Accession to the EU was a turning point in CEE’s investment fortunes

Accession to the EU

The expansion of the European Union into Central and Eastern Europe (CEE) has been one of the most significant geopolitical events of the early 21st century.

This strategic enlargement, which began earnestly with the accession of countries like Poland, Hungary, and the Czech Republic in 2004, followed by Bulgaria and Romania in 2007, and Croatia in 2013, has fundamentally altered the economic and investment landscape of the region.

The integration of these nations into the EU not only marked a new era in Europe’s post-Cold War history, it also triggered a remarkable influx of foreign direct investment (FDI) into CEE.

Joining the EU signalled to the world that CEE countries were open for business. It provided a framework of political and economic stability, adoption of EU laws and regulations, and access to a single market with standardised rules and reduced trade barriers. This significantly lowered the risk profile of these markets for foreign investors.

Improved governance and legal frameworks

Furthermore, the convergence criteria required for EU membership meant these countries implemented numerous reforms, from enhancing their legal systems to improving corporate governance and financial transparency. These reforms made the region significantly more attractive to foreign investors.

The impact of EU expansion on FDI in CEE is clearly visible in the data. According to the United Nations Trade & Development, there was a multifold increase in FDI flows into CEE following accession to the EU. This was not just in terms of quantity, but also the quality of investments, with a marked rise in greenfield investments and high-value sectors like information technology and automotive industries.

Infrastructure projects also received a significant boost, heavily financed by EU funds, further enhancing the region’s appeal to foreign businesses.

FDI has contributed significantly to the economic growth and development of CEE countries, leading to increased GDP, reduced unemployment, and higher standards of living. But the benefits extend beyond economics. FDI has acted as a catalyst for broader geoeconomic shifts in the region, integrating these markets more closely with Western Europe and reducing their historical economic dependency on Russia.

IT and high-tech services

This shift has also encouraged a move towards more high-tech and service-oriented economies, particularly in countries like Estonia and Poland, where IT and high-tech services have become significant economic sectors. This evolution has helped mitigate the “brain drain” these countries faced in the 1990s and early 2000s, by providing high-value employment opportunities for the well-educated yet underutilised workforce.

Despite these positive outcomes, challenges remain. Economic disparities between rural and urban areas, and between CEE countries and their Western counterparts, are still pronounced. Political instability and governance issues in some countries in the region also pose risks to sustained investment flows, as seen in recent judicial reforms in some countries that have raised concerns among EU officials and investors alike.

Moreover, FDI has also led to increased competition for domestic industries, sometimes to the detriment of local businesses unable to compete on an EU-wide scale.

The expansion of the EU into CEE has undeniably transformed the region into a dynamic hub for FDI. As these countries continue along the development and integration path, the full realisation of their potential hinges on continued reforms, political stability, and the ability to attract sustainable, high-quality investment that not only fuels economic growth, but fosters social cohesion and regional development.

The journey is far from complete, but the distance travelled to date is worthy of recognition.