Recent M&A deals in South-East Europe

Recent M&A deals in South-East Europe

We have seen in the past month new mergers and acquisitions in South-East Europe. Here, we included some of the latest M&A deals in South-East Europe according to an online media source.

Croatia

The European Commission recently approved the proposed acquisition of Slovenian retailer Mercator by Croatia’s Fortenova Group, the successor to the collapsed food-to-retail concern Agrokor. The Commission said in a statement that the transaction will not harm competition in the European Economic Area. Fortenova and Mercator are both active in the supply of daily consumer goods, with the former currently active in Croatia and Slovenia, and the latter primarily located in Slovenia, with a significant presence at the retail level where Fortenova is not active.

There have been more new acquisitions in Croatia. A Digital Realty Company and a leading European provider of carrier- and cloud-neutral colocation data centre solutions, has acquired Altus IT, the leading carrier-neutral data centre provider in Croatia, offering a gateway for interconnection and peering with a number of prominent service providers in South-East Europe.

Romania

Resolution Property and Zeus Capital Management have recently acquired Floreasca Park, a ca. 40,000 sqm office campus in the heart of Bucharest. The property was sold to the joint venture by a fund managed by GLL Real Estate Partners.

“We are very pleased to conclude the acquisition of a landmark prime office building and progress with our investment program in Central East and South East Europe. This is the fifth transaction of our investment platform that is focused on prime commercial real estate properties in the region. We are confident that this market-leading asset in Bucharest’s promising office market will perform exceptionally well for our investors. ”

Stelios Zavvos, Chairman and CEO at Zeus Capital Management for Warsaw Business Journal

Bulgaria

Cyprus-based company Potamiro has completed the acquisition of the owner of Bulgarian hotel operator Sofia Hotel Balkan. The transaction, in which Potamiro acquired indirect sole control of Sofia Hotel Balkan – the company running the five-star hotel of the same name in central Sofia, was concluded on September 3. Following the transaction, Potamiro now controls 100% of Naranjilla Company, which holds 87.49% interest in Sofia Hotel Balkan through its wholly-owned subsidiary Bandola Properties.

Austria’s Energy Development has completed the acquisition of Bulgaria-based ACWA Power CF Karad PV Park, the owner of Karadzhalovo solar power plant, and plant operator NOMAC Bulgaria from Saudi-based ACWA Power. According to SEE News, ACWA Power, a developer, investor and operator of power generation and desalinated water plants, was the end-owner of the Bulgarian companies through two of its subsidiaries – Malta-registered ACF Renewable Energy Ltd, which controlled ACWA Power CF Karad PV Park and Saudi-based NOMAC Ltd., which was the owner of NOMAC Bulgaria. 

Slovenia

Italy-based investment company META Ventures said it acquired the remaining 49% stake in Slovenian fund manager META Ingenium from Slovenia’s sovereign holding company, SDH. The acquisition is a result of a public tender opened by SDH at the end of February, META Ventures said in a statement earlier this month. META Ventures was established in Italy more than 27 years ago, specialising in early-stage equity financing, advisory and academic activities. It has so far invested more than 100 million euro ($116 million) in over 100 high-growth startups across Europe.

For more information on M&A deals in South-East Europe and news, please visit SEE News and Emerging Europe.

Business environment in CEE facing Digital Challenges

Business environment in CEE facing Digital Challenges

Central and Eastern Europe offer a solid and attractive market for business opportunities. Overall, the business environment in CEE offers many advantages due to its strategic location. Moreover, long-term political stability, competitive tax system, highly skilled workforce and the international community. The wave of globalization calls for reaching beyond the borders, encouraging companies and corporates to conquer new locations.

The number of people in Central and Eastern Europe (CEE) who have accessed at least one online service has risen by 15 per cent. According to the new Covid-19 Digital Sentiment Insights survey by McKinsey & Company. Analysis suggests that the 2019 digital economy in CEE is reaching a value of EUR 94 billion.

Business environment in CEE has changed drastically due to the COVID-19, and a sudden change is a digitalization. Furthermore, the number of services in different sectors accessed digitally by CEE consumers has almost doubled since the start of the pandemic.

 

Digital Challenges in CEE

A survey by McKinsey reveals rapid digital adoption by all age groups and geographies. That goes not just for traditional “early adopters” – young professionals living in large cities. The digital adoption rate also grew significantly during lockdown for consumers aged over 65. This age group showed the strongest growth across the region, with the number of users increasing by 40 per cent.

The most popular online services are banking (accessed by 59% of consumers) and telecommunications (45%).

This is not surprising news, as these two sectors have been investing heavily for the past few years in the digitisation. The number of consumers accessing government services online has more than doubled, but these services received the lowest satisfaction ratings from users.

Even after the COVID-19 crisis passes, policymakers should focus on adding new e-government services. Moreover, with improved existing applications, the business environment in CEE would see a significant improvement for the digital ecosystem.

That said, the public sector should make fewer changes to provide digitisation in CEE. Those include providing telemedicine services to online education and e-government services. In light of the rapid migration of consumers to digital technologies driven by the COVID-19 pandemic, the CEE region has an opportunity to capture the momentum for future growth.

 

Opportunities for the public sector

 

Countries across CEE have launched innovative solutions to help tackle the crisis, including COVID-19 tracing apps. They often developed these solutions by cooperating with the private sector. This was the case, for example, with the Croatian Financial Agency’s so-called “COVID score”. That digital scoring mechanism determines, by linking multiple government databases, how vulnerable a company is to the effects of COVID-19.

Many people have started using online channels for services for the first time, and 70 per cent plan to use them to the same degree or more after the pandemic. This is clear proof that the changes brought about by the pandemic are structural and here to stay.

 

Opportunities for businesses

 

The COVID-19 has shown the biggest example of the change in customer demand for digital channels witnessed in the last six months is unprecedented.

The ability of businesses and the public sector to envision new ways of operating will be crucial to ensuring long-term sustainability and growth in the next normal.

Some companies innovated, expanding their business models and making strategic decisions at a pace hard to imagine before COVID-19.  A good example is a Poland-based company Booksy – application for finding, scheduling, and managing appointments.

Before the pandemic, the company was focused mostly on the beauty sector. The impact of the lockdowns led to a 90 per cent drop in activity on the application. Within a few weeks, however, the company managed to expand its business model by forming partnerships with numerous banks, an electronics chain, and other businesses. That enabled users to make appointments with them without the need to physically wait in line. This business model was helpful during the pandemic.

Furthermore, the business environment in CEE shows a great opportunity for businesses to focus on these strategic areas. Businesses should accelerate the adoption of digital solutions, especially in light of increased customer expectations.

Business environment in CEE has changed drastically due to the COVID-19, and a sudden change is a digitalization. Furthermore, the number of services in different sectors accessed digitally by CEE consumers has almost doubled since the start of the pandemic.

 

CEE startups ecosystem – tech scene

CEE startups ecosystem – tech scene

The CEE region continues to evolve and compete to be at the forefront of the European tech startup scene. Moreover, CEE startups produced over 10 unicorns with a combined value of €30 billion. There’s been a drastic change in the region. That goes for the majority of early-stage startups 5 years ago to companies raising sizable Series A + rounds with international VCs backing them.

Private equity investment in CEE reached €2.7 billion in 2018 to local talents, according to the Invest Europe Association. Furthermore, venture capital investment rose year-on-year by 32% to €160 million. By a number of companies backed in 2018, venture capital registered its second-best year on record.

In recent years, CEE startups in tech-led to huge traction of the market to venture capitals. About 10,000 emerging Eastern European businesses raise their first rounds of funding in the last five years. In the same period, the CEE market has seen more than ten unicorns emerged, with a total valuation of €30 billion.

CEE startups examples in tech

Lots of CEE startups tech companies achieved admirable results in tech space with a huge impact on a global scale. Grammarly Inc. is one of such tech company, founded in Ukraine. The company develops a digital writing tool using natural language processing (NLP) and artificial intelligence for effective writing of the English language. With more than 20 million active daily users, in 2019, the company was able to raise $90 million with a valuation of $1 billion.

We have Russia’s Miro, a digital whiteboard designed to allow distributed teams to work effectively together. The company raised a $50m Series B in April and has five million users worldwide. 

Another example is a Lithuanian company, MailerLite that offers advanced automated email marketing campaigns. The company was recognized by SaaS Magazine as the 5th fastest growing SaaS business in the world.

DocPlanner, an emerging Warsaw-based online healthcare platform, is making it effortless for patients to book appointments with the right doctor. In May 2019, it announced raising an amount of $89.8 million series E funding in less than two years after it raised $16.8 million in venture capital.

Warsaw and Tallinn are currently leading the space as the largest tech hub in the CEE region by impressive numbers in venture rounds.

Poland startup ecosystem

Poland is the largest economy with 30% share of total GDP ($1.59T) in the CEE region. That said, polish technology companies are becoming more sophisticated and many have truly global potential.

Source: Dealroom.co

By invested venture capital, Poland ranks as a second-best in the CEE region. 2019 was record-breaking in terms of the amount of capital invested. As many as 269 transactions totalled over PLN 1.2 billion.

Although the pandemic situation has been trying to thwart our plans, we do believe that 2020 will have also ended with record-breaking results.

– said Eliza Kruczkowska &Maciej Ćwikiewicz from Polish Development Fund Group (PFR)

However, the Polish tech startups are facing some challenges. Many great
ideas lie dormant in the universities’ drawers and laboratories. That may be solved with market professionalisation. That said, mature managers with a good track record will be able to find good projects and convince the originators that together they can achieve success.

One of the key challenges is a clear equity financing gap for later and growth-stage companies who are raising B or C rounds. Additionally, the Polish tech companies should improve managerial capabilities in the area of international business.

Key takeaways

What should we expect from the CEE region in the future? The diversified workforce has great potential. Moreover, the region includes about one million developers (50% in Poland, Romania and the Czech Republic), offering highly-skilled and educated tech workers. As mentioned in the article, Poland in 2019 is having the breaking record in venture capital investments. CEE startups certainly don’t lack innovation and highly-skilled and educated tech workers. Finally, the CEE region will likely gain more attention from investors outside of Europe.

Croatian first Unicorn

Croatian first Unicorn

Last week’s announcement that the US private equity firm One Equity Partners is partnering with Infobip in their $200 million Series A round at a $1 billion valuation may not seem groundbreaking in the international technology market yet for a small mostly tourism-driven country like Croatia it certainly is. It is a sign for the global investment community that substantial growth on a global scale can be achieved by Croatian companies, and can pave the way for more capital commitments to Croatian equities. 

The three founders of Infobip have not just proven that global Software companies with thousands of employees can be built on the beautiful coastline of Croatia, but are a symbol for the resilient entrepreneur, as they have silently built a global powerhouse without any funding or help by the institutions which were intended to do so. Infobip’s founders have spotted the need for a Full-stack Communications Platform as a Service (CPaaS), as they describe their product, early on in 2006 when it was far from obvious that billions of SMS would have to be sent daily from Uber, Lyft, and other mobile Apps 14 years later. Today the company operates its direct communication SaaS globally with virtually every major telecom operator, offers a wide range of messaging services, and boasts clients with the likes of Uber, Burger King, and Strava. 

The funding comes a bit surprising, as the founders intended to go public without prior fundraising.  In comparison Twilio (NYSE: TWLO), Infobip’s main competitor has raised $263 million from 24 investors, amongst those global leaders such as Salesforce, Fidelity, and T. Rowe Price since its inception 2009 when they first went through the Techstars Accelerator. Today Twilio has a market cap of $38.59 billion, the $1 billion Infobip is valued at seems small compared to its biggest rival, although it is their first-ever funding round and we expect more money to be drawn to the company. 

The round’s only investor One Equity Partners, invested in Croatia for the first time, the middle-market private equity firm has $10 billion assets under management and was formed at Bank One in 2001, today it operates under the JP Morgan Chase umbrella after the latter was acquired by JPM. Interestingly One Equity Partners acquired a majority share in Ericsson media solutions in 2018, which is the media business of Ericsson composed of many previous acquisitions, yet a small part of Ericsson, which of course has its roots in the global telecom market, could pave the way for a symbiotic relationship between the two. 

The future will show how this Croatian success story will unfold, we at VentureXchange are happy that Silvio Kutic, Roberto Kutic, Izabel Jelenic have shown the world that Croatia can produce Unicorns, and hope that many more will follow their path. Congratulations Infobip.

Vrijeme je da gradimo

Vrijeme je da gradimo

Svaka zapadna institucija je bila nepripremljena usred koronavirus pandemije. Taj monumentalni neuspjeh institucionalne efektivnosti će se odjekivati skroz do kraja ovoga desetljeća, međutim nije pre rano da se zapitamo zašto, i što bi trebali učiniti po tom pitanju.

Mnogi od nas bi htjeli podmetnuti uzrok problema jednoj političkoj stranci ili drugoj, jednoj vladi ili nekoj trećoj. Ali surova realnost je da su svi podjednako pali ispit – niti jedna zapadna država, općina, pa čak niti jedan grad nije bio spreman – unatoč krvavog rada i truda pojedinaca u tim institucijama. Znači da je problem dublje ukopan u srž društva da bi se našao u omiljenom političkom protivniku ili u domovini.

Jasno je da je dio problema manjak predviđanja, neuspjeh maštanja o budućnosti. Međutim drugi dio problema je ono što mi kolektivno nismo *radili* prije ove situacije, i što ne uspijevamo raditi ni sada. A to je neuspjeh djelovanja, i prvenstveno naša rasprostranjena nemoć da gradimo.

Vidimo to danas sa stvarima koje hitno trebamo ali ih nemamo. Nemamo dovoljno koronavirus testova, ili materijala za testiranje – uključujući, za čudo, pamučnih briseva i običnih reagensa. Nemamo dovoljno ventilatora za disanje, soba negativnog pritiska, i bolničkih kreveta. I nemamo dovoljno maski za operacije, oklopa za oči i medicinskih haljina – dok pišem ovo, grad New York City izbacio je očajnički zahtjev za kišne kabanice, kako bi se koristile kao medicinske haljine. Kišne kabanice, u godini 2020, u Americi!

Također nemamo terapije ili cjepivo – opet, unatoč svih upozorenja i studija o opasnom koronavirusu rođenih u šišmišima.

Naši znanstvenici će nadajmo se izmisliti terapije i cjepiva, ali onda možda opet nećemo imati dovoljno tvornica za proizvodnju istih tih na masovnoj razini. I čak i tada, moramo vidjeti da li mi ljudi možemo uopće proširiti dovoljno terapija i cjepiva da bi bilo uopće značajno. Pet godina je trebalo znanstvenicima da bi dobili dozvolu testiranja s regulatorske strane za novo cjepivo protiv Ebole, nakon što je izbila 2014. godine i uzela mnoge živote.

U Americi ne postoji ni prava mogućnost podijeliti državni novac za potporu ljudima i poduzećima koji ga hitno trebaju. Više nego deset milijuna otpuštenih radnika i njihove obitelji, i nekoliko milijuna malih obrta, su u ozbiljnim nevoljama u ovome trenutku, a ne postoji direktan način kako im država može poslati novac bez mogućeg katastrofalnog zakašnjenja. Države koje skupljaju novac od svih građana i poduzeća svake godine nikada nisu napravile sistem kako distribuirati novac nazad kada ga trebamo najviše.

Zašto nemamo te stvari? Medicinska oprema i financijski cjevovodi ne obuhvaćaju nikakvu atomsku fiziku ili doktorat kvantne znanosti. Barem terapije i cjepiva jesu teška za napraviti! Proizvoditi maske i slati novac uopće nisu teške stvari. Mogli bi imati te stvari ali smo se odlučili ih ne imati – specifično smo odlučili ne imati te mehanizme, tvornice i sisteme da proizvodimo takve stvari. Odlučili smo se ne graditi.

Ne vidi se to prosto samozadovoljstvo, to pomirenje sa “Status Quo” i nevoljom za proizvodnjom, u pandemiji, ili općenito u zdravstvu. Vidi se u cijelom zapadnom društvu, i specifično u Hrvatskoj. Vidi se na zgradama i fizičkim otiskom stopala naših gradova. Nemojmo ni blizu popraviti propale zgrade ili napraviti nove u poželjnim kvartovima naših gradova – što rezultira u suludim cijenama stanovanja u starim zgradama koje se raspadnu kada dođe do potresa u Zagrebu. Kad smo se izborili za našu državu smo maštali imati svjetlucave nebodere i spektakularne arhitektonske projekte za stanovanje u svim našim lijepim gradovima na nivou daleko iznad onoga kojeg danas imamo; gdje su?

Vidimo to u obrazovanju. Imamo dobre fakultete kao na primjer Medicinu, da, ali s kapacitetom primiti mikroskopski postotak novih 18-godišnjaka svake godine. Na svjetskoj razini imamo 120 milijuna novih 18-godišnjaka, svake godine – zašto ne educirati svakog od njih? Je l’ nije to najbitnija stvar koju bi uopće morali raditi?

Zašto ne napravimo veći broj fakulteta, ili proširimo one koje imamo? Zadnja velika inovacija u 12-godišnjem školovanju je Montessori, koji je zamišljen nazad u 1960. od tada se bavimo istraživanjem u polju obrazovanja od kojeg ništa nije došlo do praktičnog korištenja u 50 godina; zašto ne napravimo više škola sa svime što u današnje doba imamo?

Znamo danas da predavanje jedan-na-jedan može povećati ishod obrazovanja za dva standardna odstupanja (Tzv. Bloom Two Sigma Efekt); imamo internet; zašto nismo napravili sisteme da spojimo svakog mladog učenika sa starijim učiteljem da bi dramatično popravili uspjeh studenata?

Vidimo to u proizvodnji. Zašto smo dopustili da skoro svaka tvornica u Republici Hrvatskoj bankrotira zbog korupcije i malverzacije sredstva? Znamo kako graditi visoko automatizirane tvornice. Znamo i za izuzetno visok broj novih visoko plaćenih radnih mjesta koja bi se stvorila kroz konceptiranje i gradnju i rad u tim tvornicama.

Znamo – a ipak vidimo sada u ovom trenutku! – stratešku problematiku kad se opustimo i samo živimo od uvoza strano proizvedenih proizvoda.

Zašto ne gradimo skoro 100 posto automatizirane tvornice, koje proizvode sve moguće proizvode, na najvećoj mogućoj kvaliteti za najnižu moguću cijenu – diljem cijele Hrvatske? Zašto imamo samo jednu firmu Rimac a ne 5.000?

Vidimo to i u transportu. Gdje su supersonični avioni? Gdje su milijuni dronova po nebu koje razvoze sve moguće stvari? Gdje su nam ultra brzi vlakovi, mostovi i tuneli koji spajaju svaki hrvatski otok s kopnom? Da li problem leži u novcu? To mi se čini teško za povjerovati dok imamo novac za financiranje besmislenih državnih agencija, spašavanje davno zastarjelih firmi, ili za kupnju naftnih polja u Siriji. Također su hrvatski mirovinski fondovi preplavljeni novcem svih građana- koji se na kraju ulaze u državne obveznice bez ikakvog značajnog dobitka.

Ja sam na strani Nicholas Sterna, kada kaže da je definicija kapitalizma način kako se brinemo za ljude koje ne znamo – sva navedena polja su već danas visoko lukrativna i trebali bi biti glavni teren za lov od ulagača. Dobra su za Investitora i za krajnjeg kupca koji bi imao bolju kvalitetu života. Da li je možda problem tehnička kompetencija? Jasno je da nije, inače ne bi imali kuće, nebodere, škole i bolnice, aute i vlakove, računala i pametne telefone.

Problem je želja. Mi moramo *željeti* te stvari. Problem je inercija. Problem je lijenost. Moramo željeti te stvari vise nego što ih želimo spriječiti. Problem je regulativa koja drži inovaciju zarobljenu na lancu. Moramo željeti nove firme da proizvedu te stvari, iako to etablirani ne vole, pa iako da prisilimo etablirane firme da se pokrenu napraviti te stvari. I problem je želja. Mi moramo izgraditi te stvari. I moramo podijeliti nužnost da izgradimo te stvari od ideologije i politike. Obje strane trebaju pridonijeti izgradnji.

Desnica kreće iz njoj više prirodnije, iako komprimirane pozicije. Desnica je generalno za proizvodnju, ali je često korumpirana od sila koje zaustavljaju kompeticiju tržišta i izgradnju novih stvari. Desnica se mora boriti žestoko protiv uhljebova, regulatornih okova, oligopolista, riskantnih prodaja domaćih firmi (INA) i uvoza, kako i prijateljskim uslugama prema etabliranim firmama.

Vrijeme je za punomasnu, beskompromisnu, političku podršku desnice za agresivne investicije u nove proizvode, nove industrije, nove tvornice, u novu znanstvenost i velike korake naprijed. Ljevica kreće s većim prednaponom prema javnom sektoru u puno od tih točaka. Čemu ja kažem, dokažite bolji model! Pokažite da javni sektor može napraviti bolje bolnice, bolje škole, bolji prijevoz, bolje gradove. Prestanite štititi staro, ukorijenjeno, ne relevantno; javni sektor od ljevice se mora kompletno predati budućnosti i graditi na njoj. Milton Friedman je davno rekao, da je velika greška javnoga sektora da sude zakone i državne programe po njihovim namjerama  a ne po rezultatima. Umjesto da ljevica to primi kao uvredu, neka uzme kao izazov – izgradite nove stvari i pokažite rezultate. Pokažite da novi modeli od zdravstvenog sustava javnoga sektora mogu biti jeftiniji a efektivniji – kako bi bilo početi s Virološkim Agencijama? Kada dođe idući koronavirus, oduševite nas!

Ja vjerujem kako kroz gradnju može zaživjeti tek hrvatski san kojega ni nemojmo još sanjati. Stvari koje na svijetu proizvodimo masovno, na primjer TV i računala, brzo padaju u cijeni. A stvari koje ne, na primjer kuće, škole i bolnice, se dižu u cijeni. Što je točno hrvatski san?

Mogućnost imati dom u svom vlasništvu, i obitelj za koju se možeš brinuti. Moramo smanjiti visoko rastuće cijene za domove, jelo i piće, i dobro obrazovanje i medicinu, da bi omogućili svakome živjeti hrvatski san, a jedini način je da počnemo graditi.

Graditi nije lagano, ili bi sada svi već to radili. Moramo zahtijevati vise od naših direktora, naših političara, naših poduzetnika, naših Investitora. Moramo zahtijevati više od naše kulture, od našeg društva. I moramo zahtijevati više jedan od drugog. Svi smo potrebni, i svi možemo pomoći graditi.Svakim korakom na tom putu, svakome oko nas, moramo postaviti pitanje: Što ti gradiš? Što ti gradiš direktno, ili pomažeš drugima da grade, ili učiš druge kako da grade, ili se brineš za ljude koji grade? Ako posao kojeg radiš ne vodi nečemu što se gradi ili pomaganju drugima direktno, iznevjerili smo te  i moramo te ubaciti u poziciju, posao, karijeru gdje možeš pomagati graditi.

Uvijek postoje izvanredni ljudi u najviše slomljenim sistemima – mi moramo dobiti sve talente koje možemo, da rade na naj većim problemima koje imamo, i da rade na odgovorima na te probleme.

Očekujem da će ovaj esej biti meta kritike. Ovdje je skroman prijedlog mojim kritičarima. Umjesto da se bacite na moje ideje što napraviti, stvorite svoje! Velika je šansa da ću se složiti s vama.

Naša domovina i naša kultura su građene na izumima i produkciji, na samoj izgradnji, bez Kravate, Vegete i Sumameda ne bi postojala Hrvatska. Naši preci su izumili struju i kemijske sastojke, i tisuće drugih stvari koje danas koristimo bez da razmišljamo o njima, koji su uvijek oko nas i definiraju nas život. Postoji samo jedan put da živimo u čast njihovog nasljedstva i da kreiramo Hrvatsku koju želimo za našu djecu i unuke, a to je da gradimo.

Original: Marc Andreesen
Preveo i adaptirao za Hrvatsku: Ivan Mišković

Market Analysis South East Europe

Market Analysis South East Europe

During covid-19 pandemic, over 16,000 people tested positive in South East Europe. However, market analysis for South East Europe shows a slowdown in the SEE economies. Those heavily rely on trade with investments from European countries, especially Germany and Italy. Unemployment in the SEE economies may rise again and labour market conditions may deteriorate further, as a significant share of the workforce lives abroad (between 20-25% of the population).

Moreover, within the domestic markets SMEs, manufacturing and tourism sectors will be among the most affected. Some SEE governments have already introduced stimulus packages. As an example, the government in Croatia raised support from HRK 3 250 per worker to HRK 4 000.

All SEE economies have closed their borders crossings to the movement of people while allowing the flow of goods and medical equipment. Due to the lockdown measures, educational systems in the SEE region have started conducting classes remotely. The lockdown also affected cafes, restaurants, and retail store, as well as large-scale cultural events. These measures have triggered a rapid expansion of e-commerce services in the SEE. That triggered many firms to seek new ways to conduct business during the crisis.

Furthermore, a covid-19 pandemic is taking a heavy toll on the economy which will affect South East Eruope. In this market analysis, South East Europe is leading to much lower economic growth compared to other European countries.

Economic impact: Market analysis South East Europe

 

First and far most affected due to the covid-19 pandemic will be domestic supply. Although macroeconomic policies can aid the recovery of demand, they can not completely offset the economic consequences.

Summer season for tourism is not looking good either. Albania and Montenegro tourism revenues exceed 20% of GDP.

Third, exports across the region will fall due to depressed demand, as well as disruptions in value chains. Moreover, the manufacturing sectors contribute most to their economies in terms of value-added and employment.

Source: World Bank Data from the OECD report

 

The contributions of foreign direct investment (FDI) to the Western Balkan economies were relatively sizeable over the last years. With FDI investments over the past years, we could see more economic growth and job creation. See the chart below-showing investments for South East Europe region. Romania shows growth in FDI investments with a net flow of over 7 billion US$ in 2018.

Source: World Development Indicators

 

The economic slowdown will also come at a bad time for Albania and Croatia, as both economies have been recently hit by earthquakes. No argue that this will add an additional burden to already stretched budgets to counter the coronavirus outbreak.

Unemployment in SEE region

 

In South East Europe there is a constant outflow of human capital. According to available data from the United Nations, in 2019 there were almost 4.6 million people living abroad from the five Western Balkan economies. In particular, young, skilled workers seek job opportunities outside the region. Also, many health professionals leave for Western EU countries and Switzerland.

Moreover, in the context of current covid-19 crisis, two thirds of people have no prior experience with teleworking. On average, only about one third of individuals aged 25 to 64 with high formal education have at least once worked from home in 2018.

All Western Balkan economies have taken measures to limit physical interaction, and the workplace was the first focus of those measures. Existing regulations have already been relaxed and new options for teleworking have been introduced.

What to expect for SMEs?

 

In the Western Balkans, over 99% of all firms make up SMEs, which generate around 65% of total business sector value-added. SME’s account for 73% of total business sector employment according to OECD.

There are only few implications on how covid-19 could impact on financial losses for SMEs. However, we can only assume that the reduced customer demand will lead to cash -flow problems.