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From recovery to reinvention

Amid concerns over access to jobs in CEE, structural support is on its way

If there are positives to be drawn from the global pandemic, it may be in the way in which CEE countries seize the opportunity to reset their economies. Sharp focus on digital innovation and investment in jobs could see the region rapidly instigate changes that might otherwise have taken years.

But policymakers with such ambition will first have job security high on the agenda. New research conducted by Erste Group in collaboration with Longitude, a Financial Times company, across seven Central and Eastern European (CEE) countries, finds that 84 per cent of citizens saw job security as important to their quality of life (among the top three factors in terms of importance), yet less than half (45 per cent) were satisfied on this count. And nearly two thirds (61 per cent) agreed that ‘my wages are not keeping pace with the rising cost of living in my country’.

Those concerns appear valid given that, according to analysis by the McKinsey Global Institute, around 9.9 million jobs in CEE are at risk due to COVID-19. Around a third of those jobs could also be lost due to automation by 2030. Governments can help by providing training to upskill and reskill those workers at risk. However, only 41 per cent of respondents were satisfied with access to new skills, while the number of young people across the EU neither in employment nor education and training is starting to rise, bucking the downward trajectory of the last eight years.

Complicating the picture is changing migration patterns. In 2018, CEE experienced positive net migration for the first time in 30 years. In Bulgaria alone, it’s estimated that half a million people have returned, in what could be a reversal of the brain drain from CEE countries.

A collaborative approach to recovery

Amid concerns over access to jobs and relevant skills, structural support is on its way. The transition towards a more digitised economy will be helped by the EU’s Recovery and Resilience Fund, the centrepiece of NextGenerationEU, with €672.5bn in loans and grants available to support reforms and investment.

Erste Group CEO Bernd Spalt says that any recovery will depend on high-quality, ambitious programmes. “If we want to get a clear view what the investment priorities should be, we just need to listen to the next generations in our societies: sustainability, digitalization and education,” he says.

Each national plan needs to include a minimum 20% of spending on fostering the digital transition before funds can be released. The CEE region is set to receive 22% of all grants and loans from the fund.

As Allen Coliban, mayor of Brașov, Romania states: “We can’t miss this opportunity to reinvent the city.” His focus is: “to reposition Brașov economically to make it attractive for investors, particularly around technology and IT.”

The city is home to a university (the Transylvania University of Brașov) which offers technical expertise, as well as good transport links and plenty of affordable commercial and residential space.

“Having all these cards in hand, we can prioritise industries,” says Coliban. “We want to position Brașov as one of the top cities for innovation.”

Just how countries in the CEE region are faring in terms of developing more innovative, digital and sustainable economies, is being monitored by GLOBSEC’s newly created CEE Strategic Transformation Index.

“There are areas of excellence in each country,” notes Alena Kudzko, director of the GLOBSEC Policy Institute. “The trick now is to make sure that these areas… are spread more evenly and benefit a much more diverse and broad set of entrepreneurs in the region.”

One thought raised by Index is to drive innovation by fostering closer cooperation. It states: “Regional synergies could be obtained from regional innovation clusters organized around shared sectoral pursuits. Sharing best practice can also accelerate the course of the CEE economy’s strategic transformation.”

Fostering a start-up culture

Alongside large-scale projects such as the EU Recovery Fund, other channels have opened to offer support to companies. Vienna has set up a €35m fund readily available for SMEs, and has also created the Innovate4Vienna programme, which is already helping fund 36 projects that are creating solutions to the social and economic consequences of Covid-19.

Pandemic aside, funding for technology companies has continued to rise. 2019 marked another record year for technology investment in CEE, with almost €1.5bn in venture capital attracted to the region – more than five times the level in 2015.

Investors in Serbia are attracted by the growth potential, says Goran Prijic, CEO and co-founder of web development company Vivify Ideas. “There is a lot of angel investment. Digital transformation is happening and a lot of IT companies have seen good growth. It’s understood that investing in this field is a good choice.”

The IT sector is growing as a consequence, with talent being drawn from across industry.

Angel and venture investment has been built from the ground up in Croatia, according to Sasa Cvetojevic, entrepreneur and CRANE member, which can benefit both start-ups and more established companies.

In addition to financial support, CRANE, a non-profit business angels network has been fostering cooperation between start-ups and larger businesses. “It’s important that big companies experience the innovation and culture of the start-up, while the start-up has a ‘playground’ to test concepts in a real environment,” he explains. “One example is Gideon Brothers, the manufacturer of autonomous mobile robots, who are working with Croatian companies on pilots and development projects.”

The government can play a greater role in fostering innovation, continues Cvetojevic. “One positive initiative was to allow digital nomads temporary residence in Croatia for a year. Working remotely is okay, but if freelancers from around the world can come, be involved in a project and be part of the community, that is really helpful.”

From the implementation of EU-funded multi-billion euro schemes to the welcoming of individual entrepreneurial talent, governments across CEE have a critical role to play in steering their countries from recovery to reinvention.

Learning from The Vivify Academy

Created by software company Vivify Ideas, the not-for-profit Vivify Academy provides programming skills for people looking to enter the software industry. The initial intention had been to attract people without university degrees into the industry, but increasingly applicants are transferring from other sectors. “We have people who no longer want to work in civil engineering, medicine or education, and want to provide for their families with good salaries,” says Goran Prijic, Vivify co-founder. Prijic estimates that 55 per cent of those finishing the advanced course at the academy are now in IT positions, something he’s “very proud of,” and that up to a fifth of his own company now comprises former academy students.