Baltic Sea Region - a Tiger Economy?

It has become evident that we who live in the Baltic Sea Region live in one of the major growth regions on a global scale and certainly on European scale. Some even call it the Tiger Economies of the Old World. Stable political and economic conditions, good institutional infrastructure, and skilled labour boost confidence, and consequently investments. Also the intense co-operation in our region creates an excellent base for business development.

BSR is also to a great deal a self-contained region. The countries trade with each other to a great extent. In general, about half of the foreign trade of the BSR countries, except for the large countries Germany and Russia, is between the countries in the BSR. (figure 1, on Trade between BSR countries).

The region is characterized very much by complementary economies. The present EU countries have access to a highly developed market economy, knowledge-based industry, many large multinational companies with well developed channels to markets, and a large management capital.

The new EU Countries have a growing economy with strong potential and low labour costs but well educated labour. The infrastructure, both the institutional like banking, legislation and law enforcement, as well as physical infrastructure, like telephone connections, roads and harbours, is good. The new EU countries can function as a bridge to other markets, like Russia and Ukraine. Also, historical andgeographicalproximity are strong driving forces for an increased trade and investment.

Good prospects give results in the GNP growth (fig 2, on GNP growth). The new EU countries and Russia show a remarkable growth rate. Due to poor performance by Germany, the average GNP growth for the whole BSR region including Germany is not higher than to that of the Nordic Countries.

One remarkable thing is that the high growth rate in the new EU countries is that it can be combined with a low inflation and a negative trade balance (figure 3, on inflation). This high rate of GNP growth in the new EU is also partly due to the fact that it starts from a low level.

GNP per person ranges between 25 and 40 % ofthe EU average. The Swedish Export Council did recently an analysis on the functioning of the markets in the Baltic Sea Region. In general, the findings show that in spite of some remaining problems, the prospects for further business development are good, and the problems are not greater than they can be solved.

Among the problems are differences in business cultures in the new and old EU countries. The companies are more hierarchic structure with an authoritarian rule. The employees, also at high level, are often not expected to make independent decisions or to take own initiatives. Only written agreements are valid. Language problems are frequent It can also be difficult to find staff for high management that can integrate with foreign business culture easily.

There are also problems with various government authorities. Repayment of VAT does not function well and the customs procedures are complicated and time-consuming in all of the countries except Estonia. Certification, bureaucracy, etc. need time. Frequent changes of legislation create problems.
Eastern Europe has among some got a reputation for criminal activity. But the Swedish Export Council concludes that crime is often highly exaggerated and is not a large problem in any ofthe new EU countries, at least not more than in any other EU country.

But there are other problems even if the prospects for the development ofthe Region are bright. The vast distances from the northern and eastern part ofthe BSR to the markets in central Europe, combined with lack of high capacity ferry lines and good flight connections across the Baltic Sea are certainly a disadvantage. Poor infrastructure for transportation and a strong tendency from the EU Commission to concentrate the lion share of EU investment in transport infrastructure to central and Western Europe adds clouds on the sky. Especially Finland, the three Baltic States, Kaliningrad and Eastern Poland suffer from this tendency. Finland has therefore initiated the concept of Baltic Sea Motorways, meaning a stronger focus on maritime transportation on the Baltic Sea One potential problem could also be lack of interest not only from EU but also from the national governments regarding infrastructure investments in transportation across the Baltic Sea.

by Juhan Janusson
Political Adviser to the UBC President
e-mail: juhan@janusson.net