Prof. Dr. Klaus Mangold - "Growth will be back in 2010"

PROF. DR. KLAUS MANGOLD – INTERVIEW "Growth will be back in 2010" Prof. Dr. Klaus Mangold Chairman of the Committee on Eastern European Economic Relations 1. How strong was the impact of the historic downturn Southeastern European countries such as Romania, Serbia on the Eastern European and Russian economies? and Bulgaria will find things harder; but, here too, the peak of the crisis is already behind us, and moderate growth is Although the crisis actually started in the US, Eastern possible. What really matters is that the suffering from the Europe was hit harder than any other region in the world. crisis is used to finally realize the economic reforms that The crisis led to huge amounts of capital being pulled countries have been procrastinating about: they need to out of the region; oil, gas and steel prices decreased; continue consolidating the banks and push ahead with currencies came under pressure. By the end of 2008, building up broad-based, less crisis-prone SMEs. Eastern Europe had gone almost overnight from a nearly ten-year economic boom, with gross domestic product 3. What are the key risks and opportunities? growing an average of 7% per year, into a deep recession. Ukraine and the Baltic states were hit particularly hard. A crisis is not the worst time to invest: local currencies Russia saw its GDP fall by nearly 8%. German trade with have been devalued against the euro, acquisition oppor- the region fell by around 30%. On the positive side, how- tunities are good, wages and rents are falling. German ever, we can say today that international aid prevented companies, which traditionally invest over the long term entire domestic economies in Eastern Europe from crash- and continuously, have maintained a strong presence in ing. Russia had saved up healthy financial reserves in the Central and Eastern Europe. Despite the crisis, German good times, which gave the region room to maneuver in direct investment in Russia still increased in 2009, for order to safeguard the banking system and to set up example, and a survey published by the Committee on economic programs. Eastern European Economic Relations shows that German companies are planning to keep on investing billions in 2. What is your perspective on the pace and degree the region in 2010. The main uncertainty is that a poten- of economic recovery of the Eastern European and tial credit squeeze could put the brakes on consumption Russian economies? and corporate investment in Eastern Europe. Moreover, soaring government expenditure needs to be reined in Growth will be back in 2010. We are expecting Russia to again since it would hamper economic growth in the grow at least by 3.5%, for example; the optimists are even long run. talking about 5% or more. That, of course, depends on raw material prices, which have recovered significantly in re- cent times. Russia may well become the region's growth driver again, pulling countries as for example Ukraine, Belarus and Kazakhstan with it. 28 PROF. DR. KLAUS MANGOLD – INTERVIEW 4. What is your perspective on the current situation 6. What are the key opportunities for the Eastern and potential of the Eastern European and Russian European and Russian automotive industries in automotive industries? Western Europe and beyond? Automotive industry sales fell dramatically in most First of all, Russian manufacturers need to do their home- countries in Central and Eastern Europe. Only in Russia, work in order to modernize their production and organiza- new vehicle sales decreased by 49% in 2009. Avtowaz, tional structures thoroughly and adapt to international Russia's largest manufacturer and still the market leader, competition. Only then one can consider expanding ab- had to face a decrease in vehicles sales of approximately road. There is already a considerable demand of Russian 50% and had to lay off more than 30,000 staff. Other commercial vehicles on the markets of the former Soviet Russian manufacturers such as GAZ and Kamaz suffered Union as well as in some developing countries. Russian setbacks too. There were several reasons why demand fell: cars, on the other hand, can hardly compete with foreign import duties on new vehicles in Russia were increased products on their domestic market. Nevertheless, things up to 30%; interest rates rose; credit was tight; and the could be different here, as the example of Dacia shows. ruble was devalued, although it has risen again since. As With a sound, but at the same time cost-effective vehicle, a result, the crisis in the Russian automotive market also the Romanians have succeeded not only in maintaining hit foreign producers. Finally it was the manufacturers their traditional markets, they have even taken a share of already producing on the Russian market that prevented Western markets and helped Renault increase its share in the collapse from worsening. Despite selling less than the the global market. Meanwhile, 17% of all vehicles sold by year before, Volkswagen, for example, expanded its market Renault come from Dacia. Global demand for low-price share by 50%, thanks to its plant in Kaluga. Nevertheless, cars is going to rise in the upcoming years, opening up the Russian automotive market is still huge, counting new opportunities for Russian and Eastern European 231 vehicles per 1000 residents at present. But I do car makers. not expect the old sales figures to return until 2014. 5. What is your assessment of the opportunities for European, American and Asian car manufacturers and suppliers in Eastern Europe and Russia? Of course, Russia is the most interesting market due to its size and the still enormous backlog of catching up with motorizing in Eastern Europe. The entire Russian auto- motive industry needs to be thoroughly modernized. Only technology partnerships with Western companies can help, like those which exist already between Renault and Avtowaz, Daimler and Kamaz or Sollers and Fiat as well as the one Opel and GAZ have been considering in the past year. Unit costs in Russia are still higher than in Western Europe, because production volumes are relatively low. In the medium term, however, locating production in Russia is the only way forward. The most urgent task still is to establish a viable supply industry in Russia. German suppliers in particular should consider their involvement here. 29