Emerging Europe Winter 2018 by Emerging-Europe

Winter 2018

Global Champions Polish firms making their mark on the world stage Winter Weekends Where to ski in emerging Europe Wojciech Smarzowski The director of Kler speaks to EmergingÂ Europe Outlook on Lithuania The little country which is thinking big

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INBRIEF Macedonia’s parliament voted to officially adopt Republic of North Macedonia as the country’s new name. The vote paves for the way for Macedonian membership of NATO and the EU, and ends an often bitter feud with Greece which has lasted for almost three decades. The deal was approved by Macedonian voters in a referendum in September, although turnout below 50 per cent meant that the result was not constitutionally binding, necessitating a parliamentary vote. Armenia’s Prime Minister Nikol Pashinyan resigned in October, in order to force an early parliamentary election, likely to be held in December. The EU welcomed more than three million legal migrants in 2017, a four per cent increase on 2016. Poland attracted the highest number of new residents – almost 700,000 – with some 85 per cent drawn in for jobs from neighbouring Ukraine. Indeed, Poland accounted for more than 59 per cent of all residence permits issued in the bloc for employment reasons, proof of the buoyancy of the country’s economy, which has seen 26 years of consecutive growth. The European Bank for Reconstruction and Development (EBRD) has said that growth in central Europe and the Baltic states will remain above potential in 2018 and 2019, averaging 4.3 and 3.5 per cent respectively. The bank’s latest Regional Economic Prospects report claims that the outlook is broadly stable in the economies in its regions. The economic recovery remains on track in most of the countries where the EBRD invests but

risks persist from global trade tensions, high corporate debt levels and continued geopolitical instability. “Overall, growth is strong and growth is continuing,” said Sergei Guriev, the bank’s chief economist. Georgia remains the best place in emerging Europe to do business according to the latest edition of the World Bank’s Doing Business Report. Georgia has climbed three places overall to sixth, surpassing the UK and the US. Globally, New Zealand took the top spot once again. Elsewhere across the region, 11 countries saw their rankings drop, while a further 12 countries held their ranking or saw it improve. The most significant change came from Azerbaijan, which climbed 32 places globally to 25th. British car maker Jaguar Land Rover opened its new manufacturing facility in Nitra, Slovakia, following an investment worth 1.4 billion euros.

A new report from the Pew Research Centre has highlighted striking differences between Western Europe and the CEE region in terms of public attitudes towards social issues and religion. In almost all the surveyed countries of the region, less than half of the adult population would be willing to accept Muslims into their families. The figures are the lowest in Armenia, where only seven per cent of adults confirmed a readiness to accept Muslims. Slovenians were found to have the highest level of English proficiency in emerging Europe, ranking ninth globally in the 2018 English Proficiency Index, put together by global language training company Education First, which compares levels of English among non-native speakers across 88 countries around the world.

A new report from the World Wildlife Fund (W WF) suggested that the destruction of habitats across Central and Eastern Europe is a key threat to ecosystem health. "We advocate for greening of the EU’s Common Agricultural Romanian unicorn UiPath Policy – subsidies should only be – which develops platforms for Robotic Process Automation (RPA) paid to farmers who take care of their soil, water and pollinators – completed a new funding such as bees,” said Irene Lucius, round at a three billion US dollar conservation director, W WFvaluation. The new finance comes Danube-Carpathian Programme. just six months after a prior round valued the company at 1.1 billion US dollars. Wine producers across emerging Europe announced a record year. Romania and A consortium led by the EBRD Hungary are forecasting vintages bought a 41 per cent stake in Moldova’s largest commercial bank, well-above their five-year averages, while Georgia saw its Moldova Agroindbank (MAIB), best harvest since independence in a 23 million-euro deal that the development-focused lender hopes from the Soviet Union in 1991. Across the region only Bulgaria will restore trust in the country's banking sector and encourage other recorded a drop, of one per cent, in wine production. investors.

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FROM THE EDITOR I

t's been a year of centenaries throughout emerging Europe. With varying degrees of fuss and bombastic nationalist sentiment, the Czech Republic, Estonia, Latvia, Lithuania and Poland have all been celebrating a century since gaining – or regaining – their independence, while Romania has been marking 100 years since the south and east of the country were united with the western province of Transylvania. It has been a century of nation states, just as the previous 100 years was a century of empires. What's next? A century of cities, or perhaps regions. That's my punt, at least for our part of the world. It's already, slowly but surely, happening. Look at the number of cities and regions across emerging Europe which have begun to take the initiative and do things for themselves in recent years, often in spite of the wishes of central governments. The reason is simple: these cities and regions no longer want to be held back by long, cumbersome decision-making processes which stifle initiative and innovation. There are exceptions – particularly in the smaller states of emerging Europe – but by and large the countries of the region have failed miserably over the past three decades to decentralise. Capital cities not only still get the largest slice of the pie, but generally still get a say in how and when other cities can eat theirs. For a go-ahead mayor in a regional city this is intolerable,

which is why so many have begun to do all they can to loosen the ties that bind them to their capitals. In Romania, a once deeplyunpopular prime minister, Emil Boc, has managed to reinvent himself as the mayor of the Transylvanian city of Cluj. On Boc's watch, Cluj has become the first city in Romania's recent history to emerge as a genuine challenger to the primacy of Bucharest. A tech hub of worldrenown, Cluj has managed to attract a number of investors the Romanian capital has not. The city is increasingly prosperous, with all the advantages (and disadvantages – property prices are out of control) that brings. But Cluj, and its mayor, now face a challenge, for there is little more that can be done without Bucharest getting involved. The way that local authorities in Romania are financed makes it very difficult for mayors and heads of county councils who are not in the favour of the ruling party (and Mr Boc is most certainly not) to raise money independently. Cluj is not alone. Elsewhere in emerging Europe, Plovdiv in Bulgaria, Lviv in Ukraine and Debrecen in Hungary are all in the less-than-enviable position of having secured a modicum of freedom from their capitals while remaining far from able to act fully independently of central government. Emerging Europe needs to give wind to the ambitions of its industrious cities. Nobody is suggesting a Europe of tiny city-

states, but allowing those cities – and, perhaps, regions – which want to speed up their transition full financial independence will benefit everyone involved. Certainly, within the European Union there is no reason why a city such as Cluj should have to answer to Bucharest anymore than it needs to answer to Brussels. A Europe of the Regions, where cross-border cooperation is encouraged and facilitated at local, not national, level will create partnerships and opportunities that are in the interests of local residents and not central governments. This will be good for people, cities, regions and – eventually – central governments. Convincing them of the fact will be difficult, but we need to try. Cities and regions have nothing to lose but their chains. •

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Craig Turp, Editor-in-Chief

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PUBLISHED BY Emerging Europe Limited WeWork Aldgate Tower, 2 Leman Street London E1 8FA, United Kingdom T +44 20 3808 8558 W emerging-europe.com E newsroom@emerging-europe.com Head of Content Strategy & Publishing Andrew Wrobel a.wrobel@emerging-europe.com Editor-in-Chief Craig Turp c.turp@emerging-europe.com Editorial team Claudia Patricolo c.patricolo@emerging-europe.com Shakhil Shah s.shah@emerging-europe.com Tamara Karelidze t.karelidze@emerging-europe.com Yoan Stanev y.stanev@emerging-europe.com Jerry Cameron j.cameron@emerging-europe.com Contributors Juliette Bretan Linas Jegelevičius Frédéric Schneider Nikodem Chinowski Graphic Designer Karolina Antipenko Video Editor Piotr Dobroniak Photographer Sabrina Bouchaala For advertising and commercial partnerships contact Commercial Director Emiliano Ramos e.ramos@emerging-europe.com

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10 Food for thought 12 Purchasing power across emerging Europe

Reforming Latvia's financial sector Latvia's Minister of Finance Dana Reizniece-Ozala, who, following a general election in October, is about to complete her term, speaks to Andrew Wrobel about the country’s sustainable growth as well as recent money laundering scandals.

Passports for sale Citizenship and residency by investment – known by the acronym CRBI – has become a fully-fledged industry, with a number of organisations increasingly worried that it is becoming far too easy for nefarious individuals to procure for themselves EU passports.

CURRENT AFFAIRS

16 A view from: London,

Table of contents

Vienna, Washington

The quest for change in Bosnia and Herzegovina

The shopping mall strikes back In an era of digitalisation and e-commerce, the region’s shopping centres have no other choice but evolve, from merely being places to shop to offering a well-rounded life experience.

Made in Emerging Europe Our quarterly look at some of the region’s most innovative companies.

Investing in Klaipėda Yoan Stanev spoke with Simas Simanauskas, the director of Klaipėda ID, the city’s development agency, about the aims of the agency and Klaipėda’s potential as a business destination for foreign investors.

BUSINESS

On these pages we provide a channel for young politicians from across emerging Europe to share their vision of the kind of Europe they want to create.

Two Estonian-led start-ups, Transferwise and Monese, are changing the face of banking for the better.

So far, heavens have not fallen, but the repercussions of a decision by the Patriarch of Constantinople to approve the independence of the Ukrainian Orthodox Church are already being felt across emerging Europe.

Emerging politicians: Marin Škibola, Marek Materek

Breaking the bank

When Clark Curtis learned that his old friend Mirsad Hadzikadic was running for president of Bosnia and Herzegovina he approached him about the idea of documenting his story.

Christianity's next Great Schism?

Poland's global champions

From fashion to passenger vehicles, an ever-increasing number of Polish companies set up in the 1990s are prospering beyond their home market. We take a look at what's making them so successful.

OUTLOOK ON LITHUANIA

A FinTech future

A combination of talent, low taxation and regulation which encourages innovation have made Lithuania a world class FinTech hub.

In the Balkans, music and politics have long been difficult to separate.

Lithuania: an FDI success story in the making Lithuania is doing all the right things to make investing in the country easy and profitable.

Lithuanian growth remains strong, but watch the labour supply Marcin Tomaszewski, associate economist, Economics, Policy and Governance at the European Bank for Reconstruction and Development (EBRD), and Matti Hyyrynen, head of the bank's Vilnius office, speak to Andrew Wrobel about the country's growth and prospects.

Manufacturing in Lithuania Free economic zones, which offer investors a number of advantages, are just one of the many reasons Lithuanian manufacturing is booming.

Virginijus Sinkevičius, Lithuania’s minister of economy, speaks to Andrew Wrobel about economic opportunities, as well as the challenges that the country is facing.

Talent tops Lithuania’s impressive list of assets There are many reasons to invest in Lithuania: talent is not the least of them.

Kaunas: Ticking all the right boxes

Postcard from Minsk When Vivian Coprina took a job in a Minsk hostel in order to improve her Russian, she soon found out that it would be no holiday.

Masterchef: Adi Hădean

Tourism: more than a G-spot

Towards the future economy

Musical politics

76 AFTER HOURS

Arts: book, gaming, museum.

Winter weekends: Skiing in emerging Europe Emerging Europe offers plenty of great skiing, some of it in surprising locations. Our editor-in-chief Craig Turp – who has skied in more countries than most people have visited – offers an insight into the region’s downhill treats.

Artist Q&A

Shakhil Shah speaks to Wojciech Smarzowski, director of Clergy, the most successful film in Polish history.

No sense, makes sense in Ukraine!

Planes, trains and automobiles

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FOOD

FOR

THOUGHT Economy and trade as a foreign policy tool

the way. Despite the shortcomings, Europe can be proud and grateful for its internal market, which benefits all members. However, the European Union, mostly under the precept of consumer protection, is protectionist toward third parties. Regulatory barriers are high, while quotas, tariff s and investment restrictions (mainly aimed at China) limit access.

Photo: Geopolitical Intelligence Services

By Prince Michael of Liechtenstein founder and chairman of Geopolitical Intelligence Services AG

Free trade, combined with a free market, is the best basis for a sound economy and a cohesive society. Legislatures must set rules to avoid abuse, but these rules should be kept to a minimum. The European internal market, with its four freedoms, is a good example of a well-functioning freetrade concept, although excessive regulation is increasingly gett ing in

trading with Iran, but European businesses can not risk US retaliation. Still, despite unrest at home, the regime in Teheran is not going anywhere soon. The US and EU have slapped economic sanctions on Russia to punish it for the annexation of Crimea and agitation in eastern Ukraine. So far, they have not been effective. The Russian economy has adjusted, nationalist sentiment has been emboldened and the country is pivoting to the east. Several European economies have been hurt, allowing Russia to drive a wedge between western countries.

Th is is not only a European disease – most large economic powers, including the United States, China and India are overly protectionist. To be sure, this has hurt the global economy, but it is damaging for So while sanctions can be a everyone involved, especially when powerful short-term tool, in economic tools are used as political the end it ends up hurting other weapons in the form of sanctions. parties more than the targeted governments or businesses. More and more, the US uses sanctions and punishes violations On the surface, Europe’s military of these sanctions globally. Th is weakness seems to indicate that is a very powerful political tool, sanctions are its only option, since so many transactions are still despite experience showing based on the US dollar. But thirdtheir inefficacy. A less obvious, party businesses, which trade, lend but probably more effective money, or otherwise do business solution, would be to use discreet with the sanctioned entities, also intimidation. Europe and the US end up punished. could work together to threaten rogue countries with clearly The Iran sanctions are a case targeted cyberatt acks. • in point. The EU wants to continue

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Fighting corruption: the importance is crystal clear growth; and the effects of climate

some of the heavy lift ing, and this can give us a new edge in the fight against corruption. For example, we In 1996, I wholeheartedly are working in partnership with a embraced the messages of global technology company, using James Wolfensohn’s landmark artificial intelligence to fi nd ‘Cancer of Corruption’ speech. More hidden patterns and risks in than twenty years later, we have procurement data. stepped up our efforts to confront corruption in multiple areas, And to encourage private supporting our client countries and capital into emerging markets and working to keep our own house in developing economies, attention order by increasing transparency should be paid to the corruption and improving oversight. risks that investors face. Th is means leveling the playing field for large I am proud of the progress we have and small businesses, putt ing the made. But the fight is not won and right regulatory frameworks in place there is more to do. The good news and incentivising integrity. And it Photo: World Bank is the World Bank is not alone in this also means paying attention to illicit mission. At the recent International fi nancial flows and blocking the Anti-Corruption Conference avenues that hide the proceeds of By Kristalina Georgieva (IACC) in Copenhagen, I joined corruption. CEO, World Bank 20 ministers and heads of state together with over 1,800 people The World Bank must lead by My parents didn’t know that the from the private sector civil example. The resources placed in name they chose for me meant society to discuss how to confront our trust must be used for their 'transparent' in Spanish. But corruption further. intended purpose and not lost to they did know the importance of fraud and corruption. The bank transparency, honesty and integrity, We have made far reaching has an advanced investigations and passed to me these values when commitments to push the antiand sanctions framework that I was growing up in Bulgaria. I corruption agenda forward. It is uncovers fraud or corruption in hold them dear in my work at the important that leaders bring the our own projects and acts fi rmly World Bank. political will and visibility to the to debar wrongdoers. What’s issue, and it is also important to more, we multiply the impact on A lack of transparency fuels complement this prominence fi rms through a cross debarment corruption, a corrosive force that with technical know-how, good agreement that has mutual hits the poor and the vulnerable regulation and hard work. recognition of sanctions the hardest. Its effects are very real. among leading multilateral Corruption stops medicine and That is why we prioritise development banks. drugs from reaching the sick, stops diagnostics to understand the schools from being built, leads to root causes of corruption As I reflect on the IACC in roads washing away in the rain and in each country, and to measure Copenhagen, I am encouraged empties the public coffers. In the where progress is being made and to see the global community most fragile corners of the world where efforts are falling short. coming together stronger to corruption undermines work to We know that for transparency confront corruption. For our part, bring stability or prevent violence initiatives to be successful there the World Bank will not succeed in and extremism from taking root. must also be data literacy, so we our mission to end extreme poverty are working to improve countries’ and boost shared prosperity unless Most importantly, corruption capacity to understand and use we address these challenges headbreaks the trust between the citizens information effectively - otherwise on. To me, the importance is crystal and the state that is critical for citizens could be data rich and clear: fighting corruption is the key development to work. We know bad information poor. to building trust in government and governance is one of the four major it also an essential ingredient for drivers of poverty, alongside confl ict When it comes to crunching data, robust and sustainable economic and violence; unchecked population new technologies can help us with growth. • change and natural disasters.

Purchasing power across emerging Europe

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WORDS SHAKHIL SHAH

raving a Big Mac? Then head for Ukraine, home of the cheapest burger in the region. If you are in search of the best deal for an iPhone Xs fly to Bulgaria, while if it's a new car you are looking for then take a drive over to Serbia for the best deal on a Škoda Fabia. Purchasing power is an important economic measure that can determine an individual’s or nation's ability to buy various products. We have taken a look at prices for

a number of products across the region, and have found that beyond some rather wide price differences from country-to-country, there are also wide variations in an individual’s purchasing power when local average monthly wages are taken into account. The average monthly wages used in our ranking were sourced from The Vienna Institute for International Economic

Wages and prices across emerging Europe (in euros) Average monthly wage 2017

Price of a McDonald's Big Mac

Price of an iPhone Xs (256GB)

Price of a Škoda Fabia Ambition 1.0 MPI (55kw)

Rank

Country

Slovenia

1,626.00

2.10

1,219.00

10,830.00

Estonia

1,226.00

3.15

1,259.00

12,360.00

Czech Republic

1,120.00

3.06

1,160.61

12,314.34

Croatia

1,079.00

2.82

1,607.29

13,110.72

Poland

1,003.00

2.34

1,329.70

11,140.80

Hungary

961.00

2.64

1,667.77

12,922.94

Slovakia

954.00

3.00

1,169.00

12,300.00

Latvia

926.00

2.70

1,349.00

13,300.00

Lithuania

840.00

2.80

1,319.00

13,376.00

Montenegro

765.00

1,413.60

11,410.00

Romania

705.00

1.95

1,399.00

12,073.00

Bosnia & Herzegovina

676.00

1,533.09

11,161.14

Macedonia

547.00

1,234.84

11,410.00

Serbia

544.00

2.26

1,533.61

9,564.00

Bulgaria

542.00

2.15

1,001.95

11,568.46

Belarus

377.00

1.86

1,653.99

Albania

372.00

1,323.25

Georgia

354.33

2.67

1,251.97

12,426.57

Armenia

310.62

1,403.82

Moldova

303.00

2.04

1,472.20

11,420.00

Azerbaijan

280.13

2.04

1,386.65

11,382.02

Ukraine

237.00

1.48

1,776.09

Source wiiw, Trading Economics (Azerbaijan, Armenia, Georgia) Kosovo is not included in our research as the three products are not available in the country All values given in euros

Studies (wiiw) and from Trading Economics in the case of Azerbaijan, Armenia and Georgia. Based strictly on the level of the average wage, the best place to live would appear to be Slovenia, which has an average wage 400 euros higher than Estonia, and a staggering 1,389 euros higher than Ukraine, which pays the region's lowest average wage. The only country we cover which is not listed in any of the research is Kosovo, as none of the products we looked at were officially available in the country at the time of our research. It's not all bad news for Ukraine, for the country does have the cheapest Big Mac in the region at 1.48 euros (almost two euros cheaper than Estonia, the most expensive in the region), as well as one of the cheapest globally. Ukraine is followed by Belarus (1.86 euros) and Romania (1.95 euros). The average price in the region for a Big Mac is 2.42 euros. This compares to the current UK price of 2.69 UK pounds. However, if you look at the data based on purchasing power, the figures paint a very different picture. According to our research, and not taking into account other expenses or taxes, you could buy 774 Big Macs in Slovenia with a month's pay, 428 in Poland and 389 in Estonia, making these three countries the top performers when it comes to purchasing power. McDonalds is not present in Albania, Azerbaijan, Bosnia and Herzegovina, Macedonia and Montenegro. When it comes to one of Apple's flagship phones, the iPhone Xs, with 256GB of memory, the variance in price across the region is quite drastic. While the average price for the region is 1,385 euros, the discrepancy between the cheapest and most expensive

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How many Big Macs do an average monthly wage buy? (in euros) How many Price of a Big Mac's McDonald's can you Big Mac purchase

Rank

Country

Slovenia

2.10

Poland

2.34

428

Estonia

3.15

389

Croatia

2.82

382

Czech Republic

3.06

366

Hungary

2.64

365

Romania

1.95

361

Latvia

2.70

343

Slovakia

3.00

318

Lithuania

2.80

300

Bulgaria

2.15

252

Serbia

2.26

240

Belarus

1.86

203

Ukraine

1.48

160

Moldova

2.04

Azerbaijan

Georgia

How many weeks do I need to work to buy an iPhone Xs 256gb? (in euros) Price of an Number iPhone Xs of weeks' (256GB) wages

Rank

Country

148

Slovenia

1,219.00

2.04

137

Estonia

1,259.00

2.67

133

Czech Republic

1,160.61

Slovakia

1,169.00

Poland

1,329.70

Latvia

1,349.00

Croatia

1,607.29

Lithuania

1,319.00

Hungary

1,667.77

Montenegro

1,413.60

Bulgaria

1,001.95

Romania

1,399.00

Macedonia

1,234.84

Bosnia & Herzegovina

1,533.09

Serbia

1,533.61

Georgia

1,251.97

Albania

1,323.25

Belarus

1,653.99

Armenia

1,403.82

Moldova

1,472.20

Azerbaijan

1,386.65

Ukraine

1,776.09

Prices checked locally where available and online. Prices correct as of 5.11.2018. Only countries where McDonald's operates are included in our research.

iPhone Xs 256GB

McDonald's menu

774

Prices checked locally where available and online. Prices correct as of 5.11.2018.

is a mind blowing 774 euros. The cheapest iPhone Xs is found in Bulgaria (1,001.95 euros), followed by the Czech Republic (1,160.61 euros) and Slovakia (1,169.00 euros), with the most expensive is on sale in Ukraine, where the Xs model costs 1,776.09 euros. In terms of purchasing power, there are no real surprises. The top three countries are Slovenia, where it takes a mere three weeks' work to be able to afford the iPhone Xs, followed by Estonia and the Czech Republic, where it would take just over a month to purchase an iPhone Xs. Looking at the three products overall, Slovenia takes top spot when it comes to an individual’s purchasing power in the region, boasting the highest average wage and not always the highest prices. In fact, prices in Slovenia are below the average price for each product in the region, which further supports the idea that the country is the most ideal in which to live if bang for your buck is what you are looking for. Alas for Ukraine, while the country can lay claim to having one of the cheapest Big Macs in the world, it also has the region's lowest average wage and the most expensive iPhone Xs, making it the least consumer-friendly place in the region. •

Current Affairs

Polish pharmacists will be allowed to treat people with cannabis after the drug was legalised for medicinal purposes. Under new regulations that came into force in October, cannabis from imported plants can be processed at Polish pharmacies - as long as it has been logged with the country's Office for Registration of Medical Products. Pharmacists are already prepared to make the drugs, according to the Polish Pharmaceutical Chamber.

CURRENT AFFAIRS

A VIEW FROM... London

The short sightedness of CEE governments in staying out of the Brexit process will cost them dearly in a no deal exit scenario. Having toured several CEE capitals over the last six months I have been struck by the consistent lack of government engagement in Brexit. I have been met very David Thomas, cordially but with little appetite Chairman of the Council of British to discuss specifics around the Chambers of Commerce in Europe existing direct and indirect trade There is no description. (COBCOE). relationships with UK, and what may change in different scenarios. After a general discussion the conversations usually end with “I am sure things will work out well in the negotiations.”

CEE’s economies have so much to lose if a deal is not agreed. For example, the continuance of UK data transfer rules is critical for their offshore IT services sector. At the same time, much of their manufacturing exports are tied up in the cross-EU supply web in which the UK is an essential element. These are just two issues which will cause more economic damage and tax revenue loss in the case of a no deal Brexit than the loss of structural funds in the next round of the EU budget. Yet the governments concerned did not seem to be interested in using their significant block powers to ensure

their interests were protected. I fear that they have been bent to submission by the European Commission through warnings of a loss of budget allocation in the next round if they “rocked the boat.” They potentially (ever increasing in likelihood) risk a much bigger proportional hit to their economies than those of France and Germany with less scope and fewer fiscal levers to mitigate the damage. Let’s hope that it all comes good in the next months and I can be accused of nothing more than scare mongering. But if things do not work out, who will be to blame for the mess?

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Vienna

Richard Grieveson, an economist at the Vienna Institute for International Economic Studies — wiiw.

On the roof of the early 20th century building where I live in Vienna, penthouse apartments are being constructed. This is happening all over the city, with the property boom (propelled by loose monetary policy and migrationfuelled population growth) pushing up prices and encouraging development. Many question the durability of these wooden structures (the old buildings can’t take anything heavier), but there seems to be no shortage of demand. The workers constructing the new apartments in our building come from Poland and the Czech Republic. This is typical: walk past any of the many building sites across Vienna, and you are likely to hear eastern European languages being spoken. These workers are in high demand given quite significant labour shortages in Austria: in the second quarter of 2018, job vacancies in the construction sector were four per cent of the total according to Eurostat, a historically very high level, and representing a big

increase on recent years. What I see in my building is a small example of the large-scale labour movements from CEE to Western Europe over the past two decades. This has plugged labour shortages in Western Europe, but caused a much more serious dearth of workers in some of the EU’s new member states. In the Czech Republic, the vacancy rate in construction is now a whopping 12.1 per cent, a three-fold increase in the space of just two years. As a result of increasingly acute labour shortages in CEE, wages are responding quite aggressively as firms struggle to find workers. Earnings rose by 9.3 per cent year on year in the Czech Republic in Q2 2018, according to Eurostat. With labour shortages likely to persist, this trend could continue. Although the compensation of workers in the Czech Republic is currently less than two thirds of the Austrian level (in per capita PPP terms), a perpetuation of current dynamics will lead to fairly significant wage convergence with

Western Europe (wage growth in Austria in Q2 was just two per cent, and the Czech Republic and Austria had identical inflation rates in September). It could still be some way off, but at some point, the gap will be small enough that workers will start to go home (other factors, such as proximity to family, are likely to mean that the gap does not need to close completely for large numbers to head back). Austria’s economy is particularly exposed to this, as so many workers commute across the border (and therefore the barriers to them returning are much lower than, say, someone who has moved from Poland to the UK). One of the workers in my building has been commuting across the border from the Czech Republic for a decade, but told me recently that wage growth at home is now so strong, that he can imagine working there again at some point in the next few years. If that happens on a larger scale, the cost of building those penthouse apartments could quickly become a lot higher.

CURRENT AFFAIRS

Washington With the election of Jair Bolsonaro in Brazil, western media have quickly got back into panic mode, lamenting the triumph of illiberalism and the decline of multilateralism worldwide. Although an automatic link between the two is an area of intense debate, they may have a Thibault point on the latter: in most major Muzergues, Europe programme powers now, from China to Brazil, director at the national leaders no longer hesitate International Republican Institute to call themselves 'nationalists', and accordingly defend an agenda in the service of the immediate national interest. While the current retreat of multilateralism certainly announces a significant setback for Wilsonian liberalism in foreign There is no description. affairs, it does not preclude a definitive victory of its antithesis domestically. In fact, in emerging Europe, the area most often associated with illiberalism, antiliberals seem to have hit a glass ceiling: in Hungary, Viktor Orbán

has mostly abandoned the term 'illiberalism' in favour of 'Christian Values' – which in itself is a sign that the term does not meet with the approval of the Hungarian public, let alone in the European Union, where he has found few allies following his head-on attack on liberal forces in Brussels in September. There is more to this isolation: despite some common views against political liberalism, Poland’s conservatives have kept their distance from Viktor Orbán, partly because of disagreements on Russia, but also because the Mateusz Morawiecki government understands that it needs to balance its aspirations to national grandeur with the constraints of European teamwork that allow Poland to play a role in the region. With few allies to the north, the uncontested Hungarian leader could have found allies to his south, but in Slovenia Janez Janša, while

victorious in the polls, was not able to gather enough people around him to form a government, leaving power to a liberal-dominated coalition. In the meantime, the Czech Republic is about to recognise same-sex marriage while rule-of-law issues continue to mobilise urban public opinions in Romania, but also Slovakia and Bulgaria, where people showed no indifference to the murder of two investigative journalists. Illiberalism may have suffered setbacks recently, but that does not mean that its liberal nemesis is back on the offensive: liberal 'Macron-type' parties remain fundamentally weak in the region, mostly because they remain unwilling to get out of the city centre to enlarge their appeal to the suburban and rural middle class. As long as they will refuse a dialogue with this key electorate, illiberalism will remain strong in emerging Europe.

CURRENT AFFAIRS

Christianity's next Great Schism?

It's complicated

To complicate matters further, Ukraine does not currently have one Orthodox church, but three: the Ukrainian Orthodox Church of the Moscow Patriarchate, which remained subordinate to Russia WORDS CRAIG TURP after the breakup of the Soviet Union; and two breakaway entities: the Ukrainian Orthodox Church of the Kyiv Patriarchate, and the smaller Ukrainian Autocephalous Orthodox Church. The Ukrainian Orthodox Church of the Moscow Patriarchate (the largest) was until now the only one acknowledged as legitimate by the world’s other canonical Orthodox churches. The leader of the Ukrainian Orthodox Church of the Kyiv Patriarchate, Patriarch Filaret, has said that he intends to convene a council with the leadership of the other churches to choose a leader of a united Ukrainian church, and has called on those parishes who remain loyal to Moscow to join them. "In the long run, everything depends on how these parishes react," says Svyatoslav Kaspe, a professor at the National Research University in Moscow and editor-in-chief at Politeia, a journal of political science. "Orthodox canonical law is archaic, convoluted, arcane and he Russian Orthodox should have an autocephalous (the ambiguous; there is no generally Church, estimated to have Orthodox term for independent) accepted authority to provide a over 150 million adherents, church, Russia was far from straightforward, authoritative is by far the largest of the world’s pleased. interpretation. On the other hand, Orthodox communities and for "The Patriarchate of the Constantinople Patriarch most of its centuries-long history Constantinople has made bears the title of the Supreme has been closely tied to the Russian catastrophic decisions, first Universal Judge, Christianity did state. President Vladimir Putin and foremost regarding itself come to Russia from Byzantium, has promoted the church as a key and global Orthodoxy,” said and the title of Moscow Patriarch part of modern Russian identity. Aleksandr Volkov, a spokesperson was originally conferred by Its leader, Patriarch Kiril, allegedly for Patriarch Kiril, on the day of Constantinople in 1589." an informant for the KGB during Bartholemew's announcement. Patriarch Filaret has said that the Soviet era, is a close ally of “The Patriarchate of Constantinople steps toward independence the Russian leader, who he has has crossed a red line.” from Moscow must be carried described as "a miracle of God." Of Shortly afterwards, the Russian out carefully to avoid giving the church's 36,000 parishes, more Orthodox Church announced it the Kremlin a pretext for further than a third are located outside of would break off relations with the Russian incursions into Ukrainian Russia's borders, with more than Patriarchate of Constantinople, territory. 12,000 in Ukraine. threatening a schism which would "We will be striving to have a So when Bartholemew, be Christianity's biggest since the single Orthodox church in Ukraine the Ecumenical Patriarch of Orthodox and Catholic churches and to make sure that the Russian Constantinople, considered split in 1054. The move prevents [Orthodox] church is not hiding 'First Among Equals' in global the Russian Orthodox faithful under the Ukrainian name while, in Orthodoxy (the Orthodox church from taking part in any sacraments, essence, it is Russian,” the patriarch has no equivalent of the pope) such as communion or baptism, told RFE/RL in October. He also ruled on October 11 that Ukraine at any churches under the aegis of insisted that there would be no So far, heavens have not fallen, but the repercussions of a decision by the Patriarch of Constantinople to approve the independence of the Ukrainian Orthodox Church are already being felt across emerging Europe.

St Michael's Golden-Domed Monastery, Kyiv

the Constantinople Patriarchate worldwide.

Bartholemew, the Ecumenical Patriarch of Constantinople

seizures of church buildings in Ukraine that are currently under the control of the Moscow church. “This is what Moscow wants – raider seizures that create the grounds for interference in the internal affairs of Ukraine,” he added. Regional splits The dispute between Kiril and Bartholemew is not new. Many analysts believe that Kiril's ultimate goal is to strip Bartholemew of his symbolic role as the leader of Orthodox Christianity, not least because of the excellent relations that Bartholemew maintains with the Catholic church and the pope. Just days before Bartholemew made his historic announcement, he was visited by Kiril in a last-ditch effort to change the Ecumenical Patriarch's mind. He failed. Kiril is therefore right to be worried about having to assume a diminished role. Ukraine is not the only country whose Orthodox believers are split. Moldova's faithful are divided between the Moldovan Orthodox Church, loyal to Moscow, and the Orthodox Church of Bessarabia (the historic name for Moldova) which is subordinate to the Romanian Orthodox Church; Kiril visited Moldova at the end of October to shore up support. A similar situation exists in Estonia where, since the break-up of the Soviet Union, there have been two Orthodox churches, one that acknowledges Constantinople and one that has stuck with Moscow. In 1996, the Russian church briefly severed ties with Constantinople until a compromise was reached that facilitated the operation of the two Estonian churches side-by-side. The decision to grant Ukraine autocephaly has left emerging Europe's other Orthodox churches with a dilemma as to who to support. Most are currently sitting on the fence, hedging their bets until the incense settles. An exception is Serbia, which has strongly objected to the independence of the Ukrainian church. Not simply out of loyalty to Moscow, but for local reasons: the majority of Orthodox parishes in neighbouring Montenegro come under the patronage of the Serbian

Orthodox Church, which fears a similar push for autocephaly from another breakaway entity, the Montenegrin Orthodox Church, re-founded after a century of hiatus in 1993 and which has grown in popularity since Montenegrin independence in 2006. “The Holy Synod of the Constantinople Patriarchate has set out along a path leading to schism. It directly and unequivocally opens up the possibility - almost emphasises - new breakthroughs for other churches,” said Irinej, Patriarch of the Serbian Orthodox Church. Bishop Amfilohije, Montenegro's highest-ranking priest within the Serbian Orthodox Church, also supported the Russian stance. "What Constantinople has done is non-canonical," he said. Bishop Amfilohije has since gone further, suggesting that the West is responsible for the split. "The West is trying to splinter the Orthodox church, the last bastion of unity for the peoples of the exUSSR and the former Yugoslavia," he said. Putin only has himself to blame In this regard, Bishop Amfilohije is on the same page as the Russian president, who has longblamed "outside elements" for manufacturing the current rift with Ukraine. "Moscow appears to be pinning its hopes on Ukraine’s 2019 presidential and parliamentary elections, but this is little more

than the wishful thinking of a Great Power reluctant to admit it has made a great mistake," says Peter Dickinson, a non-resident fellow at the Atlantic Council and publisher of Business Ukraine and Lviv Today magazines. "In their heart of hearts, the members of Putin’s inner circle must know that the days of pro-Russian majorities in Ukrainian politics are long gone." "Moscow is in the process of initiating a break with the global leadership of the Orthodox church, all because it cannot entertain the notion of religious independence for Ukraine," adds Mr Dickinson. "These dramatic measures are much more than the irrational actions of a lover scorned or a rejected spouse. They reflect the widely held belief that the emergence of a fully Westernised and democratic Ukraine would spell doom for the Putin regime and, quite possibly, for the Russian Federation itself." What's certain is that Serbia and Montenegro aside, the lack of any real support for Moscow's stance following the decision to recognise the Ukrainian church is clear proof that it is being viewed across the world as both a direct result of Russia’s 2014 invasion of Crimea and its role in the four-year war in eastern Ukraine. It is also an example of how, even in ecumenical matters, Mr Putin’s expansive foreign policy has undermined Russia’s global standing. If there is to be another Great Schism – and the more time passes the less likely that looks – then it will be of the Russian president's own making. •

CURRENT AFFAIRS

EMERGING POLITICIANS

CURRENT AFFAIRS

On these pages we provide a channel for young politicians from across emerging Europe to share their vision of the kind of Europe they want to create. All of the young people whose voices we feature are aged under 30 - some even younger - and all are unblemished by their countries’ communist-era pasts. Where the current generation of older politicians has often failed, it is our hope that this young, free and enlightened generation will succeed. Emerging Europe is delighted to be able to offer them a platform from which they can communicate with a wider audience outside of their home countries.

financially. My law protected thousands of families from enforcement and eviction. The battle with these credit institutions continues mainly because they are now trying to obstruct the law in any way they can. People are generally disappointed in politics, resulting in small turnouts for elections. The two big parties have developed a system in a large number of because salaries are insufficient to local municipalities whereby they employ people along party lines lead a decent life in our country, which is the main reason for people and in this way, they continue to hold power. New political leaving Croatia en masse. The movements have emerged recently second, rather important political problem, is the dysfunctional legal with independent individuals system and slow state bureaucracy. who are endeavouring to change those things which impede There is no incentive for investors the development of Croatia. I under such conditions and the believe this to be a positive trend government is responsible for not since people no longer trust the creating a favourable investment climate and favourable conditions established political parties. Yet despite the abovementioned for manufacturing and production. negativity, Croatia also has many The Croatian National Bank has advantages. We do not have a adopted a monetary policy that problem with migrants and safety does not stimulate economic Born in Rijeka, and security are at a very high growth but rather maintains a 27-year-old Marin Škibola is the level compared to other countries. strong local currency, the kuna, youngest member Beautiful beaches and islands which benefits imports at the of the Croatian make our country very attractive expense of domestic production. parliament, where he sits as an for many tourists from all over the This is also one of the reasons for independent MP. the high level of consumer debt as world. My goals for the future are people survive by taking loans and to work for the common good, as roatia is a beautiful country the banks take advantage of the I have hitherto been doing and with a magnificent sea and situation in order to get their hands to encourage young, professional coastline. I would like to people and new faces to enter on prime seafront property. A law take this opportunity to invite politics who can contribute to which I presented in parliament, all the readers of this article to and which was adopted by a society and the country. • visit Croatia with its pleasant unanimous vote deals with the climate and natural resources. problem of unauthorised creditors However, we have many problems who provided loans without having as far as the political situation the necessary licences or permits. is concerned. There has been a Such operations created a parallel huge brain drain over the past five financial system. The government years with many young people could not control nor even know migrating, mainly to countries how many loans were given on the like Ireland, Germany and other territory of the Republic of Croatia. countries whose economies are Such toxic loans destroyed many much stronger than Croatia. Young families and a large number of people are generally dissatisfied people have been unable to recover

Marin Škibola

CURRENT AFFAIRS

What is also vital is intuition and constant collaboration with inhabitants. I am quite an open person, which is why I decided to 'open' the town hall, make it transparent and friendly for all inhabitants. inhabitants, while talking to them All expenses are published on via social media, I kept receiving our website and everyone can plenty of valuable information, have access to that information. tips and opinions. It is thanks to Our inhabitants can report issues that communication that we have related to the town’s infrastructure managed to create a town where using our mobile application called its inhabitants can feel they are Let’s fix Starachowice (Naprawmy the most important. I have always Starachowice) 24 hours a day. respected their opinions and I have As a person who is not linked invited all inhabitants to take part to any political party, I have had in a joint-decision making scheme. the privilege to make decisions Ideas, such as the civic budget, that were independent of a specific the local initiatives programme or party’s interests and that were fully Starachowice yards, have proven aligned with the strategy that has quite useful. been outlined by Starachowice’s The last four years have proven inhabitants and their expectations. Marek Materek is that I am a good manager, able Being the youngest mayor in mayor of Starachowice, Poland, and one of to manage a team of 200 people Poland I haven’t favoured anyone. the youngest mayor in who have helped me change and On the contrary, I have always tried the country. He was recently re-elected for improve the town every single to act for the benefit of each and a second term in office day. Now, other city halls, across every social group: large families, with 85 per cent of Poland and beyond, use our seniors, handicapped people. the vote. experiences and implement our I am aware of the fact that during solutions. I have taken advantage the first four years we were not able of all the opportunities that were to reach all our goals but I am very hen I became mayor of out there. For example we have proud that I will be able to continue Starachowice, a town acquired record EU funds and my work and implement plans of 50,000 people in explored other sources of financing and ambitions. The inhabitants of southern Poland, I was only 24 investments. Two projects, one Starachowice have again showed and I was the youngest mayor in the country. The first term in office related to the town's revitalisation enormous trust and support for and the other one financing my work and have chosen me to be was full of challenges but also their mayor for another five years. successes. Thanks to the trust and improvements in infrastructure and public transport, were worth Almost 85 per cent of them cast a the support of our inhabitants, over 37 million and 34 million vote for me. I have tried, step by step, to Polish złoty respectively, and Another five years mean another implement a plan for the town’s these are only two out of 18 major five years of opportunities for renewal and development. As a Starachowice. Together with the result of the recent local elections, projects we are carrying out. Thinking strategically and inhabitants I will make sure the I am now about to start my second setting new goals, we have town will become an even better term with even greater support created a town revitalisation place to live and work that will from the local community. attract young people who have A good mayor, regardless of their programme, one of the best of its completed their studies elsewhere age, is a person who takes care of a kind in Poland, which today is town's inhabitants, who wants and also recognised and appreciated back here. • is able to speak to people and listen abroad. We operate and plan our future investments based on that to them, who understands their needs, expectations and ambitions. programme. In Poland, there is not currently A good mayor has a plan and a vision for their town’s development a school where future mayors can so it could become the best place to learn how to manage a city or a town. It is important for each live, work, go to school and relax. mayor to continuously learn. During multiple meetings with

Marek Materek

Minister of Finance Dana Reizniece-Ozala

CURRENT AFFAIRS

Reforming Latvia's financial sector

countries recognise that there is a lack of strong systemic cooperation. Yes, one of the initiatives that we have established is a cooperation platform between the private and public sectors, so that we Latvia's Minister of Finance Dana Reizniece-Ozala, who, following can exchange information for a general election in October, is about to complete her term, speaks the benefit of and betterment of to Andrew Wrobel about the country’s sustainable growth as well financial crime investigation. I fully as recent money laundering scandals. support the idea that this kind of modern legal framework should WORDS ANDREW WROBEL be established at a European level. I also think that we have to work on the centralisation of the FIU "We have demonstrated a (Financial Intelligence Unit), the stronger dedication to protecting our financial sector from potential central institution responsible for AML (Anti-Money Laundering): illicit flows of money," she tells we need to streamline regulations Emerging Europe. "The active at the European level. Just one work of the government, law example: even if a country (an EU enforcement and regulation member state) fully implemented institutions began in late 2015 the AML directives, it would still when we saw that the amounts not be fully compliant with FATF of non-residential deposits had (Financial Action Task Force) sky-rocketed, while the capacity recommendations. The Moneyval to control them lagged behind. process is carried out according So we took action, armed with a to FATF regulations. Basically, much stronger legal framework, and increased penalties. Certainly, there are different sanction the events of February and March regimes in Europe and in the rest forced us to implement the changes of the world. This is a problem in a case like ABLV; it becomes a much faster. But the results can dialogue between a single member already be seen. Non-residential state and the US as to the rules deposits at the end of last year exceeded 40 per cent. This has now and regulations of the game, not the EU. The AML directives have been reduced to 20 per cent, of to be turned into regulations which half are from EU residents, so that we ensure an equal and and approximately a quarter from obligatory transposition of the CIS and other non-residents." them, which is not the case today." Homework he year did not begin well Populism for Latvia's financial system. Latvia, she says, is doing its In February, the country's Latvia held a general election in homework - strengthening anti-corruption authority was October in which the Harmony cooperation among various forced to detain the governor of party, which takes almost all of its institutions, so that they are able the country's national bank on support from Latvia’s numerous to detect financial crimes, to suspicion of demanding bribes of Russian-speaking minority, took investigate and prosecute them. at least 100,000 euros. The arrest the largest share - 19.9 per cent "We are allocating additional triggered international concern -of the vote. Prime Minister resources to the regulatory law and caused a ripple effect which enforcement institutions. As well as Maris Kucinskis’s governing ended up with ABVL, Latvia’s strengthening the legal framework, coalition comprising the Union of third largest bank, seeking of vital importance is that action is Greens and Farmers, the National emergency liquidation from the Alliance and the Unity party taken at an EU level, because the European Central Bank, after it only won about 27 per cent of nature of the illicit flows of money was accused by the US authorities are cross-border." the vote between the three of of facilitating large-scale money them, the same as two populist One of the suggestions that has laundering and failing to come up parties, KPV LV and the been made in international finance with a survival plan. So far, ABVL's circles is that Latvia has not done New Conservatives, who also won liquidators have managed to repay enough to improve cooperation 27 per cent between them. Both 69 per cent of creditors. the KPV and New Conservatives between different legal bodies. Dana Reizniece-Ozala, Latvia's are seen as potential coalition Mrs Reizniece-Ozala believes that finance minister, is keen to point partners for Harmony. Support this is a European-wide problem, out that long before the ABVL and needs to be dealt with not just at for the ruling coalition was hit by scandal, the country had been a local, but also at a European level. widespread public dissatisfaction aware that it had a problem and was with its fight against corruption "This is not only a problem in working hard to put things right. and money-laundering – both key Latvia," she says. "Many other

campaign issues. Mrs ReiznieceOzala defended the government's record, and added that she does not believe that the process of cleaning up the banking sector will be derailed by a change of government. "Recent Latvian history has proven that even if governments change, the main political priorities normally remain the same," she says. "The obligations taken by previous governments are carried forward by those which follow, and this will also be the case within the context of the financial sector." Even if the government is led by more populist elements? "Yes, because the populists cannot form a government on their own. Besides, there is an action plan to be carried out within the context of Moneyval's recommendations. And regular reporting to the cabinet of ministers and the PM has to be ensured so that all the institutional framework is there: it's not only the government that has to take action. Actually, the onus is on the law enforcement and regulation institutions, who haven't had any elections." Sustainable growth In 2007, just before the global financial crisis, Latvia’s economy grew by over 10 per cent. In 2009, GDP plummeted by 18 per cent. In 2018, the economy is expected to go up by 3.3 per cent. With some economists anticipating an upcoming financial crunch, Mrs Reizniece-Ozala is confident that Latvia's growth is sustainable enough to withstand any shocks. "Our growth is sustainable," she says. "There are several differences to the situation we faced a decade ago. One very important one is that the strong link between the government and the banking sector has been cut, and the banking sector has been made much more self-sustainable, not only with national requirements but also with EU Banking Union development, requiring higher capital adequacy and liquidity ratios to ensure that the banks are self-sustainable. The control mechanisms have been improved. The second of course is that we are monitoring inflation rates

very carefully. Back then inflation was exceeding 10 per cent, at one point reaching 16-17 per cent. This is not the case today. It is at a healthy 2-2.5 per cent. So we are much more sustainable. It is not only internal consumption driving growth, but also the increase in exports, in production and investment. Then, of course, there is the availability of EU structural funds, which have helped in the convergence process of all three Baltic states." Mrs Reizniece-Ozala adds that there have also been a series of serious structural reforms carried out which have increased the competitiveness of the country, such as launching the new health financing system, implementing tax reform to boost company competitiveness and introducing a progressive labour tax. "We have decreased inequality in Latvia," she claims, "while keeping a strong fiscal base." Tax reform The finance minister points to the number of tax reforms made on her watch as perhaps her most important legacy. "There are two major goals of the tax reform. One is to decrease inequality — that is why we introduced progressive personal income tax and non-taxable minimum rates. The other is to increase the tax collection rate, because until now we have had one of the lowest rates in the EU. In the short term it will stay low, but over time, because of the tax reform, we expect it to grow and come close to a third of GDP. "In order to increase the competitiveness of companies we have totally changed the corporate income tax system. We increased the tax rate from 15 to 20 per cent but companies do not have to pay tax as long as they reinvest profits and do not pay dividends. That will improve the productivity of SMEs and improve their own capital structure and make them more attractive to investors. Another positive side effect that we expect to see is SMEs becoming more bankable. Until now, the financial sector – banks in particular – have argued that few SMEs were bankable enough." •

CURRENT AFFAIRS

“J

ust like a luxury good, European Union (EU) citizenship and residency rights can be bought. There are many buyers, and there is no shortage of suppliers, which explains why investment migration is a growing, multibillion-euro industry. The rules of the game in this diverse market are shaped, on the one hand, by government officials who have effectively demonstrated their preference for quick gains over longer-term impacts, and, on the other hand, by profit-driven private sector players.” So opens the European Getaway report published by Transparency International (TI) and Global Witness (GW) in September 2018. Cash for visas or citizenship is not a new concept: it has been going on for years, with countries offering citizenship in exchange for some form of investment in the country. Yet while in the past such practices were limited to warm Caribbean islands, it is now an increasingly common practice in the EU. A high-risk strategy While the theory behind the practice is sound, the reality has often brought quite different results. “These schemes pose a series of risks in for individual EU member states and for the bloc as a whole," says Laura Brillaud, policy officer – anti-money laundering at Transparency International (TI). "On the one hand, there is the risk of people with high-risk profiles and corrupt individual criminals entering the EU, and on the other there is the risk of corruption of the states themselves.” The truth of the matter is that having a second or even third passport can be advantageous for some people for many legitimate reasons, especially if the passports are European and grant holders visa-free access to more than

Passports are increasingly well-traded commodity

100 countries. Many of the countries in emerging Europe offer attractive passports. According to the Passport Index, which ranks countries by the number of places that can be visited visa-free, the weakest passport in the region (and indeed the whole of Europe) is Kosovo (ranked 81st globally), with the strongest passports being those of Hungary and the Czech Republic (both ranked fourth). As a whole the emerging Europe region has of late made quite a number of negative headlines with regards to the practice of selling citizenship and residency by investment (CRBI), with Moldova and Montenegro joining the ranks in 2018 and signing contracts with Singapore-based Henley and Partners, a company that specialises in the so called 'golden visa' to design, implement, and internationally promote the programme. According to the European Gateway report, Hungary and Latvia are the two biggest contributors from the emerging Europe region: “Spain, Hungary, Latvia, Portugal and the United Kingdom (UK) have

granted the highest numbers of golden visas – more than 10,000 each – to investors and their families.” Both Hungary and Latvia grant residency to over 90 per cent of applicants, the report finds. Which poses a significant threat to the social, political and diplomatic risks of the golden visa scheme. A safe haven Yet the issue still stands as to whether those purchasing citizenship by making investments are in fact law abiding citizens who are wealthy and just want to boast about the various citizenships they hold, or if they are individuals with sketchy backgrounds looking for somewhere far from the reach of their home jurisdictions to call home. “If you have a lot of money that you acquired through dubious means, securing a new place to call home far away from the place you stole from isn’t just appealing, it’s sensible,” said Naomi Hirst, senior campaigner at Global Witness. As TI's Ms Brillaud points out, there is the risk of corruption in

the states themselves, something which became apparent at the end of October, when Bulgarian prosecutors announced that they had broken up a scam run by state officials which enabled thousands of foreigners to obtain Bulgarian passports for cash — and with them visa-free travel across the EU and beyond. According to reports by Euractiv, Bulgarian media cited prosecution sources as saying that the head of the country's passport agency, Petar Haralampiev, had been arrested along with more than 20 other people — his subordinates and suspected intermediaries between the agency and those seeking Bulgarian passports. The scheme is alleged to have catered to fraudulent applicants from Ukraine, Moldova and Macedonia, all of which have significant minorities of ethnic Bulgarians. Under the scam, prosecutors say applicants paid up to 5,000 euros to obtain a fake certificate of Bulgarian origin. Thousands of people reportedly took advantage of the scheme, with reports suggesting the agency was issuing around 30 fake certificates per week. Bulgaria is not alone in this, as Hungary has also been under fire following a report published by Transparency International and the Fiscal Responsibility Institute Budapest (FRIB). “Golden visas have been a failure for Hungary,” said Miklos Ligeti, TI’s head of legal. “They have resulted in horrible

losses for the state budget, but have substantially enriched those unidentified final beneficial owners who lurk behind the mostly offshoreintermediary companies that trade the golden visa bonds.” When CRBI goes wrong While foreign investment is often good for a country's economy, it can just as easily go awry. Generally speaking, CRBI and golden visas are issued in return for investments into the county, through the purchase of investment bonds or investments in property. Such schemes should always be transparent. However, the reality paints a much darker picture for the validity of such programmes. Whilst they may bring foreign domestic investment into the country, it is not always done so through the appropriate channels, as in the case of Hungary. In addition, locals are not always keen on the investment plans of those granted citizenship through investment. A great example is that is former Thai Prime Minister Thaksin Shinawatra, who was given Montenegrin citizenship after purchasing the island of St Nikola. Mr Shinawatra was deposed in a coup in 2006 and was subsequently stripped of his Thai passport. A Montenegrin NGO, Porat Budva Pizana, mobilised citizens from the small town of Budva in Montenegro to protest against Mr Shinawatra’s plans to build a hotel with an accompanying 500- berth marina on St Nikola.

According to the NGO, “St Nikola is the largest island in Montenegro and represents a natural pearl, not only for the town of Budva, but for the whole country. It is important that the island be preserved and saved from construction and development.” The NGO argues that rather than developing a commercial property, the area should be preserved and developed into a forest park with recreational facilities, and that centuries of traditions and the protection of a country's natural resources and natural habitats should not be compromised in the name of investments. Based on the findings of the European Getaway report, while they do not suggest the removal of programmes in the EU or globally, they do advocate for better regulation on the issuance of visas and/or citizenship as well as sharing with EU authorities the details of those visas granted, in particular where applications were denied. “Because member states have a collective obligation to ensure the safety of citizens and the integrity of European security and justice objectives, it is important to cast a wary eye upon such schemes. Should member states decide that they want to continue profiting from the controversial trade in passports and permits, it is critical, at the very least, to harmonise and enforce high standards of transparency and due diligence in the sale of residency and citizenship across the EU,” concludes the report. •

CURRENT AFFAIRS

From Our Correspendent If ever you wanted to know what life was like in communist Romania, visit one of the country's post offices. The bureaucracy is Byzantine in its complexity, Kafkaesque in its mind-bending absurdity. A recorded delivery letter recently arrived at my office. I wasn't home, so had to pop round the next day to the post office to collect it. This letter was sent to a company, not to you, said the lady at the post office. Yes, I replied, my company. She was not impressed. You need an official delegation from the director of the company authorising you to collect this letter. I argued that I am in fact the director of the company, and that I authorise myself. Nope, need it in writing, she said. What to do? Only one thing for it: I went back to the office and typed up a rather pompous missive in which I, Craig Turp, director of my company, authorised myself, Craig Turp, to collect the letter. After waiting in line again for half an hour, I got my letter. CRAIG TURP

CURRENT AFFAIRS

The quest for change in Bosnia and Herzegovina When Clark Curtis learned that his old friend Mirsad Hadzikadic was running for president of Bosnia and Herzegovina he approached him about the idea of documenting his story. In typical Hadzikadic style he said “go for it.” Clark interviewed Hadzikadic via Skype throughout the election campaign and documented those conversations at gcomm. blubrry.net. Clark also had the opportunity to spend the final week of the presidential campaign and election day in Bosnia and Herzegovina with Mirsad and his team. WORDS CLARK CURTIS

B Clark Curtis is a former director of communications at the College of Computing and Informatics at UNC Charlotte.

Mirsad Hadzikadic, professor and director of the Institute of Complex Systems at the University of North Carolina at Charlotte.

orn in Banja Luka (of then Yugoslavia), Mirsad Hadzikadic came to the United States in 1984 to study for and ultimately receive his Ph.D. in computer science from Southern Methodist University where he was a Fulbright Scholar. With degree in hand, he became an Assistant Faculty Professor of Computer Science at the University of North Carolina at Charlotte in 1987. In 1989, he returned to his native country with every intention of staying and pursuing his computer science career there. However, things had changed; the country that he had left five years ago was transitioning from socialism to capitalism. It seemed that, in his words, “no one cared about research and development,” which was his passion, so he returned to the United States. His return to the US set him on a 30-year path at UNC Charlotte towards an illustrious career in academia and business. This is when I had the opportunity to work for him. He used his passion for research and development to bring together academia, industry and federal agencies with the aim to advance computing simulation, analysis, and modeling by addressing hard-to-solve world problems in a systemic approach. Never forgetting his roots, he founded and served as president of the Advisory Council for Bosnia and Herzegovina in Washington D.C. and the Bosnian-American Academy of Science and Arts. So why would a distinguished American academic decide to return to his somewhat chaotic native country and enter the ethically challenged (and, in

Bosnia, somewhat dangerous) world of Balkan politics? Fascinated by the political maelstrom, I interviewed Hadzikadic to find out. The answer, in part, lies with a phone call Hadzikadic received in the fall of 2017 from a dear friend in Bosnia asking, “how about you competing for the seat on the presidency?” Mirsad says this was the first time that he had ever consciously considered such a move. After ruminating on the idea, he sought the advice of others, the majority of whom said it couldn’t be done. Undeterred, he remembered the words of his friend: “there may not be another election within Bosnia as we know it because it will probably disintegrate.” That disturbing thought, he says, is what motivated his decision. “If that is so, who am I—that I, because of the comforts I have, decided not to even try?” said Hadzikadic on his decision to run for president. Thus began his quest to run for the Bosnian presidential council seat. Hadzikadic arrived in Bosnia and Herzegovina in mid-May of 2018 as a relatively unknown, underfunded independent candidate with a young, raw, and primarily volunteer campaign team. He had just over three months to spread his vision throughout the country. Hadzikadic knew, in his words, that “the politicians that are in charge are not concerned about the wellbeing of the country—they are just concerned about the wellbeing of themselves and their parties, and I wanted people to recognise that that has to change. We had to worry about the country first and then our political party.” Hadzikadic’s message was that he wanted people to “wake up” and

realise that the current political structure could not go on forever; together they had to overcome the sense of entitlement, as the entrenched parties were siphoning resources and spreading them among the members of their parties to the exclusion of everyone else. Campaigns were always based on fear-mongering, which is how the entrenched parties got their members to rally together and vote as a block, regardless of consequences. Hadzikadic believed that this process leads to nowhere and would come to an end eventually, either with an incumbent president’s new vision or with the end of the country. His reasoning for this dire prediction was that the entrenched parties cannot produce a meaningful government; they only produce people who are dependent upon them and propagate corruption as a result. His message also emphasised that he would not use fear as a campaign tactic. Rather, his message centered on hope and how concrete actions can help affect the future. He said, “let’s turn to the future, not forget the past—but let’s not bring the past back every election cycle. Let’s turn towards the future and let’s use the understanding and mutual collaboration and the fact that because we are diverse. We are richer from that experience.” The goal of this strategy was to change the conversation, to celebrate diversity among the people as sources for strength, rather than touting propaganda that differences are to be feared or scorned. He emphasised, “the change starts with you, it needs you, it requires you. You cannot sit on the fence and

Sarajevo

CURRENT AFFAIRS

just watch the battle. You have to participate in the battle.” In the months before the October 7 presidential election, Hadzikadic carried his message to town hall meetings and rallies across the country. Since the governing parties (and his rivals) controlled a media blockade of national media outlets, he turned to Facebook as a primary source of communication. By spreading his message through social media, his campaign was quickly gaining traction, especially among young voters. However, there were still many who were interested, but not yet willing to show their full support; others would not embrace the message out of fear or apathy. But, the tides of change started becoming evident about six weeks before election day. The message was still captivating the imaginations of the young and some of the original skeptics were swayed to Hadzikadic’s cause as well. As an outsider, I witnessed his popularity first hand as I walked with him on the streets of Sarajevo the day before and of the election. He could’t walk more than 20 yards without being stopped and thanked by young and old alike for what he was doing, often requisitioned for a handshake, hug, or photograph.

Even though Hadzikadic did not win the presidential election, the results were unprecedented for a relatively unknown, underfunded, independent candidate. He received 10 per cent of the vote, finishing fourth among the six candidates nationally and third in Sarajevo. These results have served to fuel the passion and hopes of those who have committed themselves to this historic movement of change, a democracy in the making. The Platform for Change Movement has been established, and an all-encompassing platform has been written. The focus now is the 2020 local elections and then the presidential elections in 2022. Change has now become a reality for many, not just a dream or an afterthought. Since the election, Hadzikadic has reflected on his vision of change and hope for his country that he loves so dearly. Like any true scientist, he needed to review and evaluate the entire process, determining what worked and perhaps what could have been done better. In the end, he said, “I was right to listen to my read on the situation and my read of the people. The results of the election validated my strategy to be myself and to focus on the things that were important. It was great that we had

an honest and positive campaign, and we were spot on when we decided not to attack or smear the other candidates.” Regarding what could have been done differently, Hadzikadic wishes that his campaign team had focused on raising more money much earlier in the process. With more money, they would have had more professional help and less reliance upon volunteers. Though he quickly added that the volunteers were advantageous in their own way. He said they were fresh, positive, energetic and understood they were a part of something different. He also recognises that he should have announced his candidacy six months earlier than he did. Doing so would have increased his visibility in the race and probably increased his base supporters. In the end, he told me, “I would have liked to have won, but that was really unrealistic. What I wanted to happen from the beginning and proved to be realistic, was that I wanted to change the political discourse, which happened, to have a name recognition, which happened and to establish with whom we could create this new political option, which happened. I think this was an excellent result." •

Business

Slovenia plans to send its first two satellites into space during the first half of 2019, in order to showcase the countryâ&#x20AC;&#x2122;s space engineering know-how. The first satellite, Trisat, was developed by the University of Maribor and is capable of taking multispectral images of Earth in short-wave infrared spectrum. The second satellite, Nemo HD, has been developed by VesoljeSI, the Slovenian centre of excellence for space sciences and technologies.

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C O V E R

S T O R Y

Poland's global champions From fashion to passenger vehicles, an ever-increasing number of Polish companies set up in the 1990s are prospering beyond their home market. We take a look at what's making them so successful. WORDS CLAUDIA PATRICOLO

ne of the most famous quotes the American poet Thomas Stearns Eliot left us is about risk being the anteroom of success. “Only those who will risk going too far can possibly find out how far it is possible to go,” he wrote in the preface to Transit of Venus: Poems by Harry Crosby. For those Polish firms who dared to start a business in the 1990s, when the country's transition to a market economy had barely begun and the economy was in a precarious state, daring was exactly what was needed. And yet it is those same companies, often founded as family businesses, which are now leading the Polish charge towards new markets. Solaris “There is no single recipe to becoming a global champion. In my opinion the most important factors to making a company successful are very good leadership and a very good team, discipline and consistency in how you do things, understanding of your market and changes to it - then coming up with the appropriate responses to these changes, a bit of luck and of course a lot of hard work,” says Dariusz Michalak, deputy CEO of Solaris Bus and Coach. Solaris started as a family business in the 1990s, founded by Solange and Krzysztof Olszewski. Now, 22 years later, the company has grown from a few dozen to

over 2,300 employees. Last year was a record year, when not only did Solaris win the coveted prize of best bus of the year, but 70 per cent of the company’s sales went to international markets. Solaris also set an absolute record in sales, selling 1,397 vehicles, beating the previous best by 17 vehicles, set back in 2014. “The experience of Solaris shows that having subsidiaries abroad may increase the chance for success on foreign markets. It is very useful, from a business point of view, to have insiders or local professionals who know and understand the characteristic features of a given country. What's more, in some areas there are often legal regulations that require your presence in another state. This also allows you to be closer to your clients. But most importantly success would be impossible if we failed to meet our customers’ expectations which are of utmost importance to us,” Mrs Olszewski told Emerging Europe. Inglot Cosmetics producer Inglot is another well-known Polish brand, now present in every continent, from Australia to the US. There are more than 100 Inglot stores in the United Arab Emirates alone. “One of our most important stores is in New York, at the corner of Broadway and 48th Street," says

Zbigniew Inglot, co-owner and chairman of the board of Inglot Cosmetics. “We also in New York have a beautiful Inglot Pro Studio in Chelsea Market. This is where a lot of make-up artists, celebrities and sportspeople come to try our products and cosmetics,” he adds. The company was founded by his brother Wojciech Inglot: a chemist, a cosmetics maker and a visionary. “Chemistry was a passion for him. He started working while he was still a student. He worked for several companies, not only just those located in Poland, to create some recipes for them. Then, after he graduated from university, he started to work at Polfa, which was one of the largest pharmaceutical companies in Poland. He worked very hard, and his favourite place was his laboratory,” Zbigniew Inglot tells Emerging Europe. When more and more retailers started to enter the Polish market in the late 1990s, Mr Inglot decided it was time to create his own chain of stores. “Owners today shouldn’t start to spend money at the very beginning; they shouldn’t start with posh cars. They should spend money on investigating markets, not only in Europe.” Following the giants “Companies such as Inglot, LPP and Solaris are large, dynamically

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An Inglot store in New York. Photo courtesy Inglot

operating entities that perform well in international markets. We are proud of their success and we try to support their efforts,” says Tadeusz Kościński, Polish undersecretary of state. “Nevertheless, it is clear that the contribution of exports depends on size of enterprise. In the case of SMEs they may employ about 70 per cent of the work force and their share in Poland's GDP may be over 50 per cent, but at the same time their level of internationalisation only reaches 21 per cent. On the other hand, larger companies already export around 60 per cent of their production. That's why our activities related to export support are currently focused mostly on SMEs,” he tells Emerging Europe. PAIH Expo, a trade and investment forum which took place in Warsaw in October, was mainly about increasing exports and getting Polish companies to increase or begin operations abroad. “Usually when you try to identify the companies willing to expand globally, you think about large corporations. Apart from their sheer size, this is also about their profitability, role in the industry, presence on the global markets and R&D investments. At the same time, let’s not forget about smaller companies following the giants. There are also hidden champions that have found a niche and become known under other brand names,” the under-secretary adds. He mentioned Pietrucha Group in the civil engineering sector, whose exports account for more than half of its activity, with its products already present in 34 countries on five continents. Or Adamed, operating in the pharmaceutical sector, which carried out the largest Polish investment in Vietnam last year. And the space sector star, Astroniki, which equipped an unmanned NASA lander with a measuring device. Ceramika Paradyz, a maker of ceramic products and ready-made arrangements, has spectacularly increased its share in the North American market. Cruz Group, a superfoods producer, managed to successfully enter 30 countries in just three years.

Kate Moss promoting Reserved. Photo courtesy LPP

BUSINESS

Another Polish company doing great things abroad is CD Projekt, a video game publisher and distributor founded in 1994, now leading the gaming industry thanks to its best-selling game fantasy game The Witcher. The Polish marine engineering company Inter Marine Group is also worth mentioning. The brand was established in 1990 and in early 2018 set up its own production facility in Portland on the English Channel. “Having our own production facility opens new opportunities for development in the UK. Now we are looking beyond the marine industry, focusing into the energy sector, the petrochemical sector, oil and gas and off shore,” says Sławomir Kalick, the president of Inter Marine Group. When the 2008 global fi nancial crisis hit Marine's British clients, Kalick says there was only one thing to do. “Instead of shutt ing down our operation in the UK, I decided to open my own company and take the future in my own hands and drive it myself,” he explains. And that paid off.

“There are projects like the construction of two aircraft carriers for the Royal Navy that we have worked on for the last four years. After the success of the fi rst ship, the second one was 100 per cent handled by our company, with a team of more than 500 people involved. Establishing the company in the UK, I would have never dreamt of building these aircraft carriers, which is a lifetime opportunity.” A champion-friendly market According to under-secretary Kościński, in 2017, goods with a value of around 206.647 billion euros were exported from Poland, creating a trade surplus of 563 million euros. These numbers would be even larger if we took into account trade-in services. Poland’s main export destinations were Germany, which accounted for 27 per cent of all exports, the Czech Republic (six per cent), the UK (six per cent), France (six per cent) and Italy (five per cent). In 2017 Poland's main exports were mechanical and electrical

machinery and equipment (24 per cent), vehicles and their parts and accessories (12 per cent), furniture (4.8 per cent), plastics (4.8 per cent), and iron and steel (3.2 per cent). “It is interesting to note that if we take into account the annual export growth in the years 20132017, Poland ranked in fi ft h place among the 50 largest exporters in the world (after Vietnam, the Philippines, Ireland and the Czech Republic),” he comments. “Fortunately, more and more businesses in Poland think about becoming a global player. We want to help them turn these aspirations into a specific business plan and manage the risk properly,” he continues. And when we talk about risk do not forget about what American businessman Leonard C. Green wrote award-winning awarded book The Entrepreneur's Playbook: “Entrepreneurs are not risk-takers. They are calculated risk takers. The difference between risk-takers and calculated risk-takers is the difference between failure and success.” •

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Breaking the bank Two Estonian-led start-ups, Transferwise and Monese, are changing the face of banking for the better.

It's now possible to open a bank account direct from your phone

WORDS CRAIG TURP

hen my mother died after a long illness earlier this year I tried to set up a UK bank account in order to make dealing with a number of administrative issues as easy (and as cheap) as possible. After visiting just about every high street bank in the UK it became clear very quickly that opening an account was not going to be an option. Having lived outside the UK for more than 20 years I had neither a credit history nor – most crucially – did I have proof of a UK address. So I looked for alternatives, and quickly found two: Transferwise and Monese. Both have Estonian founders, both offer de facto UK bank accounts (and much more besides) and both allowed me to open accounts in minutes, using my mobile phone. Technology – much of it powered by Estonian engineers - is at the heart of both operations, driving the necessary background checks. I received debit cards from both companies two days later. Easing the pain It was for much the same reason – lack of access to traditional

banking - that Monese, Britain’s first mobile-only bank, was created in 2015. Norris Koppel, Monese’s founder, was one of many prevented from banking in the UK when he first moved to the country. With no UK credit history or utility bills proving his address, he was immediately denied a bank account. Without one, he found it near impossible to receive his salary or rent an apartment. From his painful experience, Monese was born - a banking service that was inclusive, instant and on-demand. Since then, Monese has been officially named ‘Best ChallengerBank' in Europe and was even awarded 1.1 million euros by the European Commission for research and innovation. Monese today services more than 600,000 users in 20 European countries, moving over 2.5 billion US dollars a year. The number of new monthly customers has been tripling since the end of 2017. For many it is their only bank account. Set up to solve a specific problem, Monese now has its eyes set firmly on European expansion. The company raised 60 million US dollars in Series B capital

in September, which will allow the firm to continue to develop its next generation of mobile banking services and make them accessible to more people around the world. The financing round was led by Kinnevik, a global investor focused on digital businesses, and included the participation of some big names: PayPal, European investor Augmentum Fintech and International Airlines Group through its loyalty and data business Avios Group. Existing investors including Investec’s INVC Fund also participated. "Europe is embracing the Monese product even faster than the UK market," said Mr Koppel. "We see this as a vindication of our original mission statement - and a validation of our approach in addressing the inefficiencies and limitations inherent to the current banking system." In October, Monese launched business accounts for UK firms and opened a third office, in Lisbon. No loans, no overdraft, no interest Unlike banks, Monese does not have a banking license and is not allowed to use customers’ funds to invest in markets or in any other way. Customers’ money is held in a safeguarded and segregated account dedicated to them. It is ring fenced and separate from any other monies. As such, Monese offers no loans, no overdraft and does not pay interest. It makes money by charging a small monthly fee, although it does offer a nominally free account, with limited functionality and charges for some transactions. Two paid monthly plans, starting from 4.99 euros per month, offer reduced or free transactions up to a certain limit each month. Increasingly, that is enough for many people, which is why the market for services such Monese is growing. Its biggest, and probably best-known rival is Revolut, which met UK regulators last year about applying for a banking licence but instead decided to apply for one in Lithuania, partly to avoid the disruption of Brexit. “With our European banking licence, Revolut will offer

enhanced consumer protection through the European Deposit Protection Scheme and will offer interest bearing deposit and credit products,” said Revolut’s Russian founder Nikolay Storonsky. The company is also building its own internal payment processor, which means it does not have to rely on a third-party provider to facilitate customers’ money transactions and has more control in the event of a processing failure. More Estonians It is another Estonian-led outfit however which has done the most to make international banking as seamless as possible: Transferwise. In April, Transferwise became the first FinTech group to gain direct access to the Bank of England’s (BoE) interbank payment systems, as regulators and the government step up their efforts to encourage competition in the UK’s financial sector. Kristo Käärmann, Transferwise’s Estonian CEO, said settling transactions directly would allow it to speed up its money transfers while cutting costs. The company has been aggressively reducing the fees it charges customers in recent months in order to increase volumes, and Mr Käärmann said the benefits of the BoE’s move would be passed on to customers in the form of further fee reductions. Just as Monese was created to solve a problem: opening a UK bank account, Transferwise, founded in 2011, was set up to make cross-border and crosscurrency money transfers cheaper and easier. As Estonians working between their native country and the UK, Mr Käärmann and co-founder Taavet Hinrikus, formerly of Skype, they had personal experience of what they called "the pain of international money transfer" due to bank charges on the amounts they needed to convert from euros to pounds and vice versa. "I was losing five per cent of the money each time I moved it. At the same time my co-founder was starting to get

paid in the UK and was losing a lot of money transferring cash back home to pay for a mortgage there," said Mr Käärmann. Matching customers with currencies Like a number of similar services, Transferwise works by matching customers who want to change opposite currencies: for example, one user who wants to change euros to dollars with another who wants to convert dollars to euros. It then performs the conversion at or close to the interbank exchange rate, charging a small commission to do so. Transferwise’s customers therefore benefit from better currency exchange rates than offered by the banks, who buy and sell currency at different rates, pocketing the difference. The fees are also lower, even on small amounts, with Transferwise usually charging about 0.5 per cent. With more than three million customers moving around 1.5 billion euros each month, the service has been hugely popular, making Transferwise one of the most sought-after stocks in European FinTech. Its last funding round, Series E, in November 2017, raised 280 million US dollars from investors, a record fundraising round for a UK-based FinTech. It brought the total raised by the start-up to 397 million US dollars and valued the company at around 1.6 billion US dollars. No wonder that both Hinrikus and Käärmann were recently named as Estonia’s wealthiest people.

proof of address, but the borderless account can be opened in minutes. For expats, second homeowners, freelancers, sole traders and more the borderless account is invaluable. One day anyone will be able to send and receive money, in any currency, from friends, customers or companies anywhere in the world, and spend anywhere, never worrying about the exchange rate again. That’s the vision for the borderless account."

BUSINESS

How will the legacy banks react?

So far, they have been unmoved by the rise of the challengers. But some industry insiders feel that they will need to respond soon. "The success of start-ups like Monese – particularly in the UK - cannot be attributed to migrants alone," says Charles Masters, an independent banking consultant. "It is clear that there is a market for no-frills banking, even if it comes at a fixed monthly price. Young people especially are unmoved by a lack of interest being paid on their balances, especially as interest rates in general are so low." Mr Masters believes that the legacy banks will have to offer accounts similar to those currently purveyed by Monese and Transferwise. "There are whispers that at least a couple of major banks are preparing no-frills accounts. Some already claim to offer them, albeit packaged rather differently," he tells Emerging Europe. "Their success will depend not on what they offer, however, but on how accessible they are. This is where Monese and Transferwise have a clear advantage: the ease of opening an account, especially Borderless banking the fact that it can be done direct from within a mobile app. In 2017 Transferwise moved Millennials do not want to give onto Monese and Revolut turf by launching what it calls a borderless up any more of their valuable time than they have to, they certainly account, which allows customers don’t want to start filling out to receive and hold money in a forms in a bank. I think we are at number of currencies, and to the start of a genuine revolution. spend in local currency via Monese and Transferwise are not a debit card. start-ups who want to eventually "The borderless account is a become traditional banks. But game changer for anyone living if their success continues then or working between countries,” we might see traditional banks said Mr Hinrikus at its launch. “Opening a bank account abroad is becoming more like Monese and incredibly difficult without a local Transferwise." •

From Our Correspendent When my youngest son was recently admitted to hospital in Poland with pneumonia, I must admit to being pleasantly surprised that the standard of care was good. However, there is one thing that I still cannot get over: parents are charged a per diem rate to stay in the hospital with their child. Granted, this is not an extortionate sum (in this case it was approximately 15 zloty a night, with special rates for those who have to stay for weeks or months). The only exceptions are made for breastfeeding mothers. However, the point is that, no parent would leave an 11 month-old child in the hospital alone. Even if a parent would consider leaving their 11 month-old alone in the hospital, it is not like there is an abundance of staff that can administer 24 hour care for the child, which leaves you as a parent questioning the morality of these practices in state hospitals. It feels to me a bit like blackmail. SHAKHIL SHAH

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The shopping mall strikes back

market for the retail sector, thanks to continuing increases in revenue and tight labour markets, which are reviving investments in the In an era of digitalisation and e-commerce, the region’s shopping euro area, the predominant trading centres have no other choice but to evolve, from merely being region for CEE countries. places to shop to offering a well-rounded life experience. “Retail growth rates in CEE are still substantially above western European levels and WORDS CLAUDIA PATRICOLO prime rents in shopping centres are growing. Nevertheless, professional owners are constantly he largest threat to the to lose relevance to shoppers and improving the quality of their traditional retail sector face difficult times ahead,” adds shopping centres. They are setting continues to be the growth Mr Lipscomb. the bar when it comes to consumer, of online sales and this is expected “Retail is undoubtedly going retailer and investor expectations,” to continue to grow in CEE,” through a challenging transition, said Walter Wölfler, head of retail Neil Lipscomb, JLL European with discerning customers and Austria and CEE at the real estate retail capital markets, tells many strong contenders across company CBRE. Emerging Europe. Europe,” says Marek Piechocki, "With record low interest rates, And yet online stores are not president of LPP. we expect the current cycle to set threatening the industry as much as “Brands are adapting to this new yields in the core CEE markets initially thought. Shopping centres change through differentiation: of Poland, Czech, Hungary, need only to adapt, offering the making sure their designs and Slovakia and Romania. The limited same convenience and range as brand identities stand out and availability of stock, and the fact customers expect to find online, offer something new – such as our that a significant proportion of but with a level of experience and Reserved ReDesign collection, major centres have already traded humanity that can’t be found on which offers shoppers a modern, this cycle will further drive websites or apps. style-conscious take on the yields. The continued low interest “Retail needs to offer eastern European aesthetic,” he environment will keep investors experience or convenience to tells Emerging Europe. tuned into our sector,” added differentiate itself from online Anthony Selman, CBRE’s head of sales. Large, dominant malls or Promising numbers CEE investment. local convenience shopping can Poland is still the region’s leader fulfil these requirements but According to the German market with five billion euros traded in the mid-sized malls ranked second research company GfK, Central retail sector, offices, warehouses or third in smaller cities are likely and Eastern Europe remains a key and hotels in 2017 and already three billion euros traded in 2018. The Czech Republic continues to be a key target destination for both international and domestic capital. In fact, in the first half of 2018, domestic capital has registered a 67 per cent share of the total investment volume. “In CEE the key players in the market in terms of investment purchases of shopping centres over the last few years have been South African backed investors, led by Nepi/Rockcastle, who have purchased Krakowianka, Kraków, Arena Centre and Mamut in Budapest and Redefine/EPP,” Mr Lipscomb says. “Of the German open-ended funds Union Investment has been a consistent buyer of core assets, most recently purchasing Magnolia in Wroclaw. CBREGI are consistent traders in the region, most recently acquiring Letnany in Prague. A notable new trend has been the emergence of domestic

“T

EPP Galaxy Mall in Szczecin. Photo courtesy EPP

Challenges

JLL’s Mr Lipscomb explains. “Mall owners will need to Although e-commerce might not continue to innovate in their centres in order to keep them represent a threat, customers do. relevant in a fast changing retail Clients’ behaviour has changed, as environment. The best malls have physical spaces. The amount Driving real estate growth will need to offer a high quality of choice people enjoy today has environment but also a dynamic led to a waning of brand loyalty, While the growth continues, with customers switching between and diversified retail offer; limited availability is starting to retailers from purchase to purchase, through mall activity and slow down the construction of pop-up shops. It seems online depending which best serves their malls, as most CEE cities have retailers still need to make needs at the time, forcing retailers reached capacity. improvements to their delivery “In Poland for instance only half to find new and innovative ways to processes with large volumes of the stock planned for completion appeal to buyers. of returned items adding “Retail must follow the in 2019 is now under construction significantly to their cost base.” and we expect new mall deliveries digitalisation process. There Click and collect locations seem in 2018-19 to represent some of the is no other possibility because to be a winning concept, outside of mobile technology, information lowest levels of the past 18 years,” the pure-play online retailers. technology, automatisation, Mr Lipscomb adds. “Approximately 50 per cent of robotisation are happening. We have Polish retailer LPP still views online sales in Poland are done to use technology because a lack of bricks-and-mortar as crucial both via click and collect. There are for the company and for the whole workers will affect efficiency,” said no high streets in Poland, so Marta Nováková, president of the retail sector. Czech Confederation of Commerce we have to offer the experience “Retail continues to drive real that only a shopping centre can estate growth due to the continued and Tourism. offer, by making them work more “I think that bricks and mortar need for recognisable physical like community centres,” says touch points for customers, as well stores will continue to exist as a EPP’s Mr Hadley. place for meeting, as a place for as hubs for goods distribution,” “The click and collect concept fun, as a place for entertainment as says Marek Piechocki. “LPP is works because the average online well as a place for buying goods.” a growing company with global spending in Poland is still low The ability to analyse and ambitions and to realise these we compared to Western Europe, disseminate information has must make strategic investments whilst delivery prices are high. in real estate. Next year, we’ll open already been an important factor Shopping centres offer a different for retailers, and its importance our first stores in Finland and experience, now they are the is expected to continue to grow. Bosnia and Herzegovina, and by public space of the city, working as As retailers become experience the end of 2019 we aim to have a tourist destinations as well.” providers, they are expected to physical presence in 25 countries, Going beyond the experience increasingly emphasise the use in addition to an e-commerce means also knowing a customer’s of digital mobile technology for presence in 35 countries.” The Polish real estate investment providing information on products needs wherever they might live. Mr Hadley believes that any and services in order to deliver company EPP agrees, adding successful foreign retailer who value to customers. that the industry has to adapt to wants to invest abroad must adapt survive. to local needs. “Retail remains a very attractive The new face of retail LPP is trying to consistently sector but it is evolving. Today, improve the shopper JLL has come up with six it is much more about extending experience, investing over new dimensions of the retail existing shopping centres, in 12.6 million US dollars in new experience: intuitive, human, order to offer more diversity to clients, with the consequence that accessible, meaningful, immersive technology annually, aimed at enriching the customer experience and personalised. The retailer big shopping centres are getting across its markets. bigger and non-dominant ones are makes a difference in the lives of “In the world of contemporary struggling,” Dean Hadley, CEO of shoppers, who feel a sense of pride when shopping. The experience is retail, and particularly for fashion EPP tells Emerging Europe. retail, this is a must-have. In the how shoppers want it, with staff “Now it is all about being able past 20 years LPP has turned a who understand their unique to defend your position in your needs, offering recommendations single shop, opened in 1998, into catchment and having dominant over one million square metres based on past behaviour and but sustainable shopping centres. of retail space spanning Western, rewards based on loyalty. In Poland over 70 per cent of the Central and Eastern Europe and “The clear winners in terms of retail spend is in malls. People go the Middle East. During this physical retail space will be the there not only to shop but time, retail has advanced rapidly large dominant shopping centres to live the experience, meaning which can provide the best choice and it’s hard to predict what the shopping centre owners need to future might look like,” conludes of retail, food and leisure offer compete for peoples' time and and good transportation links,” money,” he says. LPP’s Mr Piechocki. • Czech Republic investors seeking to broaden their reach outside of their domestic markets, led by CPI,” he continues.

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40 BUSINESS

Made in Emerging Europe Our quarterly look at some of the region’s most innovative companies.

Local Heroes

basic: t-shirts, tracksuit trousers, sweatshirts, beanie caps, backpacks, Youth culture and streetwear, shorts, and simple dresses in the sporty and sexy. This is what defines form of an elongated t-shirt. All Local Heroes, the stars’ favourite made from cotton and polyester. Polish brand. Founded for fun The slogans and patterns which in 2013 by blogger Areta Szpura Local Heroes puts on t-shirts are and photographer Karolina Słota, what differentiate this brand from Local Heroes is now a trademark the others. “We accidentally opened recognised across the world, a door leading from Poland to especially thanks to celebrities foreign countries. Before that, the appearing on Instagram wearing Great Wall surrounded everything. Local Heroes clothes, including We showed that you can do better Cara Delevingne, Sky Ferreira, and go farther. Others believed us. Rita Ora, Ellie Goulding, If two teenagers made it, why can’t Anja Rubik and Rihanna. Local you?”, comment the two founders. Heroes’ clothes are simple and localheroesstore.com

Pero Using only plant and mineralbased ingredients, Croatian brand Pero is at the cutting edge of the cleaning industry. The company offers a full range of products for the kitchen and bathroom that come in reusable spray bottles and refills. “As an environmental engineer who always imagined contributing to the preservation of life and not the opposite, I decided that I was done with dirty jobs and from now on I’m going to do some cleaning,” says founder Davor Ćiković, explaining where the idea came from. Pero’s slogan is prskaj od sreće (sprinkle happiness), as Mr Ćiković wanted to change the perception of cleaning, from something undesirable and boring to a fun and relaxing activity, thanks to a product that is beautiful on the outside and which uses Mediterranean essential oils instead of toxins. Pero also supports the local economy: at least 85 per cent of the ingredients are produced in Croatia. pero.bio

Flyn

BUSINESS

Flyn is an apparel and wetsuit brand, catering to the needs of surfers in and out of the water. Based in Poland, the Flyn motto is you deserve more, where the company strives to produce the best quality products, while working with sustainable sources, like their partnership with Japanese neoprene company Yamamoto, which consumes less energy than oil-based neoprene. Flyn’s wetsuits are made of Yamamoto neoprene which is produced from limestone extracted from the Japanese mountains. Yamamoto is also up to three times more durable, making it a more sustainable product with less waste. The newest Flyn collection, for the Autumn/Winter season, is designed for those whose expectations are high and who demand perfection, combining tech clothing with high-fashion designs to bring about the future. flynwetsuits.com

Zylia Zylia is a Poland-based developer of recording technologies which in partnership with Infineon Technologies has created the world’s first portable recording studio. The integration of Infineon’s class-leading 69dB SNR digital MEMS microphone into the Zylia ZM-1 microphone array provides a new approach to music recording. The 19-capsule microphone array with high-end 24-bit recording resolution allows users to record entire sound scenes with just one microphone.

Zylia was founded in 2012 by Piotr Szczechowiak (COO) and Tomasz Żernicki (CTO), and develops innovative, world-class recording technologies and turns them into products that improve the lives of musicians and audio creatives. With a passionate and dedicated team of more than 20 experts in music production, audio research, software, business and product development, Zylia crafts and delivers products which redefine and revolutionise the way sound and musical performances are recorded and produced. •

zylia.co

Simas Simanauskas

BUSINESS

Investing in Klaipėda

are looking to beat that number this year. Furthermore, there are plans to build a 130-hectare outer port by 2025, together with dredging Klaipėda is a port city in western Lithuania that is establishing itself the area to a depth of 17m, which as an industrial hub attracting foreign direct investments (FDI). The would allow Baltmax size ships to city has a Free Economic Zone (FEZ) that has undoubtedly boosted call into Klaipėda. its business image. Yoan Stanev spoke with Simas Simanauskas, Klaipėda FEZ, on the other hand, the director of Klaipėda ID, the city’s development agency, about has been the most successful FEZ in the aims of the agency and Klaipėda’s potential as a business the Baltics with more than 1 billion destination for foreign investors. euros of revenue generated by investors in 2017. That year we were WORDS YOAN STANEV recognised by the Financial Times for having the world’s fastest on-site operation launch for our clients. What is your vision for the city? Thirdly, we have organisations How is this reflected in your 2030 that facilitate the hi-tech and Development Strategy? marine sectors: Klaipėda Science and Technology Park, Klaipėda Klaipėda is now focused on the University laboratories, Open blue economy and becoming a Access Centre and LNG Cluster. modern city synonymous with fast The Lithuanian LNG cluster decision-making. We want it to be seeks to establish Lithuania as an a city of 200,000, where people LNG technology and distribution work in world-class companies and centre in the Baltic Sea region by enjoy an excellent work-life balance. developing knowledge, technology The Klaipėda 2030 Strategy sets and business partnerships. Klaipėda ID was established out four priority sectors that will be Maritime and manufacturing eight years ago, but it started companies in Klaipėda have operations only recently. How so? key for the growth of the city: the marine economy, the bio-economy, longstanding traditions and Why does the city see the need to the industry 4.0 economy, and the experience, such as Klaipėda promote itself as an investment services economy. To ensure our Western Shipyard (part of BLRT destination? vision becomes reality, we need to Group), which has 2,000 employees work on three pillars: improving and 1,500 sub-contractors and, Klaipėda ID (the former Klaipėda the business environment, apart from traditional shipbuilding Economic Development Agency) strengthening education-business and repair, provides complex ship was founded in 2001 and tasked design and engineering solutions with promoting creative industries cooperation and creating the required infrastructure. and software design for automation. in the municipality-established There is a huge opportunity to Kultūros Fabrikas (Cultural What is the value proposition for leverage off existing established Factory) incubator. In 2016, city your priority hi-tech and marine maritime, manufacturing, stakeholders decided that Klaipėda sectors? assembling, engineering and port needed additional momentum and companies to identify potential began creating what became known We believe we have the right projects in Klaipėda. as the Blue Strategy: Klaipėda package to further strengthen 2030. In order to successfully marine and hi-tech sectors. ID wants to promote the bioimplement the strategy, it was Firstly, Klaipėda has excellent economy, manufacturing and agreed that Klaipėda Economic training facilities. With Klaipėda business services. What makes Development Agency needed more University, LCC University, Klaipėda an interesting location fire-power and resources to work Lithuanian Maritime Academy for these sectors? with improving Klaipėda’s business and Klaipėda State University climate, investment promotion, of Applied Sciences, we have Lithuania is already an attractive city marketing, talent attraction students from all over the country location for shared services and and other activities. Klaipėda has coming to Klaipėda, because they business process outsourcing a number of strengths that make want a career in the maritime centres: there are over 70 centres it stand out from other locations: sector. With 19,200 students in that employ over 15,000 people. the best performing port and engineering, manufacturing and We want to make Klaipėda an Free Economic Zone (FEZ) in technologies, electronics and attractive location for marine the region, a great geographical marine in the Klaipėda catchment companies to establish their shared position, and strong education area, we have a strong young force service centres. Klaipėda is a port traditions in maritime and behind us. Secondly, we have city with a long-standing maritime engineering. Now it’s time to the infrastructure and we are tradition, that includes business capitalise on that with the robust expanding it. Klaipėda port is one services as well. We already have FDI attraction strategy that was of few in the Baltics that continues a few shared service centres in the recognised at the Emerging Europe to grow year-on-year, with a record city, such as Greencarier, one of the Awards. 43 million tons of cargo in 2017. We Nordic’s largest privately-owned

transport companies, Omega Technologies, a Norwegian tech service provider or Exadel, a digital software engineer. We are the second youngest city in Lithuania, several modern office buildings are being built at the moment with world-class broadband speed and we offer an urban environment near the sea. The nearby airport directly connects Klaipėda to Copenhagen, London and Oslo and next year there will be a new airline connection to Germany. With its low market saturation, Klaipėda is perfect for small-mid size service centres. Klaipėda has long been known for its manufacturing tradition. The strategic location, competent and determined employees and a strong infrastructure with continuous development are key factors for business to invest and grow. In Klaipėda we are proud of our dedicated, professional and constantly improving talents that create great value for companies. Education and constant learning are top priorities where city stakeholders continuously put in the effort to improve and promote business-education cooperation, informal education, IT, engineering and languages even in primary schools. Klaipėda University has taken a leadership role to coordinate a consortium of education institutions in the city to ensure everyone specialises in what they are best at. In terms of infrastructure, we have one of the best quality road networks in Europe, a nearby airport and the most efficient port in the region, which makes it an ideal location for intermodal logistics. Shipping services and destinations give even more added value to the Klaipėda value proposition. For instance, one of the largest shipping companies runs a service from Klaipėda port to King Abdullah port in Saudi Arabia. This is the only direct service from the region to the country that is building a 500 billion euro city where demand for supplies in the short term will be increasing exponentially. When it comes to the bioeconomy, chemical industrial production is one of the best developed sectors in the Klaipėda region, with two of Europe’s largest polyethylene terephthalate (PET) producers based here.

Some of Europe’s first multilayer PET containers were produced in Klaipėda, and the NEO Group’s Klaipėda production facility produces 308,000 tons of PET pellets annually, accounting for 12 per cent of Europe’s production. Forestry, timber, timber products and paper are strong economic sectors in the Klaipėda region. We have two big furniture producers in the region, both of which last year announced huge expansion plans. There is a plan to establish a research centre for wood construction applications, biopolymer production and applied research. Klaipėda wants not only to have an attractive value proposition for the traditional plastic and wood industry, but to dive into more advanced sub-areas of plastic product development and biomass usability.

and offices for administrative and commercial services. Finally, the FEZ has attracted many clients by offering them what are called business wellbeing services. The FEZ assists companies in their dealings with government and municipal institutions, as well as private and public enterprises; they provide on-site customs operations; and help people coming to work in the FEZ find additional value, by providing bike and car share schemes, operating a health club and offering day care. How does Klaipėda ID help foreign investors? How do you differentiate yourself from other investment promotion agencies, namely Invest Lithuania?

We call Klaipėda ID a city development agency, since our scope is wider than FDI attraction: How important has the Klaipėda investment area improvement, city marketing, international relations, Free Economic Zone been to Klaipėda’s development? Has the talent attraction, facilitation of entrepreneurship. Even though we Zone attracted foreign investors have closely monitored KPIs (key through its tax liberalisation performance indicators), we are measures? also very flexible and open-minded about projects and cooperation Since its inception in 2002, that bring added value to the city’s Klaipėda FEZ has attracted more than 600 million euros in investment development and growth. For instance, at the moment we are and has brought world famous working with organisations from companies to the city, so it is not a Oslo on a few projects that tie the surprise that this particular FEZ Oslo and Klaipėda start-up systems has been nominated as the best in closer together. the Baltics. Currently, five per cent Of course, our central mission of Klaipėda’s working population is employed by companies established is to be a one-stop-shop for any inquiries, information and in FEZ territory. Success can be services related to investment attributed to three factors – an projects in the city. We provide excellent incentive scheme, the necessary information, work innovation, and creating value for as an intermediator between customers. For the first 10 years investor and municipality, corporate income tax is zero per educational institutions, the port cent (and for six years after that and FEZ, businesses and national only half the standard rate), real organisations. Everything we do is estate tax is zero per cent and tax oriented towards bringing the most on dividends is also zero per cent. value for the investor. Furthermore, Klaipėda FEZ keeps We embrace our partnership with developing its territory and offering Invest Lithuania, which is a national new opportunities to clients. For example, it was the first in the Baltics FDI promotion agency. Around a this year to offer pre-built premises, third of our personnel have worked where business can start operations at Invest Lithuania at some point in their career and we speak a in less than three months. The FEZ common language. The difference has ambitious plans to build is that we are local – we cover the Green Campus, which is a territory designated for clean industries with Klaipėda region – while Invest Lithuania is a national investment attractive and green public spaces and balanced architectural solutions. promotion agency. Whenever there The plan is there to have a knowledge is a potential project in Klaipėda, transfer centre, technology labs, we work together. •

43 BUSINESS

Outlook on Lithuania

Private consumption and investment continue to underpin Lithuania's solid, impressive economic growth, now forecast by the European Bank for Reconstruction and Development (EBRD) to be 3.9 per cent in 2018, and 3.4 per cent in 2019. The country is increasingly becoming a FinTech hub, home to hundreds of start-ups, many of which have been attracted by a friendly legislative environment conducive to innovation.

OUTLOOK ON LITHUANIA

Lithuania: an FDI success story in the making Lithuania is doing all the right things to make investing in the country easy and profitable. WORDS YOAN STANEV

ccording to data from UNCTAD (the United Nations Conference on Trade and Development), Lithuania has been receiving fluctuating flows of foreign direct investment (FDI) over the last decade. For example, while 2015 saw 749.3 million euros of FDI into Lithuania, the following year saw a drop to 227.4 million euros. Things picked up again in 2017, when 512.4 million euros poured into the country. According to provisional data provided by the Bank of Lithuania, cumulative FDI stock rose 5.2 per cent to 14.7 billion euros at the end of 2017. The fluctuation is mainly due to the global financial crisis, as well as the regional crisis involving Russia and Ukraine. Such trends can also be observed in neighbouring Baltic countries. The country improved its position and ranks 16th out of 190 economies in the World Bank’s 2018 Doing Business Report, up from 21st position in 2017. The annual report rates 190 countries on their business environment. Lithuania now sits ahead of the likes of Ireland (ranked 17th) and Germany (ranked 20th). Furthermore, Lithuania is the only country in the Central and Eastern European region to have improved its position in the Doing Business index this year. Amongst the other Baltic states, Lithuania ranks in the middle: Latvia is 19th, whilst Estonia took 12th position in 2018. According to the same report, Lithuania has undertaken 31 reforms to its business regulatory environment, six reforms to its business incorporation processes, five reforms to bankruptcy proceedings and four reforms to its taxation system. In the EU, Lithuania ranks fifth for investment attraction. Moreover, Lithuania offers tax exemptions to foreign companies

and conditions have made it easier for companies to set up their businesses. The country made positive reforms in four key areas: obtaining construction permits was facilitated, connecting to electricity networks was improved, minority investors were better protected, and the tax payment system became electronic. As such, Lithuania was second in the whole of Europe and Central Asia for the number of reforms leading to an improvement in the conditions for business. Whilst Lithuania’s corporate income tax is 15 per cent, entities with fewer than ten employees and less than 300,000 euros in gross annual revenues can benefit from a reduced corporate income tax rate of five per cent.

there receiving special economic and legal operating conditions. Businesses choosing to locate to one of the FEZs enjoy zero per cent corporate income tax during their initial 10 years of operation, 7.5 per cent tax over the next six years, and no tax on dividends and real estate. Kaunas’s FEZ has shown particularly encouraging signs of economic development and increased attractiveness for Strategic positioning foreign investors. Of the 661 million Emerging Europe got in touch with euros invested in Kaunas FEZ, Simonas Petrulis, CEO of the Baltic 70 per cent has come as FDI, which Free Economic Zone and president creates an additional 2.5 working places outside the zone for every of the Lithuanian Association of one working place created in it. Free Economic Zones (LAFEZ). Emerging Europe spoke to Invest Mr Petrulis gave us a very detailed Lithuania, the country’s investment and comprehensive overview of promotion agency, who stated that the business climate in Lithuania, “the latest investment trends in the mentioning the country’s location [Kaunas] region show that smaller as a key factor that is highly scale projects which are more beneficial for foreign investors: “due to our bordering with Poland, human resource intensive are being developed,” which means that there Kaliningrad Oblast (Russia), is increasing demand for highly Latvia, Belarus our region offers qualified employees. In addition, unparalleled logistical access to the Kaunas FEZ has been focused major markets (East-West).” This strategic positioning of the country on attracting investors from the fields of manufacturing, medical has allowed it to develop good technology, aviation and MRO infrastructure: it takes 1-2 hours (maintenance, repair and overhaul). to reach airports and 2-3 hours to reach sea ports. Government support Lithuania’s six Free Economic Zones (FEZ), at Kaunas, Klaipėda, Emerging Europe also spoke Šiauliai, Kėdainiai, Panevėžys with Kaunas FEZ’s Marketing and Marijampolė, have been key Manager Ignas Juknevičius, who for attracting FDI to the country, pointed out that “there were no due to the companies located

legal hurdles that these companies had to overcome,” when setting up their businesses in Kaunas FEZ. Mr. Juknevičius added that “the whole settlement was and still is supported by the government as there were numerous meetings with Lithuania’s prime minister and other high-level politicians to ensure best conditions possible in Lithuania.” “The only requirement for a company to settle in Kaunas FEZ or any of Lithuania’s free economic zones is to perform activities which are not prohibited by the law of fundamentals of FEZs,” added Mr Juknevičius. Mr Petrulis, however, pointed out that companies planning to invest in Lithuania require “more and wider developed local infrastructure from local municipalities,” construction permits and other such administrative formalities to be processed quicker, cheaper and greener energy and a greater abundance of qualified specialists. One of the most well-known companies present in Kaunas FEZ is Continental, the leading German automotive manufacturing company. The company has chosen Kaunas as the site of its new plant, where electronic components for the European market will be manufactured from the second half of 2019. This 95 million-euro investment will span until 2023 and is expected to create around

factor for giants like Continental, Hella and Hollister. The university boasts around 53,000 students, with a quarter studying technical programmes. In addition, a quarter of the population already works in the manufacturing industry, therefore, as Mr Juknevičius stated, “this concentration of engineers and other specialists doesn’t possess a challenge. Workers and society perceive international companies very well and look forward to working in these companies.” According to 2016 census data, the demographics of Lithuania are broadly in favour of foreign investors: 84 per cent of young Lithuanian professionals are fluent in English and 2016 Eurostat data states that the country has the second highest share of 25-29 year olds with tertiary education in the EU: 50.4 per cent. Mr Juknevičius adds 1,000 new jobs. “The construction that “Lithuania is still not saturated of our first plant in Lithuania is in terms of FDI investments an important part of our growth (especially manufacturing): there strategy in Europe,” stated are enough employees to work for Helmut Matschi, a member of the new companies and investors.” Continental Executive Board and Furthermore, Mr Petrulis also head of the interior division. recognised the country’s talent “We are glad that with potential: “[Lithuania] can deliver a much higher speed of the modern industrial with change management … than our region here in Kaunas, the much bigger neighbour countries, excellent infrastructure competitors and mature economies the west of Europe.” and the highly qualified in All in all, for a small country workforce, we have found and economy in eastern Europe, Lithuania seems to be doing all the ideal location.” the right things to be attracting Continental specifically selected foreign investors, both small and big. Government incentives, the site in Kaunas, explains the Free Economic Zones and a Shayan Ali, managing director of Continental in Lithuania: “Kaunas reliable talent pool have proven to bring in companies from a is Lithuania’s industrial centre and the nation’s leading electronics and variety of sectors to the country. The booming FinTech (financial automation hub. At the same time, its population of students – around technology) sector in Lithuania is 10 per cent of whom are specialising undoubtedly promising, despite Estonia having established itself in electronics manufacture – puts as a hub for technology not only a wealth of technical know-how at in the Baltic region, but the entire our disposal, so we are expecting EU. Success stories such as Revolut, to gain some highly qualified employees. All in all, Kaunas is the the platform and app that allows perfect location for our new plant.” its users to exchange currencies at interbank rates, are proving the desirability of Lithuania as a Access to talent destination for such start-ups. Not only can foreign investors expect With the biggest technological a warm welcome in the country, university in Baltic region, Kaunas but also a climate that allows their University of Technology, the labour pool has been a decisive businesses to prosper. •

OUTLOOK ON LITHUANIA

AW: When we look at the GDP forecast, we see the Lithuanian economy growing by some three per cent between 2014 and 2019. What is the EBRD’s forecast for 2019? MT: The EBRD’s autumn edition of the Regional Economic Prospects was released on November 1, and compared to our spring forecasts, GDP growth expectations for 2018 in Lithuania were revised slightly upwards. This change is mostly driven by higher than expected investment, including through a better utilisation of EU funds and a greater need for capacity expansion among manufacturers. Going forward, however, the economic growth is expected to moderate gradually. While rapid wage growth and a further tightening of the labour market will continue supporting robust private consumption, the expected weakening in external demand from Lithuania’s major trading partners, amid an investment-led surge in imports, will result in a negative trade balance, and thus will weigh on GDP growth in the forecast horizon. Also, the shrinking working-age population is expected to hurt businesses increasingly, which in turn may defer investment decisions, as the lack of skilled labour may not be easily replaced by machines. AW: Tell me which sectors are expected to contribute most to growth? How can sustainable economic growth be ensured? MT: Well, the two key growth contributors are expected to be private consumption and investment. While the tightening labour markets result in significant wage increases that underpin greater household expenditures, this is

investment that extends higher GDP growth rates over time. In particular, a shift towards greater automation may be a solution to the shrinking labour supply and rising labour costs that have already negatively affected Lithuania’s and regional international competitiveness. Besides, such a move could push companies to rethink their business models and ultimately lead to a positive shift towards higher valueadded production. AW: And what are the key sectors for Lithuania, according to the EBRD? MH: There are several, I would say: manufacturing, wood-processing and agriculture in particular, as well as services, mainly banking and retail as well as FinTech going forward. Also, renewable energy is targeted. In all of these sectors energy efficiency and enhanced competitiveness are our primary angles of approach. AW: The EU has long emphasised the importance of green energy, green economy and renewables. How is Lithuania developing its own economy in this respect? What role does the EBRD play here? MT: The recently adopted National Energy Independence Strategy set a very ambitious goal for Lithuania. Beyond achieving complete energy independence by 2050, renewables are expected to become the key source of energy in all sectors, starting from a share of 30 per cent in 2020, then 45 per cent in 2030 and 80 per cent in 2050. Besides, Lithuania was the first country in the Baltic states region to issue a sovereign green bond (100 million euros in May 2018). The net

proceeds from that placement were on-lent to VIPA, the Public Investment Development Agency, and are expected to be used exclusively to improve the energy efficiency of multi-apartment buildings throughout the country. According to VIPA’s ex ante assessment, the financial needs in the energy efficiency sector until 2023 amount to one billion euros, of which about 30 per cent could be covered by VIPA and the remaining part by the private sector. The EBRD is well equipped to support Lithuania in so-called green investments. We launched the Green Economy Transition (GET) approach in 2015 to put investments that bring environmental benefits at the heart of our mandate. For instance, this and last year, the EBRD successfully supported the two green bond placements of Lietuvos Energija, Lithuania's national energy company. These investments were aimed at upgrading the company’s distribution network and expansion of its renewable energy capacity in order to strengthen the sustainability and security of Lithuania's energy supply and reduce its reliance on imported energy. The side effect of these transactions was the support of the development of local capital markets. This is something that the EBRD is strenuously working on together with the European Commission’s Structural Reform Support Services (SRSS) in the other countries of Central Europe and the Baltic region. AW: How can businesses, especially those based in free economic zones (FEZs), be encouraged to be more environmentally friendly and ecologically aware?

AW: The EBRD is strongly involved in capital market development in the Baltics, including Lithuania. What opportunities do you see there?

Matti Hyyrynen. Photo: EBRD

MH: The financial markets in the Baltics have been very much bankdominated for the last 25 years. Banks’ strategies are evolving, Baltic businesses are growing and becoming international. On the one hand this pushes borrowers to look for new financing sources, be they debt or equity. On the other hand Baltic borrowers are better known abroad and the sizes of their financing needs are reaching levels that qualify for

capital market transactions. Also, SMEs are growing and equity is needed. In 2018 the EBRD invested via the capital markets in Lietuvos Energija’s Green Bonds, in Maxima’s bonds, in the Port of Tallinn IPO and in Auga’s issue of new shares. The bank is in the process of converting its convertible loan in new shares issued by Siauliu Bankas. The listings /part-privatisations of Sovereign-Owned-Enterprises (SOEs), as in the case of Port of Tallinn, offers much needed investment opportunities for local as well as foreign investors. Part-privatisations are politically very sensitive, but we feel that the involvement of an IFI can facilitate these listings. AW: CEE has been experiencing a rather steep depopulation since the 1990s. How serious is this issue in Lithuania? How has the demographic trend affected the Lithuanian economy and the labour market? MT: According to the European Union's 2018 Ageing Report, Lithuania’s population, currently at 2.8 million, is expected to shrink by more than a million over the next 50 years. A less populated country is not a problem in itself but the drop in working-age population (aged 15-64) as a share of the total population constitutes a serious challenge. In Lithuania, this share is expected to drop by more than 10 percentage points, the most severe change among the three Baltics states. Therefore, the expected population decline may further

OUTLOOK ON LITHUANIA

Marcin Tomaszewski. Photo: EBRD

The EBRD’s latest Transition Report concludes that producing goods in an environmentally friendly manner or selling green products is also beneficial for firms’ financial performance, in addition to the social benefits of greener production. On balance, producers of green products appear to be less profitable than other firms in the same sectors, perhaps partially on account of these firms being more recent entrants into the market. They tend to have higher valuations even if their current return on equity is lower than for their non-green peers. This suggests that investors expect higher future returns in this sector and put a premium on environmental performance. In 2017, for instance, Tesla surpassed leading traditional car-makers such as Ford, General Motors and BMW in terms of market capitalisation – thanks to its growth potential, rather than its profitability.

intensify the current skill shortages that ultimately will need to be offset by increased investment and productivity. Besides, the country’s response to the demographic challenge will also depend on migration policies as well as the education system. The latter needs to address the dynamically changing needs of the labour market, such as the rising demand for digital skills, not only from those entering the labour market straight after school but among the general population. AW: At a time when populations across emerging Europe are ageing, how can Lithuania adapt its older generation to these processes, which may of course seem alien to them? Well, the 2018 Country Report of the European Commission states that less than 60 per cent of Lithuanians aged 16 to 74 have basic or above-basic digital skills, whereas about one fifth of the population has never used the internet. Going forward, the share of people not using the internet will definitely be reduced, as not making use of new technologies, including in banking, has become uneconomical. As current IT solutions became more and more intuitive and can simplify people’s daily duties, they may become particularly beneficial for ageing populations as they can foster economic inclusion. •

OUTLOOK ON LITHUANIA

Towards the future economy Virginijus Sinkevičius, Lithuania’s minister of economy, speaks to Andrew Wrobel about economic opportunities, as well as the challenges that the country is facing. WORDS ANDREW WROBEL

The World Bank forecasts a 'plateauing' of Lithuania’s annual GDP growth rate at just over three per cent for 20142019. What is your forecast for 2019? Well, in 2017, GDP growth was the fastest we have seen in the last five years, a result of 13.2 per cent growth in exports, a 7.3 per cent increase in capital investment and a rise in domestic consumption of 3.3 per cent. Given the results of Lithuania’s recent economic development, changes in the external environment and favourable conditions for increased domestic demand, we project that Lithuania’s GDP could grow by 3.4 per cent in 2018. In the medium-term, GDP should subsequently continue growing as projected, and reach 2.8 per cent in 2019 and 2.5 per cent both in 2020 and 2021.

almost doubled; growing from 46.5 million euros in 2011 to more than 90 million euros in 2016. Over the past eight years, the sector‘s income has more than tripled. Almost 90 per cent of Lithuanian laser production is exported, and that is unlikely to change. Finally, with one per cent of GDP created by life sciences, Lithuania is already one of the main players in Europe; our life sciences sector is six times the size of the European average. Moreover, we have a goal and a strategy worked out to increase the life sciences share of GDP to five per cent by 2030, which would make us the world leader. What is your strategy for ensuring sustainable economic growth?

Lithuania‘s growth strategy is based on boosting productivity and increasing competitiveness. So which sectors are you expecting Lithuania was the EU leader in terms of productivity growth to contribute most to growth? in 2017. The focus is to maintain the momentum and reduce Without question life sciences, the productivity gap in the the laser industry, FinTech, blockchain and engineering will be medium term. In order to ensure sustainable the backbone of our economy. Due to extremely favourable regulation growth in 2018, the government is implementing six major by the Bank of Lithuania and the reforms: innovation reform various sandboxes which have aimed at promoting investment been created, Lithuanian FinTech in innovation, creating a major and blockchain have grown by innovation incentive package more than 40 per cent, attracting as well as consolidating and tens of foreign companies, who strengthening the research system; see Lithuania as their bridge from structural reform of education, Israel, China, Singapore and covering secondary, vocational other countries to the EU market. and higher education; tax reform Interest in Lithuania is growing. aimed at making the taxation of Engineering is all a traditionally labour more conducive to the strong industry, and with new creation of jobs, the promotion of technologies like robotics and investments and entrepreneurship; advanced transportation systems we see a tremendous opportunity to the reduction of the shadow grow, because Lithuanian companies economy so as to implement measures aimed at promoting are already manufacturing fair tax payments; health reform, advanced automation systems covering all types of treatment and and technologies for autonomous nursing, including measures aimed vehicles. at promoting healthy lifestyles; and Over the past five years, the finally a cumulative pension reform turnover of the laser sector

to prevent the shrinking of overall income levels in old age. These six priority reforms are expected to boost annual economic growth up to two per cent of GDP or 1.2 billion euros by 2025–2027. The synergies and the results of these reforms will change Lithuania’s social and economic situation significantly, especially when it comes to addressing the demographic issue and boosting economic growth. Almost 26,000 job vacancies will be newly created before 2025. The reform will result in a 1.6 per cent reduction in the unemployment rate. Lithuania joined the eurozone in 2015. Since then, how has the euro affected the business environment and investment, and the economy overall? Joining the eurozone contributed to economic stability, helped do away with exchange rate risks and had a positive impact on overall economic growth. Likewise, other benefits resulting from EU membership are equally important for the country’s economic growth, including participation in the single market, which makes a considerable contribution to Lithuania’s economic growth through increased exports. The country has been experiencing steep depopulation since the 1990s. How has this affected the Lithuanian economy and the labour market? Is there an increasingly limited talent pool? What reforms do you plan to undertake, or have already undertaken, to deal with this issue? With economic growth, the rate of unemployment will continue to decrease, and will account for 6.5 per cent in 2018. When it comes to migration, the situation is favourable since emigration is decreasing and immigration is growing. Lots of

Virginijus Sinkevičius

the digital divide by encouraging people to gain knowledge and skills required for the successful use of ICT. We are also implementing the Connected Lithuania project to promote the use of e-services, FinTech and similar technology among older people. This includes visual manuals and hands-on learning sessions. At community level, we have nominated digital champions to facilitate the learning process for their peers. We also encourage younger people to help their families and relatives by personally teaching them digital skills. Lithuanian citizens who left the country years ago are now coming back because of the growing economy, increases in wages and also because a number of foreign companies have established themselves in Lithuania and offer attractive working conditions. Moreover, the government is making efforts to simplify immigration procedures for foreign specialists who are in demand on the labour market, so companies may use fast track procedures to employ them.

of not just of our economics, but of our societies. How can Lithuania adapt its older generation to these processes, which may of course seem alien to them? For example, would you encourage the over 65s to embrace FinTech, or other forms of technology?

The success of digitalisation and economic growth depend on the inclusion of all age groups and gender diversity. The size of the country is the reason of why we can exclude no one from the digital Surely emigration of the young transformation process. and skilled workforce and the There still exist certain groups general ageing of the Lithuanian of the Lithuanian population who population will affect the silver do not use or rarely use modern economy? How are you tackling digital tools and the internet in this problem? their daily lives. Many Lithuanians use the internet on a daily basis Recent data show an increasing for tax reporting, banking trend of young and skilled services, searching for professional people returning to the country. information or entertaining Although it is too early to draw content. In order to be able to carry conclusions about the impact of out daily tasks online, everyone return migration in the medium needs to constantly improve his/ term, the status quo suggests that her digital skills. The population policy makers can manage to groups to whom most attention address long term demographic should be given include seniors, challenges. Lithuania has recently those on low-income, the disabled, adopted a new demographic people in the labour market, strategy, encompassing migration teachers, rural residents and the and integration, and is currently young unemployed. working out its implementation Given the need to increase the plan. The government is digital skills of the population and undertaking initiatives to increase in order to achieve the aims and the return of migrants and integrate tasks set in the European Digital them to the labour market. Skills Strategy, special attention is being devoted to the development At a time when populations of digital skills in the Lithuanian across emerging Europe are Digital Agenda seeking to pursue ageing, we are experiencing digital skill enhancement goals and modernisation and digitalisation objectives. The aim is to reduce

What are the other economic challenges facing Lithuania? How have geopolitical tensions with Russia affected Lithuania’s economy? The EU has imposed restrictive measures in response to Russian actions in Ukraine, and Lithuania supports these diplomatic measures, asset freezes, visa bans and economic sanctions. In general, Lithuanian exporters are succeeding quite well in redirecting the export of goods to other markets, in particular to the EU28, so the effect of the economic downturn in Russia and the embargo on the Lithuanian economy was temporary. Moreover, as Lithuania’s trade relations with Russia were mainly based on reexports, which created low valueadded, the effect on the Lithuanian economy has been small. •

OUTLOOK ON LITHUANIA

Talent tops Lithuania’s impressive list of assets There are many reasons to invest in Lithuania: talent is not the least of them. WORDS ANDREW WROBEL

in 2009, they projected a team of 170. Now, with 1,150 employees, Barclays Group Operations Centre, which is one of the four largest in the country’s global business services sector (GBS) — offers a diverse range of services worldwide, from developing IT systems and infrastructure, to managing IT projects, ensuring security for Barclays’ banking systems, solving IT incidents, and developing new mobile apps and other business functions. Barclays’ examples, as well as other brands such as Nasdaq, Western Union, Danske Bank, WIX, Uber, SEB, Swedbank and Telia, prove the growth of the entire GBS sector in the country.

hen UK-based financial markets consultancy Catalyst Development were choosing a location for their first nearshore consulting hub earlier this year, they looked at Belfast, Limerick, Dublin, Galway, Tallinn, Warsaw, and Wrocław. Sean Coote, managing consultant at Catalyst Development spent three months in Lithuania, which ended up being the company’s pick, looking at talent accessibility, infrastructure, office space, IT development, meeting with financial tax and legal firms.

care at Bazaarvoice, as well as managing director at Bazaarvoice Lithuania. The US-headquartered global business runs the ratings and reviews functionality for 5,700 brand and retail sites – and therefore serves up more page views per day than almost any other service provider after Google and Facebook. “We ultimately selected Vilnius because of the high-calibre talent availability. The impressive work ethic, the drive for professional development and the ease of communication between Lithuania and Bazaarvoice US played a large Talent is key part in the decision,” he adds. In the initial four to six months, “Based on that analysis Vilnius Bazaarvoice plans on hiring 70ticked all the boxes in relation to 80 employees. Going forward, our requirements. We had to make the new office is to house a Global sure we had a pool of talent that Client Services Centre, providing was experienced in transformation technical support services to programmes, had banking a client base of global retailers knowledge and a good level of and brands. It will also manage English. I very quickly interviewed half of the company’s new client about 20 people and from those we implementations. The company is had no problem shortlisting about 15 also testing out a model allowing of them. This is a very high success key finance and HR teams with rate,” he tells Emerging Europe. global responsibility to be coDub Landgrebe is vice located in its Vilnius service centre. president and worldwide client When Barclays opened its centre

Highly-specialised sector “The industry grew by 17 per cent in 2017 alone. It currently consists of 70 different multifunctional centres and approximately 15,500 field experts. We are really proud that the sector is very diverse both in terms of companies and the workforce itself. For example, 54 per cent of all specialists in the GBS industry are women. But what is more important, more than a third of all general managers in the industry are women,” says Laisvis Makulis, head of the business services team at Invest Lithuania. There is a clear a shift to highend operations and robotics. More than two-thirds of the centres embrace digital transformation and are engaged with robotic process automation (RPA) activities, while almost 50 per cent develop their RPA solutions in-house. The industry is so focused on robotics, that 2.3 per cent of the total GBS workforce consists of robots. "Not only robotics, but also advanced finance, consulting, analytics, IT, big data, and cybersecurity operations are carried out,” he adds. Lithuania’s business service

sector is centred around the Vilnius-Kaunas hub. Located just one hour’s drive apart the two cities have a combined population of 1.4 million and a pool of over 100,000 students. According to the Organisation for Economic Co-operation and Development (OECD), Lithuania is ranked first in Europe and fourth globally for the number of people with tertiary education. The country’s 35 universities and colleges have strong positions in both science, technology, engineering and mathematics (STEM) and the humanities. The Lithuanian business services sector remains highly multilingual with 43 per cent of all centres using five or more foreign languages. But for a country with a population the size of Toronto in Canada (2.8 million), is access to talent sustainable long term? “I have been wondering about the sustainability of talent in Lithuania for the last five years and within that time more and more companies came in and everybody who did so is happy with the talent pool,” Elias van Herwaarden, EMEA service leader, Global Location Strategies at Deloitte, tells Emerging Europe. “The talent pool is very good in capability and very good in price-performance ratio but size is limited,” admits Tom Bangemann, senior VP, business transformation at the Hackett Group. “More challenging are the sought-after capabilities that are in limited supply — relative to demand — for example tech knowledge, analytics, people and management skills,” he says. Size will matter Catalyst Development’s Mr Coote believes that scalability will not be an issue for his organisation. “If I had a project where I needed to mobilise 10, 20 or even 30 people, I am confident that I would be able to do that very quickly within probably less than two months, whereas in the UK or Ireland that turnaround would be at least three months and it would probably be quite expensive using local agencies. And the overall cost is about two-thirds less,” he says.

Anurag Srivastava, vice president at Everest Group says that Lithuania is not a location where you would set up a 2,0005,000 employee centre to support contact centre or ITinfrastructure or transactional business process work. “It is rather a location where you’d support more specialised profile – e.g, a centre of excellence (CoE) on robotic process automation (RPA) or digital technology, or if you wanted niche skills on the banking side or complex applications development work; this may mean that the scale you support is smaller, even around 500 or 700 employees. The market has the capacity to absorb more growth and we believe that as much as it now supports the Nordic market, we see room for expansion for a wider European market,” he adds. “The country did prove the naysayers wrong, as we already have four centres that crossed the 1,000 FTEs threshold — Western Union, Danske Bank, SEB, Barclays — and there are several more nearing that same threshold,” Mr Makulis says. “Very large new centres with over 1,000 full-time employees (FTEs) could produce a shortage, especially if growing fast. I foresee the next 20 centres being OK without having too many limitations in setting up, after that the general ratio of centre FTEs/ population or FTEs/available labour pool will become more difficult,” the Hackett Group’s Mr Bangemann says. For him the key solutions are making relevant skills available in larger demand and bringing more talent from outside Lithuania. Invest Lithuania’s Mr Makulis believes that the Lithuanian hub still has plenty of room to grow, compared to places like Prague, Wroclaw and Krakow. “In Vilnius, the saturation rate (23.0 people employed in GBS centres per 1,000 residents) is still more than three times lower than in Krakow (73.2), a city of a similar size, so there is plenty of room to grow. Kaunas is even less saturated, with only 7.8 people working in GBS centres per 1,000 residents,” Laisvis Makulis claims.

“In order to ensure a healthy demand-supply relationship in the industry, 67 per cent of the GBS centres are actively engaged with academia – in terms of providing scholarship and internship opportunities, thesis topics or even temporary job placements in Lithuania or the company’s HQ locations. The industry is also employing an increasing number of Lithuanian repatriates — now 10 per cent of the workforce — and international talents currently accounting for four per cent of the workforce,” says Invest Lithuania’s Mr Makulis. What’s on the horizon Catalyst Development’s Mr Coote confirms the interest in repatriation. “About 20 per cent of the team is Lithuanian returning from other countries,” he says. According to the Lithuanian Department of Statistics, between January and August, almost 28,800 Lithuanians left the country. At the same time, almost 26,800 individuals came to live in Lithuania, of whom two-thirds were returning Lithuanian citizens. Repatriates account for 10 per cent of those employed in GBS in Lithuania, while four per cent of employees are foreign nationals. For example, Danske Bank currently employs over 200 Lithuanian repatriates, and it seems interest in returning to Lithuania is definitely on the up. At the same time, salaries in the sector are growing at a slower rate than the average wages in Lithuania. In 2017, salaries at GBS centres grew slightly more than six per cent, and it is estimated that this year salaries will grow 7.5 per cent for IT specialists and 5.3 per cent for other staff. “If the country can reverse the demographics, encourage even more nationals to return plus keep a slower pace of increase in salaries, they are bound to attract even more investment from the Nordics, US and UK markets, all of which are heavy investors currently,” says Tom Quigley, CEO of the Londonbased Emerging Europe Alliance for Business Services, Innovation and Technology. •

OUTLOOK ON LITHUANIA

Kaunas: Ticking all the right boxes With a rich history, and its first references in written sources dating back to 1361, the Lithuanian city of Kaunas has seen a lot. Believed to be the centre of Lithuania’s economic, academic and cultural life, it is no surprise that the city has gained international recognition in recent years as a business process outsourcing destination of choice. Located only 100 kilometres from the country’s capital Vilnius and just over 200 kilometres away from the port city of Klaipeda, Kaunas could be the perfect destination for a variety of businesses.

Kaunas. Photo by A. Aleksandravicius

WORDS SHAKHIL SHAH

or the vast majority of investors who have chosen Kaunas, the primary factor in the decision making process was the city’s abundance of talent. Many investors say that there is an increasing number of Lithuanians returning from abroad to work in the country, and many Lithuanians leaving Vilnius are returning to Kaunas to re-establish their roots. “Access to local talent and excellent infrastructure were the key reasons for choosing Kaunas over other European cities,” says Ilona Antonovičiūtė, head of NKT’s shared service centre in Kaunas. NKT is a global front-line supplier to the energy sector who develop, manufacture and market high quality cables, accessories and solutions for electrical infrastructure. “We looked at other locations where our factories are already operating, for example in

Alliance for Recruitment (AFR), the largest recruitment company in the Baltics focusing on IT, shared services and manufacturing. He also points out that 56 per cent of the population in Lithuania have a university degree. “We are ranked first in the EU,” Mr Šidlauskas says with pride. According to Mr Šidlauskas, both local authorities and universities are welcoming new investments and providing them with the attention that they can no longer receive in bigger cities in emerging Europe: “That obviously helps to increase confidence from international companies that maybe heard of Kaunas for the first time just a few weeks ago. We expect Kaunas to receive much more focus from site selection consultants, advisors and global companies themselves looking to tap the talent pool of a city that has not already been spoilt by the attention of hundreds of international employers,” explains Mr Šidlauskas. “One of the main reasons for choosing Kaunas over other locations was the talent pool that Kaunas can provide. Around 1,000 IT students graduate from Kaunas University of Technology Poland and the Czech Republic. (KTU) every year with their highHowever, these markets are already level knowledge in technology saturated to a certain extent with and with perfect skills in English. service centres, unemployment We hire young people, graduates is low and competition for the or even students and additionally right people is high. Kaunas has training them to work in our great potential for attracting more company,” explains Jonas Lukosius, investors because of a pool of young country manager Lithuania for professionals keen on working in TransUnion Information Group international companies and an an American consumer credit expanding infrastructure.” reporting agency with offices “Over 50 per cent of the globally. population speak three languages, It is not all about tapping the and being a small country with existing talent pool: companies are no natural resources we must giving back to their communities. focus on being able to conquer As Mr Lukosius explains; “we new markets and create value work closely with KTU to fine tune outside of our home market. their education programmes. Our Language capabilities are also presence in Kaunas helps the city present due to our history, and region to be more focused in everyone older than 35 speaks the market we are operating in.” fluent Russian and most people Talent is not limited to under 35 speak English, especially Lithuanians either, as Lina Žalpytė, those with higher education,” adds head of AFR‘s Kaunas office, Vytenis Šidlauskas, partner at explains:

Kaunas. Photo by A. Aleksandravicius

estate. Now this issue has been resolved as new business centres have started operating over the last few years. We were very lucky from the beginning by being able to set up our office in one of the most beautiful places in Kaunas, the Zalgirio arena,” explains Jonas Lukosius. “The availability of office space in Vilnius is around three per cent compared to approximately 10 per cent in Kaunas. In addition, if you compare the average monthly rent of prime office space, in Vilnius it’s about 14 to 17 euros per sq m versus 12 to 14 euros per sq m in Kaunas,” adds Jurgita Šilaikytė, head of brokerage at NewSec, a real estate management company covering the Nordics and Baltics. Whilst Kaunas has a long history, it is also known as a student town, with seven universities and over 35,000 students, and the mix of old traditions and culture with a young and modern vibe make the city an ideal place for new ventures. “Kaunas is becoming more international; however, it still keeps its own style and face, it is no surprise why UNESCO has listed it as a City of Design. What’s special about Kaunas is that it is a student town with its charm, there are places to go out in the Old Town, lots of interesting events (including sports, Kaunas Hansa team working in the municipality “The number of foreigners has days, KaunasJazz music festival, been growing, predominantly from of Kaunas already knows this. We Pažaislis classical music festival and Europe. We have also noticed a very are flexible, fast, open-minded and other music festivals) while at the ready to help at any time. We all positive trend of re-emigration. same time it offers quality living are well aware that a successful Lithuanian specialists or students, business creates the greatest added conditions for families – including who went to study or gain schools (even for English speakers) experience abroad, are now coming value for any city and its people. Overall, this perception is strongly – and Kaunas will be the European back to Lithuania to continue Capital of Culture in 2022,” reflected in our daily work,” their professional career here, as explains Ms Žalpytė. Visvalda Matijošaitis, mayor of international companies and job “Lithuania is continuing the Kaunas, tells Emerging Europe. opportunities are now present in positive trend of attracting more “Invest Lithuania and Kaunas their home country or cities.” investments because companies IN are working hand-in-hand The close working relationship like the Lithuanian business towards the common goal of not between the national and local only bringing new investments into mindset, communication style and investment promotion agencies excellent infrastructure. I see that Lithuania but also maintaining is further strengthening investor Kaunas is quickly growing and this competitive environment confidence in the country. catching up to Vilnius. There’s a lot “Prior to becoming mayor, I built and working towards the ease of of potential here. There’s enough doing business here,” explains, my private business in Kaunas. room for everyone, as industry is Ms Antonovičiūtė Due to my efforts it grew into a As a result of the new investment, diversifying by attracting more multinational corporation with over the real estate market in Kaunas has companies from new industries 8,000 employees. This experience and new functions,” concludes expanded. has given me the best insight as to “For a long time, Kaunas had an what is needed for a new business Ms Antonovičiūtė. • issue with lack of commercial real investor. Every member of the

OUTLOOK ON LITHUANIA

A FinTech future A combination of talent, low taxation and regulation which encourages innovation have made Lithuania a world class FinTech hub. WORDS CLAUDIA PATRICOLO

n 2017, Lithuania was ranked by the World Economic Forum as one of the most innovative countries in the European Union, alongside the United Kingdom and Sweden. Meanwhile, according to the World Bank Doing Business Report 2018, Lithuania ranked third for ease of doing business, with the third-lowest corporate tax rate in the EU (0-15 per cent), and the second-lowest personal income tax rate (15 per cent). No wonder the country is home to a growing number of FinTech start-ups. According to Invest Lithuania, the country is home to 117 FinTech companies, 35 of which opened last year only, employing more than 2,000 people. “What is really tilting the scales in the decision-making process is time," said Marius Jurgilas, a board member at the Bank of Lithuania. “It’s not about monetary cost or regulatory burden, it’s about how much time do I have to invest to get a decision? Firms want certainty and quick decisions.” Favourable regulation Lithuania can guarantee both. Mr Jurgilas highlighted the quick

authorisation process and broad choice of business models, ranging from electronic money or payment institutions to specialised banks, as some of the key elements of Lithuania’s FinTech regulatory regime, as part of the bank’s key strategic goals for up to and including 2020. Start-ups can obtain an e-money or payment license in just three months (four if the preparation stage is included), which is two to three times faster than in other EU jurisdictions. Additionally, initial capital requirements for bank licenses are five times lower than in other EU countries. In January 2018, the Bank of Lithuania announced the launch of blockchain sandbox platformservice. Domestic and foreign companies will be able to develop and test blockchain-based solutions in the regulatory and technological sandbox platform-service codenamed LBChain, set to be created by the Bank of Lithuania. “This platform will contribute to the creation of better conditions in Lithuania for the development of the FinTech business and innovation-friendly regulation, as well as help the Bank of Lithuania keep pace with technology innovations that change financial institution activities,” explained Mr Jurgilas. “By creating an innovationfriendly space, we aim at ensuring the best possible conditions for the further development of financial technologies, creating the most favourable environment for FinTech companies in the whole of the Nordic and Baltic region,” said Vitas Vasiliauskas, chairman of the board of the Bank of Lithuania. In addition, FinTech firms are not subject to regulatory sanctions within the first year of operating within the country, while remote video Know Your Customer (KYC) rules allow firms not based within Lithuania to open an account in the country without maintaining a

physical presence. “Lithuania has put a lot of effort in recent years into developing the infrastructure and regulation that fosters FinTech development,” Justas Saltinis, CEO of DEBIFO, an invoice financing platform, tells Emerging Europe. “The ability to get an e-money license faster than anywhere else in Europe, for example, is one of the most attractive features of the Lithuania’s FinTech ecosystem. The introduction of a specialised banking license by the Bank of Lithuania has also drawn some interest. Start-ups can benefit from the sandbox and strong support from the local community and government agencies such as Invest Lithuania,” he continues. Founded in 2015, DEBIFO is living proof of the positive environment which allows startups to grow. Today, DEBIFO has an active invoice portfolio of seven million euros, having helped more than 300 SMEs fund 65 million euros in invoices. “In the first half of 2018, the number of clients grew by 32 per cent, revenue improved by 50 per cent and our actively managed invoice portfolio increased by 85 per cent. The portfolio structure remained similar to last year – trade, transport, manufacturing and employment sectors accounted for the largest share. We expect to continue increasing our number of clients during the next year as we see many opportunities in our local and foreign markets,” Mr Saltinis adds. Post-Brexit success Leading companies like IBM AIG, Western Union and Nasdaq all currently have offices in Lithuania. However, this could be just the beginning as Brexit is set to bring more opportunities. United Kingdom-based FinTech startup Revolut has already announced that it has set up a subsidiary office in the country to combat the UK leaving the EU. Its Vilnius-based team will be responsible for accelerating ambitious growth targets across Lithuania as well as strengthening the service in Latvia and Estonia.

“Lithuanian talent has been building Revolut from the very beginning. The company has always had close ties with the country and the launch of our local team is another step towards strengthening our relationship. We will be planning our further growth based on the availability of the most talented professionals in IT and customer support in the market,” said Andrius Biceika, country manager for the Baltics at Revolut. Lithuania is betting that Brexit can help it become a global FinTech hub, as the Eastern European country seeks to attract British companies setting up subsidiaries in the EU. “We are not saying that we will be attracting top firms from the FinTech hub of the world, which is and always will be London, to the new booming financial sector in Lithuanian,” points out Mr Jurgilas. “But there is a huge flow of firms — and we want to participate in that flow — who want to hedge the risk of Brexit.” “In light of Brexit considerations Lithuania is one of the best destinations to head for,” Mr Saltinis adds. “We have a large talent pool of young, English-speaking IT and finance specialists, and Vilnius, the capital of Lithuania, offers great infrastructure for business set-up as well as high quality of life.” Talent pool Talent is another key aspect of Lithuania’s attractiveness as a FinTech hub. With a population of 2.9 million, there are 31,500 IT professionals in Lithuania. And the level of proficiency in English among young professionals is at 84 per cent. The country is also ranked as the eighth best in the world by Bloomberg for the percentage of graduates enrolled in higher education, with a large number of students undertaking degrees in subjects such as science, mathematics or computing, thus meaning that the country has a ready-made workforce suited to the needs of many incoming foreign FinTech firms. “The main purpose of cooperation is to create

an environment conducive to financial innovation and promote the development of innovative business(es). Lithuania senses global changes and keeps pace with financial innovations. A perfectly developed infrastructure, close network of contacts, and favourable geographical location provide proper conditions for competing with other European countries. This year, we intend to initiate regulatory innovations that would facilitate the activities of FinTech companies in Lithuania,” said Loreta Maskaliovienė, the country's vice minister of finance. According to Invest Lithuania foreign investment in the ICT sector has grown by 70 per cent over the past few years. Nasdaq, for example, has been present for quite some time in Lithuania, through its merger with OMX (the Helsinki Stock Exchange) in 2008, and has witnessed the rise of the IT sector. Arminta Saladziene, CEO of Nasdaq Vilnius Services, says the company takes into consideration a range of factors when investing in a country. Among those are technology and communications infrastructure, a well-educated pool of talent, and the quality of life. “Lithuania scores well in all of these,” she says. Google has also opened an office in Vilnius to be closer to the Baltic area. “Seeing how digitally savvy people in these countries are, we believe this region is well positioned to take full advantage of the single digital market initiative in the European Union. We've seen Lithuania, Latvia, and Estonia steadily climbing in various innovation and ease of doing business rankings. We're here for the long run,” said Vytautas Kubilius, Google country business development manager for the Baltic States. Looking ahead According to the Bank of Lithuania, what unites many of the FinTech companies that come to Lithuania is the desire to conquer the European market. So far Lithuania has been characterised by an exceptionally

large number of successful cryptocurrencies, money transfer and similar start-ups. “We have been in the global top three in the ICO field according to the volume of attracted investment," the head of Startup Lithuania Roberta Rudokienė tells Emerging Europe. "If those cryptocurrencies had been converted they would have totaled more than 500 million euros.” FinTech development has been a government priority since 2016, when the country first began to make a name for itself as a FinTech innovator offering a favourable environment for the development of blockchain projects. “We believe that we must not only take advantage of financial innovations, but also control the potential risks of money laundering and terrorism financing as well as guarantee consumer and data protection and cyber security," Vilius Šapoka, Lithuania's minister of finance tells Emerging Europe. •

"By creating a secure, transparent and clear legal environment, we want to attract foreign investment and promote the development of innovative business in Lithuania.”

OUTLOOK ON LITHUANIA

Manufacturing in Lithuania

Free economic zones, which offer investors a number of advantages, are just one of the many reasons Lithuanian manufacturing is booming. WORDS TAMARA KARELIDZE

NEO Group's Lithuanian plant. Photo courtesy NEO Group

even though we are capable of offering everything that is needed for companies in the industry, Lithuania has not been on the radar of investors due to the size of the market and the distance to major car manufacturers. But as the manufacturers of automotive components carry out the most direct foreign investment projects in Europe, a great number of opportunities are now opening up in Lithuania.” Cooperation

ccording to the Manufacturing Risk Index Report 2018, Lithuania is ranked as the second most attractive location in the world for manufacturing investors. It is notable that in the report, Lithuania is the only European country among the top five, with China, Taiwan, Canada and Malaysia occupying the rest of the four top five places. As such, manufacturing is one of the most crucial parts of Lithuania’s economy. Its business environment, logistics, talents, sustainability and easily accessible services make Lithuania attractive for many international manufacturers. But what really makes the country attractive for manufacturing? The answer is in the skilled workforce, close ties and collaboration between business and education, and the commitment to creating convenient infrastructure which encourages growth in the field. According to a number of different studies, Lithuania offers the market highlyskilled specialists across many innovative fields. Diversity A critical part of Lithuania’s success is proper planning and

measured cooperation. The country has a reasonable tax rate, and the government encourages people to graduate technological and mathematical programmes, and around 85 per cent of young professionals speak English, which makes cross-border cooperation easier. The country has strong links between universities and businesses. The universities have a dynamic relationship with local and international companies, with different firms recruiting young professionals directly from universities. Automotive and aviation are leading the way in Lithuanian manufacturing. The country is becoming a CEE leader in these industries, for a number of reasons. Most important of all is the country’s cost-to-quality ratio, which leaves behind other CEE countries. Secondly, it is that the availability of a wealth of local talent matches market demand: government investing is ensuring that things stay this way. “Lithuania has for a while has been trying to attract the manufacturers of complex automotive electronics components,” says Virginijus Sinkevicius, the country’s economics minister. “However,

The country cooperates with as many companies as need its assistance. One of the most significant investments in recent times was made by Continental. The German automotive company has a five-year project, during which time it plans to invest around 95 million euros in Lithuania and create about 1,000 jobs. Construction of the company’s first plant started last July, which will produce electronic components for the European market, such as door and seat controls, gateways and units for intelligent window control. The factory is set to open in 2019. “The market for automotive electronics is surging as the number of in-vehicle electronics systems continues to rise. With the latest addition to our global network of 30 electronics plants, we are continuing to expand our production capacity. This will enable us to meet the growing customer demand even more effectively,” said Dr Hans-Jürgen Braun, head of Continental’s electronics plants. Free Economic Zones Besides the convenient environment and ease of doing business, a further significant advantage is offered by the free economic zone in Klaipeda. It was the first tax-free zone in the Baltics, first touted back in 1996 and launched in 2002. The largest duty-free area in Lithuania, it is the country’s fastest growing region, and supports a wide variety of local and international companies to promote their business activities. Besides Klaipeda,

Photo courtesy NEO Group

there are also free economic zones in five other cities: Siauliai, Panevezys, Kedainiai, Kaunas and Marijampole. The specially designed areas offer companies looser labour laws and tax relief. Lithuania’s free economic zones are home to most of the industries of the region. One of the companies now well established in the Klaipeda Free Economic Zone is NEO Group. The company, which manufactures PET (polyethylene terephthalate) production lines and today serves around 300 packing companies across more than 30 countries began operations in Klaipeda in 2004. Today, NEO Group is the second-largest PET producer within the EU, and currently provides approximately 7.5 per cent of all jobs in Klaipeda. Company representatives believe that the major advantage of the country is the expertise and talent of the Lithuanian people. Moreover, Klaipeda is convenient because of its excellent road and rail links, as well as Klaipeda port, which is the most northern icefree port in the EU. “This year we completed our most recent investment project, which totalled 50 million euros,”

says Ruslanas Radajevas, general manager of NEO Group. “We launched a third PET production line, and in the process created 35 new jobs. The company's revenue is set to exceed 500 million euros per year, of which 400 million euros will consist of export sales when the new production line comes on stream. This will allow NEO Group to become one of the most important exporters and taxpayers in the country.”

the EuroChem Group since 2002. It operates in Kėdainiai, one of the free economic zones. “Kėdainiai is an important industrial centre for Lithuania, and Lifosa is an unrivalled leader in its field and is an active and responsible member of the community. We believe that the company’s investment in its development, and the jobs created, are a significant contribution to the further prosperity of the region. At the same time, we have no doubt that both the new plant and our Local & international modern factory will continue to help promote both the city and NEO Group is one of a our country around the world,” number of local players who have said Saulius Grinkevičius, mayor complemented foreign investment. of Kėdainiai. It exports around 80 per cent of In the field of technological its products, with Lithuania’s solutions and innovation, Lifosa is location - with its flexible and a consistent investor committed to well-developed logistics networks – helping industry save on natural allowing efficient and cost-effective resources and expand more product delivery to the EU market, efficiently. Manufacturing is not especially in the northern part of the only reason that Lithuania the continent. can boast the largest economy One of the international in the Baltics – other areas, companies investing in Lithuania not least business services, are is Switzerland's EuroChem, which just as important. But a sound has opened a new production manufacturing base which plant for highly efficient, watercontinues to develop is going a long soluble fertilisers. Its Lithuanian way towards creating a genuine subsidiary Lifosa has been part of Nordic powerhouse. •

OUTLOOK ON LITHUANIA

Tourism: more than a G-spot

Lithuanian tourism has come a long way since independence, but more needs to be done to promote the country's many gems, particularly those located outside the capital. WORDS CRAIG TURP

ithuania's capital Vilnius raised more than a few eyebrows this past summer when it launched one of the most original but daring tourism campaigns not just in the country's history, but in the history of travel marketing. “Nobody knows where it is, but when you find it - it’s amazing. Vilnius: the G-spot of Europe.” Accompanying posters featured a young woman lying on a map of Europe with her hand gripping Lithuania, her eyes closed in ecstatic bliss. “Few people know where Vilnius really is, but when they arrive they fall in love with the city," said Jurgis Ramanauskas, one of the team of creative students who came up with the campaign. "This insight came from our conversations with international visitors, and we formulated the idea that Vilnius is synonymous with the G-spot theory – nobody knows where it is, but, when it is discovered, everyone is very pleased!” Remigijus Šimašius, mayor of Vilnius, believes that the campaign was important for raising awareness about a city which can often fly under the radar of many potential visitors. “When I welcome international visitors to Vilnius, whether they are investors, journalists or representatives of official delegations, I’m so often told that their first-hand impressions far outweigh their expectations," said the mayor. "On the one hand, this assessment is very pleasing to hear, but on the other hand, it indicates that the perception of Vilnius needs to be dramatically improved to match with the reality.” G-oing viral Despite much controversy, including criticism from the

The Curonian Spit

OUTLOOK ON LITHUANIA

Catholic Church, which claimed that the campaign used women's sexuality for advertising and gave 'wrong ideas' about Vilnius, it quickly went viral and generated tens of millions of euros worth of publicity around the world. Inga Romanovskienė, the director of Go Vilnius, the city's tourism and business development agency, defended the campaign: “When it comes to attracting the modern tourist we’re dealing with a very high level of competition with other European cities and countries investing heavily in destination marketing. The young creatives who came up with Vilnius; the G-spot of Europe presented an extremely engaging idea to drive interest in the city.” It's not the first time however that Lithuania has dared to make bold claims. Back in 1998, on one of my first visits to the country, a huge billboard greeted visitors at

Vilnius airport with the words: "Welcome to the style capital of Europe." This at a time when Vilnius was still very much a rather bleak, post-communist country coming to terms with its transition to a market economy. Calling itself the style capital of Europe was a stretch, to say the least. But it showed ambition, and that ambition has, at least in part, paid off. The country's two major cities, Vilnius and the former capital Kaunas, while not yet enjoying the numbers of visitors seen in neighbouring Riga and Tallinn, are increasingly popular with visitors from all over Europe. "Vilnius is now regarded by many as a great citybreak destination," says Inga Romanovskienė. "We certainly see tourism together with a well-developed convention and meeting industry as playing an important role in our city’s broader economy."

Better air connections Not counting day-trippers (primarily those on short shopping excursions from Belarus) Lithuania as a whole welcomed just over 1.5 million foreign visitors 2017, a healthy 4.3 per cent increase on 2016, but still modest in comparison with the other Baltic States. While the largest number of visitors still come from Russia – almost 16 per cent – the biggest increase was seen in arrivals from the US, up 21 per cent on 2016. For those numbers to increase further, it's not just marketing that is needed: better air connections are a must. Lithuania has been without a national airline for a number of years, since flyLAL, the flag carrier, suspended operations in 2009. Local investors set up Air Lituanica in 2013, but after two years of poor results it too went bust, in 2015. Part of the problem is a lack of capacity at Vilnius International Airport, which forces some international airlines to send flights to Kaunas, and not the capital. The Soviet-era terminal at Vilnius, built between 1949

Downtown Vilnius

converted. It was just a railway carriage. But that changed quickly. A lot of small places, bread and Matthias Luefkens first visited Lithuania in 1990, when it was still breakfasts, began opening up, often owned by returning Lithuanian part of the Soviet Union. "I loved expatriates." it, and immediately wanted to live Vilnius today offers hundreds there," he tells Emerging Europe. of hotels, including some which He returned in the autumn of are part of the largest chains in 1991 to do just that, as a freelance the world. But there are plenty of journalist working for the AFP, amongst others. The following year, local players on the market too, and one, the Europa Group, founded along with three Belgian friends, in 2000, has expanded beyond he published a guide to the city, Lithuania's borders, with properties Vilnius In Your Pocket. in Latvia and Romania. "That's a good question," he "Vilnius is currently experiencing says, when I ask him who the a hotel boom," Ms Romanovskienė guide was for. "There weren't tells Emerging Europe. "Five new many tourists around. I guess we just published it for ourselves, and hotels have opened in the city this year, including the first Marriott in for our friends. At the time there wasn't even a telephone directory. the country and the atmospheric I am happy that the guide survives five-star Hotel Pacai, which is part of the Design Hotels brand. to this day, and that there are In Your Pockets all over the world. Moreover, the Radisson Blu Lietuva was expanded to become That was always the dream we the biggest hotel in Lithuania. had, and it began in Vilnius." Up to 10 new hotels will be opened In that first guide to the city by 2022, including a Hilton, a Luefkens managed to find just Clarion and a Radisson Red, 16 hotels and places to stay. "The increasing the number of guest cheapest option was a converted rooms in the city by 25 per cent. railway carriage where you could As the sector continues its rapid find a bunk for one US dollar a expansion, many more investment night," he says, before correcting opportunities will appear." himself: "Actually, it wasn't Bed and breakfast

OUTLOOK ON LITHUANIA

The beach at Nida

The Hill of Crosses at Šiauliai

OUTLOOK ON LITHUANIA

and 1954, is a listed building and offers little scope for enlargement. Rokas Masilius, Lithuania's transport minister, recently advocated de-listing the building, which would allow for its demolition and the construction of a newer, larger terminal. "Removing that old terminal from the heritage list would be an important political step so that we could demolish and build a new modern arrivals terminal," said the minister. "We want people to feel as though they have arrived in a modern country when they land in Vilnius, and not see this peculiar building which does not represent us as an innovative country." The minister wants to see a new airport in Vilnius by 2030. The Baltic niche However, there are voices in Lithuania who would like to see the more-central Kaunas airport developed instead, seeing it as being more beneficial to the

country as a whole, and better for the development of the tourism industry outside of Vilnius, not least what often gets called the Lithuania Riviera. While the Baltic Sea may not be as warm as its southern brethren the oft-deserted beaches of the glorious Curonian Spit are amongst the widest, wildest and sandiest in Europe. Even during high summer you need not worry about somebody knocking over your sandcastle on the endless stretches of white beach, although as Ruta Sutkaitytė, who runs a popular guest house in Nida, tells me: "the wind might." Arguably Lithuania’s most exclusive destination, Nida is a small resort close to the Kaliningrad border famed for its wooden houses. An artists’ colony in the late 19th and early 20th centuries, Nobel Prizewinning writer Thomas Mann had a home here. And yet while the deserted beaches are undoubtedly part of the attraction for those seeking a different kind of holiday, they also demonstrate how much more needs to be done to promote the country to potential visitors. According to the World Travel and Tourism Council (WTTC), the direct contribution of travel and tourism to Lithuania's GDP in 2017 was just 736.1 million euros, 1.9 per cent of the country's total GDP. While this is predicted to grow to 2.7 per cent by 2027, both Latvia and Estonia can already boast travel and tourism contributions to GDP of four per cent. "We are a niche destination," says Ms Sutkaitytė. "There are plenty of Lithuanians who have never been to some of our most treasured sites." She loved the G-spot campaign but is irked that Vilnius still gets most of the country's attention. "There is more to this country than Vilnius, and we need a better national tourism strategy to reflect that," she says. "We could also try and encourage Lithuanians to holiday at home a little more. How can we persuade foreigners to come here when not even we have learnt to appreciate everything that we have?" •

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After Hours

Prague's newly-restored astronomical clock, which dates from 1410, was unveiled at the end of October following a yearlong restoration project. The original machinery of the clock â&#x20AC;&#x201C; which is one of the city's most popular attractions - was badly damaged in 1945 by the Nazis during the Prague Uprising. Three years later, the clock was put back into operation, but the original workings were replaced by electric machinery. Now, following its most recent restoration, the original mechanism has returned.

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ARTS Book Via the Left Bank of the ‘90s, by John Bills

Photo courtesy John Bills

WORDS CRAIG TURP

along the way, either through the neighbourhoods they service, the streets under which they lie, the names by which they are known and even the monikers that have long since been consigned to the bin of history. Combine Prague’s incredible history and penchant for influential figures with its magnificently efficient metro system and what do you get? Well, you still get Prague, but you also get Via The Left Bank of the ‘90s, a new book that tells the story of the men and women who made this city special, using the 58 stations as a guide. Every station has a story to tell, from St Adalbert’s rotten luck at Petřiny through to the daring he Prague we know and love escape of three Czechoslovakian pilots at Letňany, via a benevolent is an easily recognisable military man at Invalidovna, beast. The Czech capital the first European cosmonaut at has long been the big cheese of Háje and more. Along the way central European tourism, its we encounter leaders, losers, alluring architecture and narrow writers (plenty of them), rebels, winding streets the picture of revolutionaries, architects, football what most think of when they teams with kangaroo obsessions consider visiting the region. No and executions, oh so many shortage of regional towns have executions. been lumbered with the daunting Via The Left Bank of the ‘90s New Prague epithet, but few is the story of Prague at its best can match the city’s immense collection of iconic attractions and and its worst, from the beauty of the city centre through to sense of elegant grandeur. Prague neighbourhoods that are probably is the new Prague. best described as ‘functional’, but Prague’s metro might not be as have their own quirks and yarns well known to the millions who to spin. If you’re looking for the head this way annually, but the city’s underground network is one Real Prague then you probably its most remarkable achievements. aren’t going to find it in a book, but this one will at least be able to The three lines cover the majority nudge you in the right direction. of the city and tell their own tales

Gaming Emerging Europe’s dark and surreal computer games WORDS YOAN STANEV

he Polish city of Poznan hosted the Central and Eastern European Games Awards (CEEGA) in October, a new initiative that recognises and promotes the best video games from the CEE region. The mere existence of the awards suggests that the region’s industry is confident in a prosperous future. “Rather than trying to imitate other successful markets, it has found its own identity, voice and aesthetic,” said Marijam Didžgalvytė a writer at gamesindustry.biz. 11 bit Studios is a Polish developer which took home three awards. The company developed This War of Mine, a war survival video game inspired by the 1992-96 Siege of Sarajevo during the Bosnian War. “After the success of This War Of Mine, we felt encouraged that the stories from our region matter,” said Paweł Miechowski, Partnerships Manager at 11 bit Studios. “For so long we were poor and ashamed of who we are, confused in our identities as new states. With economic stability, we can now reflect and create new meanings from those histories.” CEE games developers are establishing themselves on the market by telling stories of their upbringing. For example, Kingdom Come: Deliverance, from the Czech developer Warhorse Studios, provides a detailed portrait of the 15th century

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Kingdom of Bohemia. CD Red Project’s The Witcher borrows heavily from Slavic mythology. Another great example of a game based on more recent experiences of war is Attentat 1942, developed by Charles University and the Czech Academy of Sciences. The game is named after and based on Operation Anthropoid – the assassination of Reinhard Heydrich, the high-ranking German Nazi official responsible for Bohemia and Moravia, by Jozef Gabčík and Jan Kubiš, two Czechoslovak soldiers. According to the game’s own website, it “tells the story of Nazi occupation from the perspective of those who experienced it firsthand. The game is built on dialogues with survivors, interactive comics, and authentic historical footage.”

Photos: Attentat 1942

Museum Bucharest's Museum of Recent Art WORDS CRAIG TURP

he first private art museum to open in Bucharest for the best part of a century brings together more than 150 works set over five levels in a superb, purposebuilt space in northern Bucharest designed by YTAA (Youssef Tohme Architects and Associates). The museum's permanent collection chronicles contemporary Romanian art from the 1960s to the present day, highlighting both the risks and compromises artists faced during the latter period of the country's communist regime, which came to an end in 1989. In 1965, the country's then leader Gheorghe Gheorghiu-Dej allowed artists to move away from the Socialist Realism which had dominated art in Romania since 1945, encouraging more diversity but always within clear limits imposed by the regime. From that moment on, younger artists, ignored until then, began to incorporate western ideas and techniques into their work, from abstract and neo-constructivism to photo-realism and installations.

The permanent exhibition documents this transformation, complemented with a series of works created by local artists since the fall of the communist regime. The museum also hosts temporary exhibitions featuring the work of international contemporary artists, the first being MEN: the first ever retrospective in Romania of the work of Canadian artist Jeff Wall, known for his outsized photographic installations, which runs until the end of January. mare.ro Photos: Museum of Recent Art

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ARTIST Q&A Shakhil Shah speaks to Wojciech Smarzowski, director of Clergy, the most successful film in Polish history. WORDS SHAKHIL SHAH

ew Polish films have made such an impact as director Wojciech Smarzowski’s latest feature, Clergy (Kler in Polish). Almost 4.5 million people watched the film during its first month of release, beating all previous records held by Quo vadis and Pan Tadeusz, films based on national literature. The film has also become an international hit for Polish cinematography, earning 1.3 million US dollars in its first weekend in UK and Irish cinemas, the best ever opening weekend for a Polish film abroad. Presenting as it does a less than favourable view of the Polish Catholic Church, the film has also triggered a wide-ranging discussion amongst politicians, local authorities — with several of them banning the film — and Poles in general, including many who have not seen the movie. Clergy is not the first film directed by Mr Smarzowski, who began his film career as a video camera operator, to cause controversy. His previous films, The Wedding, Rose, and Traffic Department, followed a similar course. Traffic Department told the story of seven policemen from Warsaw — colleagues and good friends whose lives change after one of them dies in mysterious circumstances. The film “had a huge impact on me: not only by presenting us with a brutal and — as always in the case of that film director — true social diagnosis but also by being a masterpiece that I haven’t seen in Polish cinema for quite some time,” wrote Tomasz Raczek, a film critic. Searing, painful Clergy is “a searing, painful film that condemns the Polish

Catholic Church as corrupt and hypocritical,” Anne Applebaum wrote in the Washington Post. “The church is present in our offices, on the street, and pushes us home and to bed. The church’s failure to deal with child abuse, hiding paedophiles in their cassocks and transferring them from parish to parish, also needed discussion. This movie is addressed to Catholics, I hope that after leaving the cinema, they will realise they are co-responsible for what they see on screen.” Mr Smarzowski says he makes films on subjects that cause him pain or heartache: “Of course, many things hurt me, but sometimes the moment comes when you have to say: enough. I felt and feel attached to the church and religion. Religion is everywhere.” The final impetus for Mr Smarzowski to make the film was what he calls the collision with religion at school. "My sons started their education and I suddenly realised the scale of the phenomenon. It is not about the individual case of my sons or about a particular priest, but about the fact that everything starts in school. Society is accustomed from an early age to the omnipresence of the church in life. The effect is that our children become brainwashed because they are brought up with superstitions,” he explains.

an individual and intimate sphere. The only topic I was interested was about the institution of the church, and a story about people, like me, the only difference being that they wear cassocks.” Mr Smarszowski says he was able to achieve his goal of only shedding light on the church and not damaging people’s faith in God. “I achieved what I set out to do, well… if you believe about twenty priests and a former clergyman whom I screened Kler for before the film’s release. They confirmed that I was not attacking the Catholic faith. I am aware that the priests who want to reform the church have questioned the current order. I am also aware that there will be accusations such as: What can Smarzowski know about the clergy? I am not concealing that I am an atheist looking at science.” No one cares about the research

What strikes him as strange is that in reality those who criticise his film are not really interested in finding out about the measures he took in developing the script at every stage of the production process. “Nobody will be interested in the fact that I consulted members and former members of the clergy regarding the script. In addition, the same priests told me that although I present a real picture, It's not about destroying faith, but no one in Poland will believe it. First of all, people do not know the highlighting the corruption of church from the sacristy. Secondly, the church. there is a need in us to ignore For Smarzowski, making the film certain things, not to notice them. Surprisingly, we can forgive was not about demonising God or priests a lot." his own belief in God, but more In a country where the church about the institution of the church. is treated like a governing body, “From the beginning I decided it is no surprise that priests are not to discuss faith, because it is

considered to have a higher status than other members of society. “In many regions, a priest is treated like a saint. Of course, as in my films, like Clergy, the proportions have been slightly exaggerated, however in the film there is no shortage of priests by vocation. How many of them would actually dare to say what they think in reality?”, explains Mr Smarzowki. Organised like the military, run like the Mafia Another problem that Mr Smarzowski sees with the church is that while there is order and a strict structure to the organisation, comparable to that of the military, that is where the similarities between the two ends. He jokingly questions whether the organisation of the church is similar to that of the military or mafia, with the need to conform and placate older members of the

Kler. Photos by Bartek Mrozowski

clergy to progress your career. “The seminary verifies the ideals of really engaged young men: these young men quickly begin to understand who their allies are, who they need to placate in order to be appointed to a rich parish in the city, rather than landing somewhere in the countryside. They often come up against problems they have not encountered before, because they are only 20 years old. Then add to that the fact that for the last six years they have been locked up. A great example in my view is the character Jan in the film, because it is up to priests like him how the church will look in the future - whether he will conform to the ways of his older colleagues or keep the values that he still has. This is one of those elements that brings some hope,” says Mr Smarzowski. He believes that 90 per cent of Poland's 33,000 clergy are hypocrites, and that many who are not involved in the topics highlighted in the film such as greed, abuse, corruption, adultery,

alcoholism, and paedophilia, are complicit in hiding it. “The remaining 10 per cent are isolated and have been silenced. As the saying goes, a fish rots from the head down. I think that in the group’s hierarchy, there are many who have something to hide. I am accused of showing only the dark side of the church, but while preparing for this film, I understood that knowledge about this institution is very dispersed. There are striking reports, several books have appeared, sometimes a statement is made about a paedophile priest. It makes a noise for a day, and then the next day everything is swept under the table by the men in cassocks,” says Mr Smarzowski. “It is only when you look at it as a whole that you can see how corrupt an institution the church truly is. I therefore tell all the critics: Clergy is a feature film, not a documentary, a film that allows me to encapsulate a world in a nutshell." •

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Musical politics In the Balkans, music and politics have long been difficult to separate. WORDS YOAN STANEV

nyone who has any interest in the Balkans knows that the region has long been embroiled in political tensions. Whether territorial disagreements based on ethno-nationalist sentiments, or disagreements over which historical figures belong to which national group, or even pointing the finger at which national group started what war, natives of the peninsula can agree on one thing: living standards are not as high as they are across the rest of the European continent. Bulgarians, Romanians, Albanians and natives of the countries of the former Yugoslavia often talk about how corruption has engulfed society and how the corrupt politicians and businessmen (with the line between them difficult to distinguish) are the “bad guys” and the rest of society represents the vulnerable “good guy” victims.

Helem Nejse

Todor Kolev

Catching up with the Americans This general disappointment and dissatisfaction with life is reflected in Balkan art, primarily music. Numerous bands include political connotations in their lyrics, whether overtly or in between the lines. The late Bulgarian music legend Todor Kolev sings about how the windscreen wipers on his car were stolen. The song is sarcastically titled How will we catch up with the Americans? and, despite being (rather cheekily) sung to the melody of the Beatles’ 1970 hit Let it Be, the song is replete with political references and how society is going downhill. Given the song was released in 1989, as communism was collapsing across emerging Europe, it seems Kolev was foretelling a bleak future: “How will we catch up with the Americans? And even overtake them? Well, I, too, am wondering, comrades… but after the fog ‘Ah, more fog!’” What’s more is that the line “should I turn to the left or to the right? I don’t even know any more.

Whichever way my eyes look, every [politician] is stealing and stealing” is often interpreted as the disintegration of the political system and citizen distrust of the political parties and institutions. In other words, whether you vote for a left- or right-wing party, in the end you will be no better off. Contemporary Bulgarian rock bands, too, express their disgust at the socio-economic system the country finds itself in after the collapse of socialism in the country. Funk rock band Obraten efekt express their disgust not only at the ruling political elite in their song At least I’ll say it to you, but also at the degradation of social norms and values. It is not uncommon to hear Bulgarians claim that the insecurity and uncertainty that the troublesome 1990s brought with them has led to many ordinary citizens not only distrusting state institutions, but also one another. Hence the chorus: “Every day I wonder why this nation is used to being a slave to someone all their lives? Every day I wonder why this nation enjoys swearing at anyone without reason”. Hipodil rock Whilst some musicians are singing about their disgust at the ruling class, others are running for the top job. The frontman of Bulgarian ska band Hipodil (hippo + crocodile), Svetoslav Vitkov, better known as Svetlio, ran for president in 2011 as well as 2016, yet neither of his candidacies were a gimmick. Svetlio has appeared numerous times on national television and has discussed his candidacy and proposed policies in a sensible manner, visibly different to his performances on stage. Svetlio was supported by the People’s Voice, a political party that he founded, and The Greens. On his Facebook page, he posted “the motto for my [2011] pre-election campaign is ‘And why not?’. Am I any uglier, stupider, or poorer than

Yugoslavia Now, if we hop over to the former Yugoslavia, we find bands singing not only about corruption and poor quality of life, but about the ethno-nationalist tensions that the region grappled with during Yugoslavia’s violent dissolution. Dubioza Kolektiv is a popular band from Bosnia and Herzegovina, whose music is often a mixture of hip-hop, reggae, dub, punk, rock and Balkan folklore. “Integrating their perspectives on the current issues facing Europe as well as the rest of the world, their creations are not just entertainment, but also a form of political activism,” wrote Morena Duwe for the Huffington Post. Dubioza often mixes in references to the increasingly consumerist society of Bosnia and the differentiations made between the country’s three main ethnic groups. Their sixth studio album, Apsurdistan (the title of which itself means ‘a country full of economic, political and social absurdities’), begins with the song Tranzicija (brownie points to those who can guess the political reference), which argues that: “It’s hard to decide when there’s a wide assortment, whether it’s better to be a Serb, Croat or Muslim.” Apsurdistan, which is sung in Bosnian, is full of songs that tackle the socio-political issues in the country. One of the most popular music videos by Dubioza is that of Free.mp3, a song which talks of piracy on the internet. In an interview with Ms Duwe, the band states: “We didn’t know what to expect regarding legal aspects of using parts of other people’s videos but, legally, as long as you are using those as a parody, it should be considered as fair use.” Accordingly, the band has also allowed its listeners to download their albums for free (legally) from the band’s own website. Among the band’s most widely known songs is USA, sung in English. The song is about a man from Bosnia who dreams of

emigrating to the States and living the American way of life, as the song’s chorus suggests. The song begins by describing how people from the Balkans want to “escape the Stone Age” as they “feel like a slave, living on a minimum wage”. However, in the song the band go on to say that life in America (or the West in general) is not as great as it may first seem, and that life back home in the Balkans, although far from perfect, is in many ways better than what many migrants might encounter in the US. No Escape from Balkan, also in English, is of a very similar theme, yet boasts a more entertaining music video to fit the lyrics. It talks of a (presumably Bosnian/Balkan) emigrant in the US, but the song also tries to challenge the typical stereotypes of Balkan men in the West: “Don't believe the hype, I never beat my wife; I’m not a macho man who would stab you with a knife”. Fellow Bosnian band Helem Nejse also sing about how a Bosnian Muslim girl runs off with Serb, against her family’s wishes, in Kabadahija. “He is not a Muslim”, argues the mother. “Sorry, but neither am I!” is the daughter’s instant reply. No escaping the past Being of the post-Yugoslav era, bands such as Dubioza Kolektiv and Helem Nejse have called for ethnic reconciliation through their music. However, musicians of the Yugoslav period, such as the Serbian singer Svetlana Ražnatović, better known as Ceca, and the late Croatian singer Oliver Dragojević have more trouble ridding themselves of ethno-nationalism. Ceca was appointed the honorary president of the nationalist Party of Serbian Unity, established by her late husband, Željko Ražnatović, a war criminal also known as Arkan. The party was a proponent of the irredentist idea of Greater Serbia. As such, Ceca is a persona non grata in Croatia and is therefore not allowed in the country. However, the singer claims to have only accepted the position in honour of her deceased husband and, after clashing with the president of the party, Borislav Pelević, she withdrew herself from politics. On the other hand, Oliver Dragojević

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Dubioza Kolektiv

any of the presidential candidates of the last 20 years? Politics has entered the space of showbusiness, therefore I don’t see any reason why a showman cannot become president.”

refused to stage concerts in Serbia, despite being highly popular there, after the bloodshed of the 1991-95 Croatian War for Independence against the Serb-led Yugoslav army. In the Belgrade-based daily tabloid Kurir, Serbian film producer Maksa Ćatović claimed that Dragojević is afraid to travel to Serbia, in case Croatian nationalists attack his sons. Dragojević himself has stated that if he were to perform in Croatia’s eastern neighbour, he would not be true to his principles and values: “It is my principle, which has nothing to do with politics or politicians. I have had my own stance since the breakup of Yugoslavia and I will not give it up.” The singer added that Serbians often attend his concerts in other parts of former Yugoslavia and they have always been welcome to do so. Overtones Balkan music has often been replete with political overtones, and most likely will continue to be so. Issues such as corruption, ethno-nationalist tensions, low living standards and even the Balkan mentality that are not uncommon in all forms of Balkan art have been fused with upbeat and lively rhythms to shed satirical light on these dark topics. Bands that discuss these issues in their music in English, such as Dubioza, undoubtedly have a wider outreach, extending beyond the Balkan peninsula, but also easily find audiences in neighbouring countries who do not speak the same language, but experience virtually the same issues: Bulgaria, Macedonia and Romania to name just three. •

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Postcard from Minsk When Vivian Coprina took a job in a Minsk hostel in order to improve her Russian, she soon found out that it would be no holiday. WORDS VIVIAN COPRINA

Minsk. Photo: Yoan Stanev

“You’re coming to Minsk to work in a hostel over the summer?” the lady opposite me on the train asks, incredulity stretching the skin around her eyes. “Yes,” I answer. I can tell she doesn’t believe me. After all, how many English girls have the dream of travelling to Belarus to spend the summer working in a hostel? “You’ll be paid, right?” she asks. “No, volunteering.” I don’t want to talk to anyone right now. I’ve been up since 4am. I just want to sleep. “Do you at least know who you’ll be working for? How do you know him? Have you met?” She sounds concerned. “He’s a guy I met online, we’ve talked over Skype”. Now I say it out loud it sounds like the start of a horror story: small blonde girl moves to the other side of the continent to work for a free for an unknown man she met online. Is this really the situation I’ve put myself in? And yet here I am, on a train from Vilnius to Minsk on a

sense of Slavic-machismo leaping to assist a diminutive damsel in distress. I’m exhausted and he’s welcome to it! Tired, hungry, and a little overwhelmed by everything, I’m looking forward sleeping in tomorrow, exploring the city and finding a supermarket. “Yeah, about that,” begins Vlad, “we’ve got a train to catch at 6:30am tomorrow morning”. I stare at him. Is he joking? I’ve only just arrived, and in eight hours I need to leave again? Where do I possibly need to go at 6:30am on my first day in Belarus? To answer my questions: no he is not joking; yes I need to leave again; and we’re going to his hometown of Novopolotsk, five hours outside Minsk, to be registered at his home address as my private visa requires me to do so. My room at the hostel is tiny. Not just small, but miniscule. Smaller than a cell at Guantanamo Bay. Indeed, when I later looked up the dimension of the Guantanamo quest to improve my Russian by cells, they seemed a luxury that I throwing myself head first into would relocate to in a heartbeat. the whirlpool of immersion so After opening the door the half way highly recommended by my former permitted and stepping inside the university teachers, fuelled by raw room, you find yourself immediately enthusiasm (and certainly not by faced with the end of a bunk bed. sleep or food). ‘Minsk will either be Walking along the side of the bunk excellent or a disaster, and either way bed is not possible due to the width it will be an adventure’ is what I’d of the room, or lack thereof, so I been telling myself for weeks. crawl onto the lower bunk. I sit I realise the lady opposite is cross-legged on the bed and stretch talking to me again. out my arms; I can touch both walls “What’s that?” I ask, my tongue and my elbows are still bent. Then has forgotten how to contort itself I remember about my suitcase still into Russian and my words are left in the corridor. I squeeze it inside slurred from sleep deprivation. the room and discover that when my She repeats herself slowly, “I said, suitcase is laid down, all available I have a daughter your age in Minsk, floor space is completely taken up by take her contact details, I’m sure the bed and the case. she’d like to meet you.” “When you’ve unpacked we can I hadn’t expected so much make some draniki (Belarusian kindness from a stranger. I thank potato pancakes) together. And if her and take her daughter’s number. you have any suggestions about how Maybe Minsk won’t be so bad. to improve either the hostel or your Vlad meets me at the station. He’s life here then let me know”. the guy I’ve been in touch with; it’s Draniki are a simple, yet delicious, his hostel that I’ll be volunteering part of Belarusian cuisine. For at. He takes my suitcase from best results they should be fried me - it’s heavy but he insists - his until golden and eaten hot with a

73 admittedly not too demanding, not physically or intellectually anyway, and the guests were mostly friendly. During that first week in Minsk I was swept up in a flood of feelings I’d never before experienced, both psychological and physical. Even walking short distances around the city on my days off felt exhausting at times. I hate slow walkers and yet try as I might, I could summon neither energy nor motivation to force my legs to walk at a decent pace. Instead I dragged my feet from bench to bench, trying to keep myself together and focus on the positive aspects of living in Minsk. I cried more in the first week of working at the hostel than I had for a good eight months before hand (I would say a year had my grandmother not died in the autumn) and each time I felt utterly hopeless. Half of me wanted to book the next flight home and leave immediately, half of me was berating myself for not being strong enough to stick it out until the end, reminding myself that I’d promised myself a summer in Belarus, and that was what I was going to get, whether I wanted it or not. My own stubbornness amazes me at times. I made a deal with myself: I would give it one more week, and if it didn’t improve then I would leave. There was no way I could sentence myself to a summer of that week on repeat. And yet it’s amazing what the human body and brain can get used to, especially when placed in a situation where your peers (i.e. Vlad and Nastia) appear to find nothing out of the ordinary. A week went by and I no longer cried silently each night, nor did I wake up each morning with my heart racing, feeling unable to inhale to my lungs’ full capacity. Minsk is a beautiful city and the friends I’d made here made it seem worth staying, if not out of job satisfaction then for the pleasure of spending time with them when not at the hostel. The weeks went by and I soon realised I’d been in Minsk for almost a month. The size of my room started to seem normal, checking guests in and out had become automatic, and I was able to speak Russian over the phone without panicking (much). Yet the hostel was

never a home and living without a home carries its own mental fatigue. What’s more, as much as I hate to be the typical western foreigner who steps into Eastern Europe and complains about the lack of health and safety…the hostel was indeed suffering from a chronic lack of health and safety regulations. Located on the top floor of an old building without a lift or a fire escape, there was no obvious plan of action for what to do should a fire break out. There was not a fire extinguisher to be found there, and plugs leaked out of extension leads plugged into yet more extension leads. Given that my job was to manage the hostel in its entirety during my shift, naturally I was, by default, the fire warden too – a task with terrifying implications that, luckily, I was never called upon to perform.

After five weeks it was time for some serious self-reflection. I hate quitting things and the hostel was no exception. My pride was also at stake in the matter. The way I saw it, I’d planned to stay until the end of August and leaving any earlier was a sign of weakness. But our strengths and weaknesses can switch sides as easily as a coin, and all it took was to flip my sense of pride from heads to tails. Heads: I’m weak if I can’t make it until the end. Tails: I’m weak if I continue to accept working 56 hours a week for no pay, no food, and accommodation that surely even Belarus has some kind of regulation against. I mentally flipped the coin and it landed tails up. That small imaginary coin was the motivation I needed to gather my courage, not to stay, but to leave the hostel once and for all. •

Staircase in hostel building. Photo: Yoan Stanev

generous dollop of sour cream. My first draniki were burnt and cold, but beggars can’t be choosers and I was ready to eat anything that was put before me. The following day was long to say the least. My mood seemed to constantly oscillate between ‘This is fun! You’re in Novopolotsk, a city you’d never have any reason to otherwise see’ and ‘This is terrible! Please just let this day be over as soon as possible”. Vlad was late to meet me in the morning, having apparently found it difficult to get up so early. Unsurprisingly I had little sympathy for him, even less when we had to run the length of the platform to catch the train. Once on board I had the pleasure of meeting Toilet Guy. A charming individual who saw me exiting the train toilet and decided to inform me of my apparent beauty (when I’m sleep deprived and hungry, really?) and when I refused to give him my number asked, affronted, if I was into girls rather than guys (well if you’re the best Belarus has to offer then yes, without a doubt!). Novopolotsk was like no city I’d ever seen in Europe, for all I knew I could have been swept into the air, Dorothy-style aboard a tornado and deposited on the wide, Soviet streets of Novosibirsk. I was registered without too much of a fuss, other than being bluntly asked if I’d come here to get married, ‘To Vlad? Please!’, and we had the rest of the day to relax. June 9 is incidentally Novopolotsk’s birthday. The idea that a town can have a birthday was something of a foreign concept for me, and the wearisome day culminated in a truly spectacular firework display. The thrill of the fireworks was somehow tainted however by having to run once more to catch the train back to Minsk. Cold and lonely I arrived back at the hostel at 7am. I crept into my room so as not to disturb Nastia, my roommate, and collapsed onto my bed. Two hours later however, it was time to begin work and learn how to run a hostel. “Good morning,” Nastia greeted me when she saw that I was awake; “Today’s going to be complicated”. Somehow I managed to survive my first two-and-a-half day shift, thankfully with the opportunity to finally buy some food. The work was

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Masterchef

Adi Hădean is one of Romania's best-known, and best-loved, chefs. A former judge on the local edition of Masterchef he tells Craig Turp about the changing attitudes of Romanians towards food, and why keeping the country's restaurants smoke-free is a cause he remains willing to fight for.

Photos courtesy Adi Hădean

WORDS CRAIG TURP

here comes a time during any visit to Romania, particularly if you have been invited to somebody’s home, when you will be offered a glass of what is known as tărie: spirits, basically. Țuica and pălinca are perhaps the best known, two often fiery spirits not for the faint of heart. People either love them or hate them, but refusal is never an option. As one of those in the latter group – there are few spirits I drink with any real pleasure - I have learnt over the years to grin and bear it, downing the contents of my glass as quickly as possible while desperately trying to hide the fact that I find the taste repulsive. So when Adi Hădean offers me a glass of pălinca, I fear the worst. Leaning against the countertop in the kitchen of his studio, Adi has just told me that spirits are an important part of the amazing dinners he puts together for the carefully selected few for whom he cooks. "As important as the wine," he says. The pălinca Adi pours me is far darker than any other I have tasted. "It's a walnut pălinca," he tells me. I down it in one. It's delicious. Smooth, and without the nasty aftertaste so many glasses of tărie have left me with over the years, I would have another, but it's only 2pm and I have work to do. Adi Hădean sources his pălinca from a producer in Bihor, in

western Romania, who refuses to divulge the recipe. What's most striking though is not the pălinca itself, but the fact that Hădean's love of food and drink means that he has been able to source a pălinca which even those of us who would usually run a long way to avoid the stuff will enjoy. An education Hădean's long culinary evenings – they can extend well into the night - have become a thing of legend amongst gourmands in Bucharest, Romania's capital. Requiring days of preperation – Hădean does all the cooking himself – they are held 35-40 times per year, usually for companies looking to reward staff or impress clients. They can feature tens of courses – he admits to once cooking as many as 57 – with explaining the process as he does. They are an education. "If you have a group of 40 people or so not everyone will pay attention, but most people do," he says. "They want to work with me, to know what ingredients I am using, and both how and why I am using them." Hădean is committed to improving the understanding Romanians have about food. "Things are improving," he says, "but at a very slow pace. It is still far too easy to fool people, and

this happens a lot. The Romanian hospitality industry still sells a lot of bullshit." The plethora of restaurants in Bucharest which look fabulous but which often serve very ordinary food at unacceptably high prices is proof of that. "I am confident that this will change the more people travel. The more they travel the more they will understand, and know how good food should be," he tells me. Cooking killed the radio star Hădean's professional career began in radio, in Oradea, in western Romania, after which he moved into marketing. His first job as a chef was in Cluj, in the centre of the country, at Irish Music Pub. "It was a hard period. I worked there for more than two years, with hardly any days off. Not because somebody made me, but because I wanted to learn how to cook better." Another restaurant in Cluj followed, Camino, where he worked for two years. It was during this period that Hădean's career took off. "I started to travel as my blog, and Facebook page really took off. People started to ask me to cook for them at various events. I kept Camino as a base though." One of the ways Hădean has spread the word about good food over the years has been via his

blog, which has been running for more than a decade. Indeed, I first came to know him as a blogger who cooked a bit, as opposed to a chef who blogged. "I was one of the first bloggers in Romania. At a time when people were only posting a couple of times per week, I was posting every day. And it came at a time when Romanians were starting to be more curious about food."

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Masterchef Real stardom came when Hădean was chosen to be a judge on the Romanian edition of Masterchef. "It's hard work," he tells me. "I was there for two seasons, recording for almost three months straight, from early in the morning until late at night with only a few days off. But programmes like Masterchef help. They can introduce people to ingredients they might not otherwise have thought about cooking with. Whether its Masterchef or Hell's Kitchen or any other programme, they have done a great service to the development of gastronomy in the Romania, just as cooking programmes helped to educate people about food in the UK." Not that he would do a similar programme again. "It kept me out of the kitchen, and that's what I love the most." Hădean opened a restaurant, Meatic, in Oradea, in 2017. Another Meatic, in Bucharest, will follow by the end of 2018. "The Oradea location was ready to go," he says. "The venue had been a restaurant for six years or so beforehand. At Meatic we work a lot with slow cooking, and smoked meat, and really good fresh vegetables. About 80 per cent of the produce comes from local suppliers, and we are happy with the way things are going. We have a good young team: this is important." The food Hădean serves at Meatic is, he says, Transylvanian, not Romanian. "I am from Transylvania. I grew up in the countryside, and I am proud that Transylvania is part of Romania. But when it comes to food, there are big differences between Transylvania and the rest of the country. Far fewer Balkanic influences, and more

from Hungary, Austria, Germany. There are also Slavic elements, and everything I cook carries these Translyvanian roots. Of course, I cook international food from time to time as it is fun to do, and people can learn about new cultures through food. But every time I cook for an event, or for my guests, I take what I learnt as a kid growing up in Transylvania and try to translate that into a modern formula." Smoke food, not cigarettes As much as Hădean likes to cook with smoked meats, he has long been an advocate of smoke-free restaurants. He was the founder of a movement called fara fum (no smoke) which campaigned for a smoke-free environment at a time when doing so was unpopular. In 2016 he got his wish: smoking was banned in many public places, including bars and restaurants. There is, he tells me, still a problem, however: "In Oradea for instance, almost every restaurant has a closed terrace where they serve food, and where smoking is allowed. This is not right. It means that we are competing not on equal terms: it is no longer about who offers the best

food or the best service, but who offers you a place to smoke while you eat. It is unacceptable. They are breaking the law, and I am certain that corruption is involved. These are not hidden places, they are on the main street." So does the law need to be tightened? "As it is, the law is good, it's fine, but the law needs to be respected. We have a terrace which will be enclosed for the winter, and we will allow smoking there but we will not serve food in that part of the restaurant. It's wrong. It will create problems for the staff, as people will insist on being served food. I tell them tough, we must refuse to serve them food." As a former smoker Hădean understands the urge to smoke, "but I will not serve them food while they do so. We are trying to build a family-friendly restaurant. Every weekend it is full of young children with their parents. That can't happen when there is smoke." A number of Romanian MPs recently tried to relax the country's smoking ban, but failed. They will no doubt try again. "Let them try," says Hădean. "I am prepared to fight." •

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Tsakhkador, Armenia

Armenia Yes, you can ski in Armenia. The country’s only real resort of any size, Tsakhkadzor (perhaps best known as a summer retreat) is just over an hour’s drive from the capital Yerevan, set at an altitude of 1900 metres. The resort’s lift network rises to the top of the Teghenis mountain at over 2800 metres, and the terrain up here is steep, offering some seriously challenging skiing: throughout the resort there is little for beginners. While some of the lifts could do with upgrading (queues can be long at busy times) the snow record is good and you can often ski until the end of April. The lift pass is cheap, gives access to 35km of pistes and the views from the top of the mountain are sensational. There’s even a Marriott hotel at the foot of the slopes. The most disappointing aspect are the mountain

restaurants, which are few and far between and relatively expensive. Azerbaijan Boasting more than 1000 metres of vertical drop, Azerbaijan’s leading ski destination, Shahdag is a modern resort featuring stateof-the-art lifts, dominated by the monolithic Shahdag hotel at the foot of the slopes. There are 12 lifts in all and around 30km of skiing, all of it set quite spectacularly above the treeline. While it doesn’t snow all that much in these parts, the entire resort is covered with the latest in snowmaking technology, guaranteeing snow for most of the winter. What you get instead is sunshine: fans of spring skiing will love the place. Shahdag is three hours by car from Baku, while slightly further away is Azerbaijan’s equally spectacular, equally modern (although slightly smaller) second resort, Tufandag.

Bosnia It’s easy to forget that Sarajevo hosted the Winter Olympics in 1984, and Bosnia’s best skiing is just 30 minutes drive from the centre of the capital, at Jahorina. There are over 30km of pistes, including the Olympic women’s downhill, slalom and giant slalom routes. The men’s events were held at Bjelasnica on the other side of the city. Both of Sarajevo’s ski areas have seen much investment in recent years, although Jahorina is currently the best of the two, boasting new lifts and shorter queues. Another, smaller resort – Ravna Planina – is even closer to the city centre, but it offers very limited skiing. While all three of Sarajevo’s ski areas boast snowmaking equipment, snow cover can still often be an issue. Those of you with long memories will recall that the men’s downhill back in 1984 was delayed over a week due to a lack of snow.

Shahdag, Azerbaijan

ith the first snows of the winter having already fallen across emerging Europe, many people’s thoughts would have already turned to winter holidays, and to skiing. While for many the countries of the region are not the first to spring to mind when planning a ski trip, there are in fact a number of very good ski resorts in this part of the world. From Jasna in Slovakia to Tsakhkadzor in Armenia, many offer some superb, rugged skiing amidst fantastic scenery, usually at prices well below those in Western Europe. Not that the low cost is the only attraction. For a new breed of adventurous skier, jaded perhaps by the increasingly busy motorway pistes of France, Switzerland, Austria and Italy, the search for fresh powder, for empty slopes and for new experiences is the real draw.

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Probably the best-known skiing destination in emerging Europe, Bulgaria’s three main resorts, Bansko, Borovets and Pamporovo have been staples of the winter holiday brochures for four decades. All three resorts have seen upgrades in recent times, most recently Pamporovo which has extended its ski area and linked up with neighbouring Chepelare. While none of the skiing in Bulgaria is particularly challenging, and there is little off-piste, it’s all easily accessible from either Sofia or Plovdiv airports and prices remain amongst the lowest in Europe. Our pick of the Bulgarian resorts this year is Bansko, not least as there are so many activities off the slopes, making it perfect for mixed groups which may include people who do not ski. The town’s many mehana offer great food – specialising in lamb dishes – and its narrow streets are charming, meriting exploration. One tip: the gondola up to the ski area gets very busy around 10am. Make sure you arrive early. And for anyone on a business trip in Sofia with a few hours to spare, note that there is a half-decent ski area in the city’s suburbs, on Vitosha mountain.

Kapaonik, Serbia

Bulgaria

Georgia At risk of annoying the Slovenes, the Slovaks, the Bulgarians and just about everybody else on this list, I hereby declare that emerging Europe’s best skiing is in Georgia, at Gudauri . Boasting a top elevation well over 3000 metres the resort offers both long, cruising blues for the smart set as well as tough blacks – and Europe’s cheapest heli-skiing – for adrenaline junkies. Four new lifts are set to open this winter – three chair-lifts and a gondola - opening up even more skiing and linking Gudauri with the resort of Kobi on the other side of Mt. Sadzele. The lift pass is incredible value (just over 50 euros for a week),

and it’s all less than two hours from Tbilisi. Our only complaint is that for a purpose-built resort the layout can be awkward (a lot of the accommodation is a long walk from the lifts), but most hotels and apartment complexes offer shuttle buses to and from the slopes. Once on the piste however, you are in a white paradise that is hard to beat. And with the exception of Georgian public holidays you are likely to have the place for yourself. For how much longer remains to be seen: Gudauri, like Georgia as a whole, looks set for a tourism boom as more flights link Tbilisi with Western Europe. We suggest booking a trip for this winter. And remember: you read about Gudauri here first..

There are plans to spend almost half a billion euros on developing Brezovica as an international ski resort: ecological concerns as well as Serbian objections (there are issues over land ownership) may delay those plans, however. Until then, it will remain a very old-fashioned ski resort worth visiting if only to say that you’ve skied in Kosovo. The chair-lifts are old, the slopes are poorly groomed and the access road becomes blocked at weekends: there is virtually nowhere to park near the slopes and so you could end up walking a long way in your ski boots if you don’t arrive early. Once you do make it to the top of the mountain however, it is easy to see the potential of the place: snow is guaranteed, and there is vast scope to create a rather special ski area here. It’s less than two hours from either Prishtina or Skopje.

Gudauri, Georgia

Kosovo

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Montenegro

Zakopane, Poland

There are currently seven places to ski in Montenegro, and the country is keen to develop winter tourism further. The largest, and best resort is Kolašin 1450, a 90-minute drive north from the country’s capital Podgorica, generally snow-sure from December to April. With a modest 20 kilometres of mainly gentle, tree-lined slopes served by seven lifts (including a brand new chair-lift for the 2018-19 season) the resort is currently off the radar of most European skiers, but that could soon change. The Montenegrin government has high hopes for winter sports: an entirely new resort is being built further up the mountain at Kolašin 1600, which will increase bed capacity (currently there are few accommodation options), and tens of millions are currently being spent on creating what will be the largest ski area in the Western Balkans, all part of a major plan to develop the Bjelasica region.

Poland

Romania

Poles are crazy about ski jumping, and Zakopane is the country’s ski jumping capital. Competitions are held all winter, the highest calibre being the World Cup event which takes place at the end of January. Alas, when it comes to more conventional skiing, you will almost certainly leave Poland with the impression that it could be fantastic, if only they could get their act together. Zakopane in the Tatras is a good base for exploring a number of different ski areas, of which the closest (and biggest) are Kasprowy Wierch and Gubałówka, on either side of the town centre. The two areas are not connected however, and despite the recent installation of new chair-lifts, the crowds and lift queues remain the stuff of legend. Zakopane does have plenty to offer away from the slopes, however, including great food and drink, and for groups and families including non-skiers, it’s a superb choice.

Poiana Brasov (which in the 1950s went by the unfortunate name of Poiana Stalin) has been welcoming skiers for more than 70 years, Sinaia longer than that. Both resorts (neither of which is more than two and a half hours from Bucharest) offer a small yet decent amount of skiing: 25km at Poiana and 40km at Sinaia. Both resorts have seen much investment in recent years, and have upgraded their lift systems. The only real downside is cost (lift passes are relatively expensive for this part of the world) and unreliable snow cover (Romania, contrary to popular belief, has very dry winters). Both resorts are also susceptible to long queues, and on holiday weekends the main road linking the Romanian capital to the mountains can resemble a giant car park. To get the best out of skiing in Romania take a day or two during the week just after a heavy snowfall: you will have the slopes to yourself. Better still, combine a day’s skiing with a

visit to the wonderful Transylvanian city of Brasov, not 20 minutes from Poiana Brasov.

Bukovel, Ukraine

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Kopaonik, on the border of Serbia and Kosovo, offers 55km of tree-lined pistes. Runs are quite short but good fun, and there are few crowds: the resort is very well designed and the lift system, which has seen investment in recent years, including a new six-seat chair-lift, keeps queues to a minimum. The highest slope barely tops 2000 metres, but snow cover is usually guaranteed until the end of March. Accommodation is good value, and there is plenty to choose from. Access, however, is a problem: it’s almost five hours from Belgrade, longer from Podgorica. Prishtina is in theory far closer, but as you are not allowed to cross the border directly from Kosovo to Serbia, you need to go via Montenegro.

Slovakia over the past few years has made giant strides towards becoming a serious destination for skiers. Resorts are dotted across the High and Low Tatra mountains, my pick of which is Tatranska Lomnica north of Poprad, and Jasna to the south. Jasna is the largest resort in the country and offers some very good skiing, but the lift pass is pricey and it can get very crowded at weekends. While the skiing at Tatranska Lomnica is not as extensive, it’s a more relaxed resort and a great weekend destination. It’s also home to probably the most difficult ski terrain in the country. The surrounding villages are packed with cabins and bed and breakfasts, all offering great homemade food amidst some of the most superb forests emerging

Slovenia

have yet to see it. Kranjska Gora is the country’s best-known, and largest resort, famous for the slalom World Cup races held here each year and superb cross-country tracks. In my opinion however, there is far better (and less crowded) skiing to be had at the other ski centres in the country, particularly at Vogel near Bohinjska Bistrica and Slovenia’s highest resort, Kanin, which now has direct access from the town of Bovec on the other side of the Triglav National Park. This being Slovenia, no resort (with the exception of Bovec) is much more than an hour’s drive from Ljubljana.

As locals will be the first to point out, you don’t merely come skiing in Slovenia, you come for a whole winter experience. After all, if there is a more picture postcard perfect place on earth than Lake Bled when covered in ice and snow, then I

Europe has to offer. Slovakia also remains hugely keen on crosscountry skiing: just about every village has a groomed track.

Ukraine One of the best-kept secrets on the emerging Europe ski-circuit is the almost immaculate resort of Bukovel. There are more than 60km of pistes, and while the resort’s elevation is not the highest (the top lift reaches a modest 1372 metres) the resort’s latitude makes it one of the most snowsure in the whole region. What’s more, all the slopes – most of which are tree-lined and sheltered from the elements – are equipped with snow cannons for when nature fails to supply enough of the white stuff. There is a good range of accommodation, and prices are very cheap. Now the bad news. One of the reasons Bukovel has remained something of a secret is its inaccessibility. It is more than four and a half hours drive from the nearest international airport, Lviv, and the roads in this part of world are not the best. Should the airport at Ivano-Frankivsk (less than two hours from Bukovel) open up to international flights (it currently only serves domestic flights from Kyiv) expect skiing in Ukraine to take off. •

Lake Bled, Slovenia

Slovakia

Jasna, Slovakia

Serbia

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No sense, makes sense in Ukraine! WORDS LUC CHÉNIER

B Luc Chénier, founder and CEO of PLAN C.

efore I arrived in Ukraine, being Canadian citizen, I knew practically nothing about the country. I met a few people from the diaspora in Canada, but aside from that, I was quite clueless as to the country and its people. I had met a few people from Ukraine that were visiting Canada at the time and we got to talking that if I was ever in Europe that I should make a detour and come discover the country. A few months later, I decided to travel the world to meet with companies that wanted to hire me and I took my Ukrainian friends’ up on their offer. Once there, I decided to approach people in the ad-vertising community and was quickly offered a position as their Creative Director. Next thing I knew, I had refused several job offers in other, betterknown countries and I was packing my bags to move to Ukraine. Why? I felt that Ukraine matched my character and curiosity as to what could be created when passion and determination are combined. Something about Ukraine seemed more appealing for me and I felt strongly that this was where I was meant to be. Now, 18 years later, it’s still one of the best decisions I have ever made and I have never once regretted choosing Ukraine. The most surprising thing upon arrival is that all your preconceived perceptions are thrown out the window and you are in a constant flux of discovery. Like a saying I once heard: ‘When was the last time you experienced something for the first time?” Ukraine is exactly this… constantly exposing you to new experiences that will challenge your mindset in every way… but in a positive way. While I had the great honour of being the CEO of Kyiv Post, I felt I could have more impact on Eastern Europe by returning

to my roots in communications. On March 1, 2018, I launched PLAN C, which is an international communications firm that specialises in working with global CEOs and governmental organisations. We have worked with Ukraine House Davos at the World Economic Forum, the Canadian government, private equity giant Horizon Capital, the Ministry of Agriculture in Ukraine which we are about to launch a new promotional video that focuses on attracting investments for organic farming. We are also very excited that we will be launching - in the first quarter of 2019 - our second office, which will be located in New York. It will help us support several new clients in the US as well as allowing our Eastern European clients to better promote and integrate their products into the United States and Canadian markets. Ukraine is a work in progress, but a work that is progressing faster than any other country in my opinion. For a long time, it was held back by its large northern neighbour in order to keep it in check with what was important to their needs and political goals. Now that Ukraine has broken its shackles from Russia, the chance to truly express itself and show the world what it can deliver is becoming fast known and is rapidly adapting and often dominating several sectors such as agricul-ture and IT outsourcing. The country has always been loaded with talent, but held back by outside forces. Now that it’s free to show its true potential, countries are lining up to form free trade pacts and to invest in its talented workforce and low prices. It’s not only the biggest country in Europe, but more importantly the biggest opportunity in terms of business and growth. The timing is perfect for investment while prices are low as it means

getting in on the ground floor that will yield bigger profits and first move advantage position for most sectors. While corruption is an issue for any country that is evolving from a post-soviet past, Ukraine is quickly shedding this image by implementing fast reforms that meet global standards. It will take time, but the important part to remember is that Ukraine is moving forward and not in the opposite direction. It’s always interesting to hear what people think of Ukraine when they have not been there. You have to understand that people form their opinion by what the news reports, and bad news is mostly what is reported, not only for Ukraine, but for news in general. The most pleasant conversations I have about Ukraine are when someone experiences coming here for the first time, as they are completely amazed and surprised at how modern and sophisticated it is. Great restaurants and entertainment, and most importantly the lowest prices in Europe and a safe environment contrary to media reports. Ukraine — as many expats will attest to — has an addictive flair to it. Once you experience it, it’s impossible not to want to come back and get more. I should know, it’s been almost 20 years and still counting. But it’s not about how long will I stay as I am here for life - even if I relocate to another country. Ukraine will stay as a business base for me for the rest of my professional life and a base in heart for the rest of my existence. It has made a massive impact on my life and helped shape my character as a person. “No sense, makes sense in Ukraine!” I like to say that Ukraine is a constant surprise that keeps on developing into a new one… as long as you can adapt and accept this, you will do very well here. •

Invest in Bydgoszcz Poland

• CIJ Awards Poland 2017: Best Investor-Friendly City • CEE Shared Services and Outsourcing Awards 2016: Emerging City of the Year • Eurobuild Awards 2015: Most Investor-Friendly City

• More than 1 million residents within 50 km • 1st place in The World Bank’s report – Doing Business in Poland 2015 • Regional economic centre • Academic hub of the region • International airport located within 3.5 km from the city centre

www.barr.pl www.investin.bydgoszcz.eu barr@barr.pl

82 AFTER HOURS

Planes, trains and automobiles

Waiting for a miracle. Sighișoara railway station, Romania

WORDS CRAIG TURP

BB, Austrian railways, announced in October that from next summer, as part of the European Union's opening up of Europe's railway networks, it would operate a direct service from Cluj in Romania to Vienna. Once the service is operational Cluj - the largest city in Transylvania – will, by train at least, be closer to the Austrian capital than it is to the Romanian capital Bucharest. Gett ing around emerging Europe has long been a test of one's resolve. Although things have improved a litt le since low-cost airlines began operating in the region a decade or so ago, travelling from point to point within the region can still be tiresome. For a start, the vast majority of low-cost airlines still focus on highly profitable routes from emerging Europe to the western part of the continent. There are few fl ights which link cities within the region. Gett ing from Sofia to Vilnius, or from Warsaw to Yerevan for example usually requires a layover, and journeys often begin with a fl ight going in entirely the wrong direction. Th is is not conducive to inter-regional

cooperation, business or tourism. Trains should be a cheaper, if not quicker alternative, but across the region these are by and large not an option, at least if you are in anything resembling a hurry. Almost every country in emerging Europe has neglected its railway network for far too long. Journey times in some places are slower now than they were two decades ago. The shortest route by train from Bucharest to Kyiv for example takes 30 hours and requires a change of train in Chișinău. Less than 20 years ago the trip could be done in 26 hours, with no need for a change of train. A lack of direct fl ights and express train services would not be such a huge problem if the region's roads were not in such appalling shape. Unfortunately, motorways are few and far between and driving anywhere in emerging Europe (with a few notable exceptions, such as Croatia, the Czech Republic, Hungary, Slovenia and parts of Poland) is a test of patience and nerves. Besides, we should be discouraging people from driving long distances at all. Alas, until the train is a viable option this

is merely wishful thinking. For the sake of the region, both economically and environmentally, emerging Europe needs to invest heavily in its railways in the coming years. Governments do at least appear to be aware of this, but railways are invariably a low priority and as a result have to make do with litt le investment – if indeed there is any money for investment at all. In most places, railway operators have to make do with scraps that are barely enough to cover maintenance costs. Accidents are common, delays caused by outdated locomotives and decrepit infrastructure frequent. OBB's new Cluj-Vienna route is a small step in the right direction, but even here the trains – which will be composed of modern, Austrian rolling stock – will have to run on Romania's appallingly maintained (and as such slow) tracks until they reach the Hungarian border. It's time for emerging Europe's governments to make upgrading their railways a priority. Until they do, those of us who travel frequently across the region will need to continue having the patience of saints. •

83 AFTER HOURS

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