Uncertainty over the political future of the Balkans could prove an advantage to foreign investors looking to cash in on markets before they take off.
Herbert Stepic, CEO of Raiffeisen International, told Emerging Markets yesterday that the Balkan region is poised to replicate the economic turnaround of Romania and Bulgaria, and now offers the strongest growth potential for the bank.
“South-east Europe and the CIS are now our highest growth areas,” Stepic said, pointing out that central Europe’s share in the bank’s earnings is 40%, compared to 30% each in south-east Europe and the CIS. Raiffeisen International’s retail lending in Romania, Croatia and Serbia grew by about 80% over the last year.
Stepic said that EU accession is of “enormous importance” in driving reform across the region’s economies. Net FDI flows to the region grew from E6.9 billion in 2003 to E9.8 billion in 2005.
The Balkans have transformed themselves since reforms began in 2000, eight years later than much of central Europe. Serbia’s fast-growing economy presents a strong investment prospect, second only to Ukraine, according to a recent Goldman Sachs study. The EBRD spent a record E1.2 billion on 75 projects in the region last year.
Goran Pitic, country head of Societe Generale in Serbia and Montenegro, said that several sectors are set for privatization in the next two years, particularly telecommunications, insurance and energy, as well as greenfield investment in the tourism sector. Infrastructure investment will also increase.
Despite the strong prospects, increased competition is driving asset prices sky high: the few banks yet to be privatized in both Serbia and Bosnia are now very expensive. Greek bank EFG Eurobank last year paid 4.75 times book value to buy Nacionalna Stedionica, a Serbian bank. “It’s difficult to see how any [new] foreign investor could get a decent return in these conditions,” Oliver Roegl, Raiffeisen International’s country head in Serbia, told Emerging Markets.
The scramble to get a foothold in the country’s banking sector will soon be replicated in other industries, Roegl added: “I would say, don’t wait until the risk is close to zero. You have to come now, otherwise the market will divide the same way banking is.”
Thierry Baudon, managing partner at fund manager Mid Europa, said it was a matter of “if, not when” his firm invests in the Balkans. He said Slovenia and Croatia are sophisticated markets, while the rest of the Balkans is “four or five years” behind Romania and Bulgaria. The fund specializes in taking large stakes – between E50 and E100 million – in mature companies, and has already bought stakes in Romania’s largest telecoms company and an oil refinery in Bulgaria.