EU Enlargement : What Prospects for Business?

Alan Dukes
Alan Dukes was elected to Dail Eireann in 1981 and remained a Member until May 2002. During that period he held a number of ministerial portfolios. He also served as the Leader of Fine Gael and Leader of the Opposition from March 1987 to November 1990. He is currently Director - General of the Institute of European Affairs, Dublin, and Public Affairs Consultant with WHPR, Dublin.

May 2004

The ten new Member States will change life in the EU in a variety of ways.

Politically, life will become more complicated since there are now twenty five of us around the table rather than just fifteen. Culturally, a feast awaits all those who are interested, as greater integration brings us closer together. Much the same kind of thing will happen on the economic and business fronts.

Close links already exist at every level and in every sector. From the business and economic point of view, one of the striking features of the economic transition process in the eight new Central and Eastern European Member States has been the speed at which they changed their political and economic focus from the East to the West. Even before the Russian Rouble crisis in 1998, the EU had become their main trading partner. Cyprus and Malta were, of course, already well-integrated into the European scene, with long-established trade, commercial and tourism links with the EU, so attention here will be concentrated on the other eight new Member States, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary and Slovenia.

The integration process, which EU membership is, brings the Member States closer together at all levels and creates an economic dynamic of its own. This has been evident in each of the four previous enlargements. In fact, the process began even before accession in each of the previous cases and the same thing has occurred this time. What is happening in these new Member States and what is in store for them in the foreseeable future?

Key Features

These eight new Member States in Central and Eastern Europe are all

• growing at a faster rate than the old EU "15",
• implementing all the EU legislation in existence at the time of their accession,
• operating administrations and systems of justice that conform to the "Copenhagen Criteria" - i.e., broadly speaking, systems that are on a par with the norms of the old EU "15",
• modernising all sectors of their economies as rapidly as possible,
• improving their competitiveness,
• adopting more "Western" patterns of consumption as living standards improve,
• improving transport and communication links with the rest of the EU.

With a combined population of almost 74 million people, they constitute a growing, more open and more integrated market for companies doing business there, or considering participation in their economies.

While per capita incomes are considerably below the average of the old EU "15", consumers in these countries nevertheless have a growing taste for "foreign" or exotic products and services. This applies not only to global brands but also to well-marketed niche products and services, both at the "luxury" and the "popular" ends of the market. They are not "virgin" markets. They have been in transition for almost a decade and a half. In that time, they have attracted the attention of enterprises from all over the old EU "15" and from further afield. There have always been strong links between Germany and most of these countries. The Finnish presence in Estonia is very noticeable. There is already an Irish presence in some of these countries. Banking, construction materials, food, farming and forestry are among the sectors concerned. Real estate is a sector in which there is a growing Irish interest.

There is another Irish link that could have a very beneficial spin-off for Irish business: in all of these countries, Ireland is regarded as a relevant and useful role model. This applies particularly to fiscal and economic policy and to public investment. There is a favourable pre-disposition to things Irish.

Development Path

We can expect development in these economies to continue along the path already established. They will probably continue to out-perform the old EU "15" for some time. Per capita incomes will continue to rise, sustaining good growth in consumer markets. Some of them have adopted strategies similar to Ireland's to increase their attractiveness to foreign investors. They will be successful at this and will provide serious competition for Ireland as an investment location. They will also be successful in attracting a certain amount of "outsourcing" from Ireland and from other countries among the old EU "15".

They all have considerable public infrastructure deficits, e.g. schools, hospitals, water supply, sanitary services, waste management and local roads. Some have very serious legacies of environmental damage from old heavy industry and from badly-managed collective farming.

All of this means that there are considerable business opportunities there. There is good business to be done by Irish exporters, importers and investors. Normal trading arrangements, joint ventures and new start-ups will all be viable ways of linking into these markets.

Our own recent history prompts one strategic reflection. The "Celtic Tiger" did not bring benefits only to Irish firms: businesses in all our trading partners benefited from it too. In the same way, Irish business could benefit from a "Polish Tiger" or a "Hungarian Tiger" or any of the others that we might imagine.