Are we destined to be lagging behind?

Improving Central and East Europe’s economic competitiveness is essentially blocked by the migration of young and highly qualified people. This is what Indrek Neivelt, the most successful banker of Estonia (according to Forbes, he has private funds worth one and a half billion dollars) talks about in the interview given to alapblog.hu. He is a shareholder of different Scandinavian, Baltic, and Russian technology companies, and investor of many information technology start-ups. His forecasts in relation to our area are rather negative. He does not think the wage and living standard gaps between the West and East are closing – hence, he sees no realistic chance for turning the emigration around. Mainly, he suspects speculation to be behind the current boom of Eastern European real estate market. The interviewee stands against the political attempts to nationalize the bank sector, he supports the independence of the financial sector. Indrek Neivelt is one of the most influential businessmen of the area, who created CEED (Central and Eastern Europe Development Institute) which focuses on the opportunities of Central and Eastern Europe’s economic development.

Péter Zentai: Among the Baltic countries, such as Poland, Romania, the Czech Republic, and Hungary, I can see extreme differences in the everyday life, the economic and other policies, and how people relate to foreigners, foreign investors, and the European Union.
Indrek Neivelt: I can see a resemblance in two, related areas – excluding the common recent history (belonging to the Soviet bloc) – which are rather distressing than comfortable. One of them is that in our countries, life standard is lower than in the other European countries. In other words: the populations of these countries have been decreased by six percent – only due to emigration. It forecasts that Central and Eastern European countries will have more trouble facing not only the problems of the present, but future problems as well. Nobody has an idea how to sustain a stable public pension scheme, maintain healthcare, which currently is not very good and declining even further – in this state of decreasing population and ageing society as a result of such an incredible rate of migration.

It is said that more and more of the migrants are returning sooner or later…
The most will not – not in a reasonable time. Moreover, the more time these people spend in western countries, the less likely they will return; however, the more will take their families with them. Currently, there is no research which supports that this tendency would take a turn. The young, working, and highly qualified people make up the base of the migrating population from Eastern and Central Europe. That six million people is the 10 percent of the total economic capacity – and its upkeep and supply – of this area. Our economies lose this proportion.

Should the highly qualified people living in these countries be paid better? I read, your suggestion that minimum wage in Estonia should be raised to a thousand euro per month before the end of the decade, has stirred debates…
At least for the qualified people. Anyway, it is absurd that in the neighbouring Finland, Sweden, neither fuel nor power is costs more than here. However, at a Finnish small business people earn three or four times more than they do in Estonia for the same work. Tax burdens are greater here than in Scandinavia. The icing on the cake is that the better paid Finnish small and middle-sized operators spend less on luxury goods, they live are more modest life, so to say, the live worse than an Estonian, Lithuanian or Latvian operator. The migration process cannot be stopped without envisaging a significant and steady increase of average wages.

But the highly qualified young people do not really care about how much the wages are going to be (or not going to be) in 5-10 years. They compare how much other people of similar qualities earn in Austria, Germany, and in the United Kingdom, and if there are job opportunities for them in those countries, they leave…
I agree. In the western countries of the European Union, the labour supplies of fields that are relevant to the future are ensured – mostly as a result of immigration. In contrast, the supply is rather problematic here. Moreover, the USA, Canada, and Australia are even more open to experts of those fields than Western Europe. The competitiveness of the Central and Eastern European countries, the innovation are at risk as a result of the emigration.
And while in the West, people do not see highly qualified foreigners as strangers – local economic players do take care of it for their own interest -, certain Eastern and Central European countries alienate the foreign labour from appearing and helping by high level policies…

However, many foreign, mostly British and American investors and economists are very optimistic about the economic opportunities of Eastern and Central Europe.
As for me, I see no reason for optimism. Here in Estonia, we have to keep revising the expected GDP growth rate downwards (from 2.8 to 2 percent recently), and this is the case in other Central and Eastern European countries as well. Celebrating a 2-3 percent growth only because it is higher than the western average? But at what economic, income, and productivity level are they, and where are we, compared to them?

Increasing real estate prices are always a good sign. In our country, residential and office real estate markets are booming, and internal demand is increasing in Poland, Hungary, and Romania…
This is mainly the result of speculation. This market field has dropped so significantly during and after the crisis that today, in the world of cheap money, people notice that in our cities rents and prices per square metre are much lower than in western cities. Simply, wealthier people are trying to achieve greater pay-off compared to the zero-interest. However, I think, this does not reflect a stable and serious interest. Demand will drop as soon as central banks stop artificial money printing. I cannot emphasise it enough, this enormous money creation misleads Eastern and Central European investors, and encourages them to take on risky speculations. I strongly believe that this should be stopped as soon as possible.

You are a banker. According to your experiences in your sector, do you think it is right that Baltic states – unlike Hungary – allow local banks to remain in the hands of foreign owners?
The advancement of the bank and financial sectors in general are determining factors in the development of the economy. If the bank sector is weakened, so will be the economy as a whole. The nationality of the owners should never be an issue at all. The only significant factors are the professional and capital background of the financial institution, how guaranteed and transparent its actual state is, whether it is standing on strong base, and also its reputation. In the Baltic region, especially in Latvia, we gathered clear evidences for the drama caused by policies allowing a nationally owned bank to create monopoly. In Slovakia, due to insisting on a nationally owned bank system, the whole financial system was on the verge of collapsing. Today, in the Baltic area, mainly the internationally owned bank sector is considered to be one of the most innovative and functional branch.
I can tell you, as an investor, I see the best opportunities for investments in this area for the next ten years. I think, the financial service sector will transform more efficiently and take on new technologic advancements, compared to other sectors.
I am injecting capital in workshops which advance this ‘bank technology revolution’.