Central and Eastern Europe will remain the prime driver of economic growth in Europe according to research released by RZB, the fifth largest international bank in the region. The bank expects the region's economy to grow at rates of over 5%, compared with an average of just 1.5% for the rest of the Eurozone.
However, economic growth in Central and Eastern Europe is not uniform. RZB's Deputy Chairman Herbert Stepic says: "Our report clusters countries into three groups to reflect the differences in growth potential. In the newly acceded EU member countries, growth rates are shrinking due to higher consumption and a similar process is occurring in the south-eastern second wave transition countries. Clearly, the best opportunities lie in the Russian speaking countries, Russia itself and the Ukraine, which is growing like crazy."
However, even in countries experiencing relatively slower growth, the banking sector is set for expansion, says Stepic. Several international banks operate in the region, but even so, retail banking and credit services remain scarce and rising levels of income have spurred demand for household and small business loans. "Eastern European households were prevented for 50 years from using loans and we predict the share of credit to household - currently at 7% - to expand rapidly," says Stepic.
Development banks are equally keen to meet the rising street-level demand for credit. Regional development banks have joined up with IFIs to set up micro-financing banks to lend to companies that are just too small to show up on the radar screens of larger international institutions. "Small companies are a very important part of our markets," says Charalampos Tsarouchas, secretary general at the Black Sea Trade and Development Bank, "but IFIs cannot search for these companies because the costs are too high."
Tsarouchas says another key priority for BSTDB is the energy sector. Global demand for energy has made countries rich in oil and gas particularly attractive to investors - both public and private. BSTDB's portfolio, 75% of which is in project finance-related investments, is growing at between 80% and 100% a year. The bank is investing in regional pipelines, gas exploration and negotiating an investment in electricity generation. Other sectors in need of investment include transport, new technologies, telecommunications, manufacturing and trade.