EU membership shows both Baltic strengths and weaknesses

  • 2005-12-14
  • By Ben Nimmo
RIGA - "When Latvia joined the EU, the British Chamber of Commerce here increased its manpower from two part-time to two full-time workers," says Juris Benkis, the chamber's executive director. "Now we've added two more part-time staff, and we're still permanently busy."

As far as British business is concerned, EU expansion has put the Baltics on the map.

Other chambers relate a similar story. Dr. Ralph-Georg Tischer, director of the German chambers across the Baltics, says "German awareness of, and interest in, the Baltics has risen markedly since EU expansion."

Ilze Neparte, executive director of the Swedish chamber in Latvia, says "EU expansion made a real difference: the information flow between Latvia and Sweden has doubled."

"We have had significant membership growth in the last year," adds Mart Haamer, chairman of the British chamber in Estonia.

Sandra Kleizaite, directing the British chamber in Lithuania, agrees. "Since May 2004, we've seen a 50 percent growth in membership," she says.

On the face of it, this is not surprising: the Baltics have repeatedly been labeled the "tiger economies" of the enlarged EU, and it would be strange if networking concerns had not benefited. But given the Chambers' close ties with business and investment, it is worth examining their experiences as a reflector of larger, regional trends.

Members only?

The effects of EU expansion have clearly been limited. Daria Makarova, director of the American chamber in Estonia, explains: "Our membership has increased since EU enlargement, but it's not been because of that."

Marc Gaber, of the American chamber in Latvia, agrees: "We haven't seen any real growth caused by EU expansion."

This may seem self-explanatory, but it is worth highlighting nonetheless. The "feel-good factor" associated with EU accession has largely been limited to EU countries.

Within the EU, a different pattern emerges. As Benkis says, "The British chamber has seen a significant increase in membership, together with a marked increase in our members' commitment."

On the other hand, as Neparte explains, "Despite the enormous increase in information requests, the Swedish chamber in Latvia hasn't seen a 'big bang' in membership growth 's we've had steady increases for a while now." This difference reflects the two countries' relative awareness of the Baltic states: the U.K. has often been seen as having been slow to penetrate the Baltics, whereas Swedish business already regards the Baltics as its home market.

There is more to their growth than EU-related enthusiasm, however. Expansion has also brought increased competition, and the chambers are restructuring accordingly.

The British chamber in Lithuania recently expanded its board; that in Latvia launched a professionally edited magazine; that in Estonia hired a full-time manager. Similarly, the Swedish chamber in Latvia recently upgraded and re-launched its Web site. This increased professionalism is being matched in the business community.

"Many local city councils are becoming more international and professional when it comes to attracting investment," says Tischer. Across the Baltics, professional services are being seen as increasingly important.

Service with a smile

Indeed, local economies are also moving more and more into the service industries. "We've seen a lot more recruitment agencies joining," says Benkis.

Neparte comments, "Most of our members, and our requests for more information, come from the service sectors: hotels, banks, law firms and so on."

"We've had more business consultancies and property developers from the U.K.," says Kleizaite.

In this case, the same is true for the Americans. "We have more and more members in the hotel sphere every year," Makarova says. This is not, of course, exclusively the case.

"We've also had an increase in Swedish production and manufacturing companies," Neparte explains.

But while chambers reflect the service-heavy nature of EU business, they also reflect current concerns about long-term trends.

According to Gaber, "there have been profound effects of EU enlargement: inflation and price increases have led to concerns about finding reliable, affordable workers, not just in construction and real-estate but in offices as well."

Workforce migration is also an issue.

"The emigration of workers is a real problem: now that the Baltics have joined the EU, they've got endless land to offer, but they're running out of people," says Tischer.

And with Latvia, in particular, featuring second to bottom in Transparency International's EU-wide corruption index, doubts still linger as to the transparency of the business environment.

While it lasts...

However, the most telling organizational change 's both in EU and non-EU chambers 's has not been the growth in contacts between the home country and the Baltic branches, but contacts between the chambers themselves. As Gaber says, "We now have to look at EU-wide issues as much as we have to look at local ones."

Makarova agrees. "There's been a very positive change, we have much more contact with the other American Chambers in the EU now," she says. With Baltic legislation now tied to Brussels, the local chambers are becoming more of a channel for EU-wide lobbying.

But their experience also provides early warning of another, future trend. As Tischer, who covers all three Baltic states, points out, "We've already seen a slight dip in German investment this year, because German industry is now focusing on new targets: Bulgaria and Romania. Both countries have larger internal markets than the Baltics, especially Romania [population 22.2 million], and the German media are looking more in that direction. It's not that German companies don't like the Baltics 's few other regions get such good reviews 's but the center of attention is shifting to south-east Europe."

This is something that the Baltics would do well to consider. With a new wave of EU expansion looming, Romania and Bulgaria are set to receive far more attention from western media. The Baltics' strength is their strategic location, but both Bulgaria and Romania can offer as favorable a position. Both are considerably cheaper than the Baltics in terms of labor, and far larger. And they are already coming into the limelight. Tellingly, according to Anne-Marie Martin, CEO of the British-Romanian Chamber of Commerce, "We've had a huge increase in interest over the last couple of years, with almost 40 percent membership growth since 2003 and a definite increase in commitment. Romania had a history of acting as a bridge to the former USSR, so it's only natural that this should continue with the CIS. There's a lot of interest in it from all over the U.K."

This will be the hardest lesson of EU expansion. Since 2004, the region has been enjoying a honeymoon with the western media, and its businesses and chambers have reaped the benefits. Come 2007, the honeymoon will be over. Baltic chambers 's and Baltic businesses 's will need all the professionalism and international networking they can get to maintain their current success.