, while joint venture partners Elektrim and Vivendi will pocket 32M and 49M respectively (December).
The next step for the Greek presidency
In Copenhagen, Chris Patten, the European commissioner for external relations, recalled that among the countries of South-Eastern Europe (SEE), Croatia, Bosnia-Herzegovina, Yugoslavia, Macedonia and Albania aspire to become candidates for membership of the EU. Although positive developments may be observed in these countries, some experts stress that problems persist.
The encouraging prospects centre upon 3 issues.
- The political situation continues to stabilise. The lengthy conflict between Montenegro and Serbia was resolved thanks to EU mediation. In addition, the cycle of democratization was reinforced in 2002 with legislative elections in Macedonia, Bosnia and Montenegro, and presidential elections in Serbia and Montenegro.
- Bilateral or multilateral Free Trade Agreements are being developed, with the EU, EFTA, the countries of Central Europe and, most importantly, with each other. Bulgaria recently signed an agreement with Macedonia and Croatia, and Bosnia has done so with Croatia and Slovenia. Bosnia is also about to sign an agreement with Macedonia.
- FDI in the region are continuing. Last year was less dynamic than 2001, when more than $ 3 bn were invested in those countries, with FDI/GDP ratios comparable with the CEEC (7,4% in Croatia, 10,1% in Moldavia and nearly 12% in Macedonia). Wages oscillating between 50 USD gross per month (Moldavia) and approximately 200 USD (Romania) help to stimulate these investment flows.
But various experts are critical.
- Institutional bankers demand quicker reforms. During the last Economic Forum on the SEE, Mrs. Noreen Doyle, First Vice-President of the EBRD, denounced the inadequacy of the fight against corruption, bureaucratic delays, the inefficiency of the legal systems, the deliquescence of the administration, the non-application of international law, and the maintenance of import licences. Nevertheless, the EBRD will finance 56 projects worth a total of $ 1,8 bn in the energy and road and rail infrastructure sectors.
- A recent report by the ESI* underlines the risks of a “crisis in 2004”, as a result of 3 factors: the inevitable and painful adjustment to the new economic and political situation in Bosnia and Kosovo, against a background of diminishing aid for reconstruction, a lengthening employment crisis, and a growing disenchantment on the part of populations as regards the democratic processes, unable for the moment radically to reverse a situation which is experienced as an economic and social decline. The last presidential elections in Serbia, in which the quorum of a 50% turnout was not achieved, are an example of this.
During the first half of 2003, the Greek presidency of the EU will play an all the more central role, as Hellenic companies have invested more than $ 6 bn in SEE since 1990, two-thirds of which were in manufacturing. Greece will probably take advantage of the Zagreb II summit, due to take place in Salonica in June, to give a fresh impetus to the principles adopted in the “Zagreb Declarations ” signed in November 2000.
For background information to this analysis (Revue Elargissement No. 36 – 6 January 2003), the relevant tables or more analyses, see the