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Going for Growth in the East by Steve Box

Steve BoxWhilst most have heard of major international organisations like the Group of Seven (G7), the Visegrád Group is less well known. This group of nations in Eastern Europe comprises the Czech Republic, Hungary, Poland and Slovakia and came together in 1991 to form the V4, a broad military and economic alliance.

It has since evolved to include a raft of measures to support economic growth. According to the International Monetary Fund these economies are on track to grow between 3 and 3.5 per cent this year – an above average growth rate for the European Union – which has led to some bullish attitudes amongst investors.

Amongst the V4 members, growth has been most apparent in the Czech Republic and Poland, which have benefited from recent rising exports. Since 2011 the Czech Republic has achieved a positive trade balance, which has since grown to $10.1 billion as of 2014, with key exports including machinery and transport equipment and manufactured goods to neighbouring Germany and Slovakia. Although the country is currently attempting to rebrand itself to the English-speaking world as ‘Czechia’ (with some mixed reactions), one area it is definitely building a new reputation is as a place to start a new business. According to the Legatum Prosperity Index 2015 the business start-up costs as a percentage of Gross National Income per capita are 8%, far lower than the global average of 25%.

We are also seeing a similar picture in Poland, which is fast becoming a leader in exporting technology systems to Western financial companies. A recent poll by StartUp Poland revealed that 39% of small and medium sized enterprises were software development enterprises, mainly selling their products via software as a service.

At the same time, there are some interesting changes in the sources of funding businesses are using to fund their growth. The Czech Republic has been boosted by funding from the European Investment Bank in recent years, but in 2015 the total amount invested fell from €1.2 billion to €324 million. Due in part to the prospect of a structural shift in the financial services landscape with European grant-funding winding down in 2020, rising numbers of businesses are turning to private finance. We are already starting to see signs of this shift in attitudes.

Bibby Financial Services has seen an increased demand for specialist finance, and we increased our funding for small and medium sized enterprises in the Czech Republic by 24 per cent between March 2015 and March 2016, to €71.1m.

One such business is Moravia Stamping, a manufacturer of cold-pressed steel parts. Their customers are major automotive companies operating in the European region.  Development of new technologies for the production of cold-pressed steel parts is very demanding on their operating cashflow. With a sophisticated and tailored approach to funding, Moravia were able to meet the specific needs of their production cycle.

Another area where growth is looking promising is in the Information and Communications Technology (ICT) sector. Investment in high technology businesses is continuing to develop a competitive advantage in the region. In 2013 13 per cent of the Czech Republic exports were ICT related far surpassing the global average of just 3.6 per cent.

We are seeing a similar picture in Poland which is a particularly promising breeding ground for small and medium sized enterprises in ICT eager for private funding. Our funding in Q1 2016 in Poland was up 29% year on year, from €41m to €53m.

Given the uncertainties surrounding the EU at the moment, many Eastern European businesses are wisely looking to diversify their sources of funding. Without this long term vision, small and medium sized enterprises risk leaving their funding future open to uncertainty and the whim of public funding.

There are strong signs that small and medium sized enterprises in the Czech Republic and Poland are increasingly exemplifying this approach. I urge other small and medium sized enterprises to begin seeking out new private funding sources, so they too can continue to fund their growth far into the future.

To interview Steve Box, contact our press office on 0207 4133804 or bfs.pressoffice@hkstrategies.com. Alternatively, you can find out more about Steve here.

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