An accession briefing
for atlases that look suddenly archaic as they predate the
statehood of more than half the accession countries. The European
map has changed faster than the European bookshelf. And for
manufacturers the landscape is shifting faster still, writes Jenny
Luesby.
For those seeking instant navigation, CEEFoodIndustry.com has put together the briefing that goes beyond GDP to make sense of the new European map.
Beyond the list of 10
The 10 nations joining the EU this weekend amount to one large nation, and nine that run from small to tiny. With Poland alone, the EU gains more than 38 million citizens. The other nine new entrants between them bring fewer than a further 36 million.
However, an apparently diverse and dispersed slate of mini-nations is in reality a simple line-up of three clusters.
In the far south sit the three smallest, but relatively wealthy Mediterranean states: Cyprus (half of it), Malta and Slovenia - formerly a state within Yugoslavia.
In territorial terms, the next, central cluster is the large one, bringing in four neighbours - Poland, the Czech Republic, Slovakia and Hungary - perhaps best characterized as the mature set within Central Europe's transition economies.
Finally, in the north, sit the Baltic states of Estonia, Latvia and Lithuania: the poorest of the new members, and the late starters, but currently enjoying catch-up growth rates that make the rest of the accession club look almost sedentary.
Between them these three mini-clubs will on 1 st May boost the EU's population by 20 per cent, but its GDP by less than 5 per cent.
Poor and poorest
If income per person is based on prevailing domestic prices, the citizens of Cyprus and Slovenia are already wealthier than those of existing EU states Greece and Portugal.
But in international spending power the new members are a lot poorer, on average, than the existing members. Income per head in the Mediterranean accession states is something over 70 per cent of the EU average, while at the lowest end, the Baltic states' average runs at 40 per cent of EU income levels.
Thus the 5 to 7 per cent a year in GDP growth chalked up by the Baltic states in the last two years - compared with 2 to 4 per cent across the rest of the accession countries - is a catch up with a long way to go.
Even for the wealthier new members, EU equivalency is going to take time: at current growth levels Slovenia could take 31 years to reach EU average wealth levels, and Poland 59 years.
To invest, or not
For manufacturers considering investments in the new member states, the disparity in wealth translates into a sharply lower cost base. Manufacturing wages cost an average of £420 a month across the 10 newcomers, compared with £2,300 in the existing EU. There is also more productivity related pay: covering 18 per cent of employees in the accession countries, compared with 7 per cent in the existing EU. And the working week is up to 20 per cent longer.
However, wages have been rising sharply in the accession states in the last two years, in many cases at a faster rate than either GDP growth or productivity, suggesting that the cost advantage will be strictly finite. And costs are also being pushed up by the adoption of EU regulations.
As a result, while some 40 per cent of UK and French companies and 51 per cent of German companies cite the accession states as a possible location for upcoming investments, more still are interested in investing in Asia, and especially China.
With many of the accession states too small to justify set-up costs, economists suggest the only manufacturing sub-sector likely to truly shoot ahead in the region is textiles and leather, with food processing likely to be impaired rather than boosted by entry into the internal market.
The new consumers
For food processing, until now the principal magnet for foreign investment, investments have been primarily driven in the accession states by proximity to emerging markets, making the take-off in consumer demand, rather than the low cost-base, the main driver of investment decisions.
Consumers spend a much higher proportion of their income on food than western Europeans. This is most pronounced in the Baltics and Slovakia, where around a quarter of all household spending is on food, almost double the level of existing EU consumers.
Moreover, forecasters such as the Economist Intelligence Unit suggest that spending on food in eastern Europe is set to rise by at least another third in the next five years.
However, such rises will depend on a growth in consumer demand that could be elusive. Domestic demand in the majority of the new member states has been underpinned in recent years by bulging public spending, rather than buying by consumers.
Such public spending must now be brought under control, with budget deficits at the limits.
Thus for accession-nation consumers, now facing a slate of new taxes, as well as a wave of price hikes as a result of accession itself, imminent affluence is looking far from probable.
