© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the June 2005 edition of BENEFITS CANADA magazine.
The 10 newest nations to join the European Union offer emerging market return potential with skilled and educated workforces.
Stephen Poloz, Chief economist, Export Development Canada, a Crown corporation providing trade finance and risk management services to Canadian exporters and investors.

BC: Which 10 countries joined the EU in May 2004?
SP: The three Baltic nations—Latvia, Lithuania and Estonia—Poland, the Czech Republic, Slovakia,
Slovenia, Hungary, Cyprus, and Malta.

BC: When Spain and Portugal joined the EU in 1986, they benefited immensely from an outflow of investment from more established countries. Will we see the same here?
SP: Yes, it’s already happening. Most people think it’s important to attract investment and lament when
[it leaves] their country, but usually when a company invests abroad, they’re building something and taking along their usual engineering partners, equipment suppliers, and consultants, as well as setting up
a trade linkage with the parent company.

BC: How important are taxes?
SP: The Irish example has shown everybody how powerful a low-tax environment can be. In an old
established country, you might have a number of layers of taxation, subsidies, and other fiscal setups
that are hard to dismantle: even though nearly everyone benefits eventually, someone’s going to get
hurt at first.

BC: Are there sectors of the economy in these 10 countries which stand to benefit more than others?
SP: I’ve been to just outside of Bratislava to the Volkswagen plant, and it’s the size of a city. There’s a
very long history of practical engineering, as well as a good work ethic and plenty of human capital, in
places like Poland, Slovakia and the Czech Republic; they’re very well-known for tool-and-die work,
moldings and that kind of thing. Manufacturing is definitely happening too, as is environmental technology… any place you want skilled, engineeringoriented work done.

BC: With the impending demise of the Foreign Property Rule, are many Canadian institutional investors looking at Eastern Europe?
SP: Canadians have been busily investing in shopping malls and office space over there. Again, the Irish
example showed that property goes up a lot, and that’s all part of the convergence process. In Hungary, for example, you’ve had a tripling of commercial property values in just a few years.

These countries have to catch up on many fronts, so another [opportunity] is infrastructure. There are rules and regulations about drinking water and wastewater treatment [in the EU], so there are huge investments which have to take place. These are areas that are traditionally Canadian [strengths]: environmental technologies, transportation systems, power generation and transmission networks…coal-burning power plants are a big thing over there, but [they lack] the more modern
clean technologies for coal-burning and gasfired generation and transmission.

BC: Canadian pension funds are big owners and operators of infrastructure assets…
SP: That’s right. A fund like Ontario Teachers’ loves that because they’re picking up an asset that’s got the same sort of duration as their underlying liabilities. They need a 30- or 40-year asset, and infrastructure is good for that. Of course, they have to analyze their risk carefully: these things aren’t no-brainers or anything like that. They’re for expert investors.

James Lewis is a contributing editor of BENEFITS CANADA.

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Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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