PART II SPATIAL CONDITIONS IN THE DANUBE SPACE

Transcription

1 PART II SPATIAL CONDITIONS IN THE DANUBE SPACE 47

2 48

3 CONTENT PART II: SPATIAL CONDITIONS IN THE DANUBE SPACE DEMOGRAPHIC STRUCTURES AND DYNAMICS WITHIN THE DANUBE SPACE Demographic Structure 53 (1) Population numbers cover a wide range 53 (2) Age structures tell different stories 54 (3) Ethnic homogeneity Demographic Dynamics 60 (4) Divergent trends in East and West 60 (5) Substantial changes taking place with demographic determinants 61 (6) Population forecasts show no surprising results 65 (7) Significant changes in the patterns of international migration in the past decades 65 (8) Divergent patterns of international migration among the core countries 66 (9) Rural-urban flows dominate internal migration 68 (10) Cross-border migration is driven by economic reasons 69 (11) Brain drain and crowding out effects as major threats SETTLEMENT STRUCTURES Population Density 73 (12) Danube Space's periphery is more densely populated than the core area Settlement Structure 74 (13) Major agglomerations 79 (14) Urban industrialisation in most of the CEECs 79 (15) Suburbanisation as a new trend in the CEECs 80 (16) Rural regions under stress THE REGIONAL DYNAMICS OF TRANSITION The Driving Forces of Regional Development 83 (17) Elements of economic transformation 83 (18) Three stages of transformation 86 (19) Adaptability on the regional scale 86 (20) Decisive determinants for the performance of "regions in transition" 87 (21) Recent trends in Foreign Direct Investment 88 (22) Where to the money goes 90 49

4 (23) Research and development determines future perspectives 90 (24) Regional R&D policies require networking Structural Change in the Transition Process 93 (25) Trends in agriculture point out two groups of countries 94 (26) Land use patterns hint at divergent issues 97 (27) Land restitution, privatisation and investment 97 (28) Specific developments of the industrial sector 102 (29) Transformation of industry in the Core Countries 103 (30) High spatial concentration of heavy industry and mining 105 (31) Regional survey of main industries 107 (32) Services, the main driver of transformation 108 (33) Banking and insurance of utmost importance for further investment 109 (34) Tourism: considerable change with respect to markets and tourist flows 110 (35) Regional survey of tourism REGIONAL DISPARITIES AND THEIR EVOLUTION The Level of Economic Activity 115 (36) GDP differences between the Danube Space core countries still large 115 (37) Welfare gap is smaller than indicated by exchange rate based GDP Regional Development Patterns 121 (38) Regional disparities expected to grow in transition countries 121 (39) Capital regions dominate economic development Regional Disparities in the Core Countries 126 (40) Regional GDP data still not fully reliable 126 (41) Comparatively large but decreasing disparities in Austria 127 (42) Bulgaria: capital with the lowest growth potential of all Danube Space capitals 128 (43) A unique position for Prague 129 (44) Western Regions of Hungary most favoured 130 (45) Romania's large regions show little variation of growth 131 (46) Very strong west-east gradient in the Slovak Republic 133 (47) Quite small disparities on regional level III in Slovenia LABOUR MARKETS AND UNEMPLOYMENT 135 (48) A number of data-related problems 135 (49) Major improvements concerning comparability: the Labour Force Survey

5 8.1 Employment 136 (50) Employment by sectors shows increasing shares of services Unemployment 140 (51) Basic features of regional unemployment 143 (52) Youth unemployment (53)... as well as long term unemployment on the rise THE ACCESSIBILITY OF THE REGIONS Accessibility on the European Scale 149 (54) Potential impacts of the TINA-networks on accessibility Road Networks Railway Networks ENVIRONMENTAL ENDOWMENTS OF THE REGIONS Diversity of Environments Natural Heritage Highlights - Biodiversity and Habitats Water Resources 165 (55) Divergent patterns of sources, availability and dependencies Legacies of the Socialist Era and the Risks During the Period of Economic Transition 170 (56) Air pollution 170 (57) Contaminated land 170 (58) Water pollution 171 (59) No adequate waste disposal infrastructure 171 (60) Nuclear reactor safety still doubtful Risks during Economic Transition 172 (61) The transition increases pressure on certain natural endowments 172 (62) Regional survey on environmental risks ENERGY INFRASTRUCTURE NETWORKS Towards Sustainability 175 (63) Danube Space major trends (1985 to 1996) 175 (64) Energy supply 176 (65) Contribution of Nuclear Power Main Characteristics of the Grids 183 (66) Electricity grid - network connections 183 (67) Gas grid - network connections 183 (68) The Transgas pipeline system

6 11.3 Improving a Location's Economic Advantage 184 (69) Electricity: high level of connections, further investment in supply quality 184 (70) Gas infrastructure: certain adverse primary effects, overall favourable secondary effects 185 (71) Closure of mines and oil fields: a significant social issue Regional Impacts of Short and Mid-term Investments 186 (72) Electricity interconnections and regional impacts 186 (73) New gas infrastructure

7 TABLES Table 10 Population in the Danube Space Table 11 Urban and Rural Population in the Core Countries of the Danube Space 74 Table 12 Total Foreign Direct Investment in the Core Countries Table 13 Foreign Direct Investment Stock 1994, Table 14 Structure of Production - Share of Sectoral Gross Value Added 1990, Table 15 Main Agricultural Issues by Countries 100 Table 16 Examples of Concentrations of Heavy Industry and Mining 106 Table 17 Main Tourist Indicators for the Core Countries 111 Table 18 Indicators of Standard of Living 116 Table 19 Typology of Regions under Transformation 122 Table 20 Economic Position of the Capitals 126 Table 21 Austria: Regional GDP per Capita in PPPs on NUTS II Level 128 Table 22 Bulgaria: Regional GDP per Capita ( ) on the Level II - PPPs 128 Table 23 Czech Republic: Regional GDP per Capita on the Level II (1993, 1996) - in PPPs 129 Table 24 Czech Republic: Regional GDP for the new Regions 2000 on the Level III (1993, 1995) - in PPPs 130 Table 25 Hungary: Regional GDP per Capita on the Level II (1994, 1996) - in PPPs 131 Table 26 Romania: Regional GDPs on the Level II ( ) - in PPPs 132 Table 27 Slovak Republic: Regional GDP on Level II (1996,1997) - in PPPs 133 Table 28 Slovenia: Regional GDP on Level III (1996) - in PPPs 134 Table 29 State and Development of the Private Sector in Table 30 Shares of the Main Economic Sectors Table 31 Labour Force and Economic Activity Rates in '000's 139 Table 32 Labour Market Issues in the Core Countries 145 Table 33 Railway Transport in the Core Countries - Main Issues by Countries 157 Table 34 International Designated Areas and National Parks in Danube Space Core Countries

8 FIGURES Map 12 Age Structure 1995: 0-14 years 55 Map 13 Age Structure 1995: older than 60 years 57 Map 14 Population Change Map 15 Population: Structure and Density Map 16 Spatial Distribution of Population 77 Map 17 Land Use by NUTS II Regions in the Core Countries 95 Map 18 Gross Domestic Product (GDP) Figure 1 GDP per Capita in PPPs in the Danube Space Core Countries 119 Figure 2 Development of Real GDP in the Danube Space (1989 = 100) 120 Map 19 Typology of Regions under Transition 123 Map 20 Unemployment Rate 141 Map 21 Accessibility of Agglomerations 151 Map 22 Accessibility of Population 153 Map 23 Protected Areas in the Danube Space 163 Map 24 The Main Rivers of the Danube Basin 167 Figure 3 Energy Production and Consumption in the Core Countries Map 25 Electricity Production in the Core Countries 179 Map 26 Nuclear Power Plants in the Danube Space

9 6. THE REGIONAL DYNAMICS OF TRANSITION 6.1 The Driving Forces of Regional Development The process of economic transformation, in spite of the considerable differences from country to country, in all formerly centrally planned economies is aimed at the development of market mechanisms to influence the decisions of economic actors. It encompasses three distinctive though interrelated elements in all cases: the liberalisation of market access, the privatisation as regards ownership and economic decision-making, particularly regarding investments, and the deregulation of markets, especially the labour market. Despite the fact that the national economic policies applied show basic similarities, the outcomes vary significantly from country to country. The measures and instruments applied are influenced by specific structures and by different heritages of socialism. (17) Elements of economic transformation The first step was the liberalisation of trade which resulted in the astonishingly fast reorientation of trade. The re-orientation had different ramifications for the countries from the point of views of producers and consumers. As a producer, the disruption of traditional (planned) demand structures and the sudden exposure to world market competition led to closures and gross underemployment within large enterprises. Worst hit were not only heavy industries, but also many other branches, especially those producing consumer products for the vanishing "Eastern markets". Simultaneously, many enterprises were able to capitalise on the low labour costs in comparison to the West and very swiftly positioned themselves successfully within the new division of labour within the EU regions (KRAJASITS, DELAPINA, 1997). This process was enhanced by considerable Federal Direct Investments (FDI) in some countries, which used the factor of cost differentials between the CEEC and Western Europe. As will be shown, this complex process of shifting demand and factor cost optimisation shows a distinctive regional pattern, favouring the capital regions and the regions close to the EU borders. 83

10 The main agenda regarding privatisation for all countries in transition have been: restitution of properties and enterprises; marked differences between the nations have to be noted though; e.g. the Czech Republic admitted restitution, but restricted the allowances for entitlement, whereas in Hungary the principle of financial compensation instead of restitution shaped the process; small privatisation which was achieved mainly through sales to employees; large privatisation (focusing on large enterprises, through auctions, closed tenders and management buy-outs, especially in Bulgaria, Hungary, Romania - in part as precondition for obtaining International Monetary Fund loans (IMF)); mass privatisation by introducing voucher programmes, especially in the Czech and Slovak Republics. In these cases, investment funds partially acted as intermediaries. Most of the countries created specialised institutions for the development, the implementation and the monitoring of their privatisation programmes. The range of institutions covers mainly ministries (e.g. Romania), funds and agencies. Common phenomena in the course of privatisation are: the emergence of new firms, i.e., mainly small enterprises in formerly partly nonexistent, partly especially inefficient branches (retail and foreign trade, catering, tourism). These new firms have to struggle with the problem of access to capital, because of the high level of interest rates; the rise in self-employment (which is a mass phenomenon in agriculture especially in Romania and Bulgaria). It seems that the process of small-scale privatisation is coming to an end in most of the countries of the study area. In contrast to the rather transparent situation in the SME sector (near to or totally privatised), the situation of large enterprises and infrastructure assets is less transparent. In a couple of countries State or National Property Funds exist that hold large shares in these sectors, whereas ownership deriving from voucher programmes has led to a category of "ownership without influence". Bulgaria has been struggling particularly hard with problems arising in the course of privatisation. In 1995, the number of privatised enterprises was still minimal (30 enterprises of significant size). Only in the recent past has the pace of privatisation accelerated. The largescale privatisation of about 600 of 1,000 large enterprises is due to be finished shortly (mixed public-private ownership). The privatisation of major infrastructure facilities has been started for oil processing, telecommunications, energy supply, and a national airline. 84

11 In the Czech Republic 80% of large enterprises were transferred to stock corporations and sold by public tenders or distributed by the voucher method. Private investment funds acted as intermediaries although they have not proven to be effective vehicles for providing shareholder control (COOPERS, LYBRAND, 1997a). Though much of the industry has been privatised, large holdings of shares are held by funds which are often heavily indebted to state banks. State holdings are concentrated in the National Property Fund. Hungary has chosen a far more moderate pace of reform that focuses on domestic purchasing power. This has been a main political issue, as the state influenced the rate of privatisation. Under the influence of IMF, the privatisation process in Romania began to gain momentum. From the beginning of 1997, the new government started a radical process including the mass privatisation of approx. 3,600 companies. In the Slovak Republic, the process of privatisation was initially marked by low speed and certain aspects of stagnation. Especially in 1994 the twofold change of governments included significant changes in the principles of privatisation (the privatisation of key industries was annulled in part) - for selected enterprises a system of direct selling is still in place. The system is run by the government controlled Fund for National Property. The new government has achieved considerable improvements with respect to privatisation and the implementation of transparent procedures. Slovenia could draw considerably on benefits from its earlier experience with the selfmanagement system. In 1994, 88% of companies were private companies, employing 16.5% of the workforce. According to the official privatisation programme all socially-owned companies should have submitted their programmes for the ownership transformation by So obviously privatisation is behind schedule in Slovenia as well. In this context it may be worth noting that in many EU Member States the share of stateowned or state-dominated industries was also considerable. For example, major parts of heavy industry in Austria were privatised only in the late eighties, while the privatisation of leading banks took place as recently as The same holds true for other EU members, e.g., Italy, and this does not include some strategic economic sectors such as energy or transport, which are still state-dominated or undergoing a more or less protracted privatisation process in most EU Member States as well. The liberalisation of prices was another radical step towards market economy. It was followed by partly dramatically increasing inflation. Subsidy systems were abolished, while liberalised prices and high inflation have led to changed patterns of consumption. Food, clothing, housing and transport are using up rapidly increasing shares of personal income. 85

12 Among the deregulated markets, the labour market plays an important role. New systems of wage negotiation were introduced which led to new patterns of disparities among the employees. The inter-sectoral wage gaps as well as regional differences are growing in most of the countries in transition. Even more important was the introduction of relief mechanisms for enterprises to stop them from keeping the idle workforce employed, which in turn resulted in dramatically increasing unemployment levels in many parts of the study area. (18) Three stages of transformation With respect to the dynamics of transformation, MLÁDEK (1995, p. 30) speaks of three stages of economic transformation: the stage of destruction of existing structures shaped by the centrally-planned economy - nearly all parts of the national economy suffer from a loss of productivity; the stage of stabilisation - the speed of economic disruption slows down, the emerging new market-oriented structures start to balance out the economic losses; the stage of compensation - the efficiency of the new structures becomes visible. For the process as a whole, the intensity of destruction and the duration of the stages are decisive. Obviously both are not distributed evenly across the regions. Thus, the transformation process itself cannot be seen as being the same everywhere within a country although it is governed by uniform rules. (19) Adaptability on the regional scale The transformation process not only takes a different course in the individual states, producing a wide range of institutional and efficiency results. According to the above mentioned phases these processes are expected to show different consequences within each country depending on the relative adaptability of the respective regional economies to the new (socio-economic) environment. Understandably, there has been comparably little emphasis both by politicians and scholars to this regional differentiation of the transformation process. It was only with the preparation for accession that regional development started to draw substantial attention within the policy formation process at the national level. It may be useful to recall at this point what is conceptually shaping the regional economic development and will continue to do so for the years to come. 86

13 (20) Decisive determinants for the performance of "regions in transition" Very broadly speaking, three determinants can be considered decisive for the relative performance of a transition country's region: The economic structure at the outset Regardless of the analytical level, i.e., if one looks at broad sectors like agriculture/ industry/services or looks at more disaggregated structures, the starting structure determines to a large extent the course transformation may take in a particular region. This fact is owed to the "sticky" nature of structure, which has been observed all over Europe in respect to e.g. declining industrial areas. This does not mean that the speed of structural change cannot and for that matter does not vary considerably, but it points to the fact that large homogenous parts of a regional economy may take much longer to go through the stage of destruction and hence take longer to arrive at the stage of compensation. Besides basic factors such as the productivity within the sectors or the sector mix, also other developments can significantly influence the duration of stages. For example if one refers to the agricultural sector the process of land restitution or in the case of exposed industrial structures political considerations (socially induced phasing-out plans for mining industries or reduction of armament production,...). Locational quality Without going into details, there are basic elements that shape overall locational quality (within a given national framework), i.e.: - market access and market size, which is related to transport accessibility, but also to the (reduction of) transaction costs of the market place; - cost efficiency of available resources; this applies to all production factors and must not be understood merely as cheap labour costs. These location factors play the decisive role in the attraction of Foreign Direct Investment. Foreign Direct Investment (FDI) The attraction of FDI is a strategic issue for most of the transition countries because they are associated with a number of potential gains, such as (STANKOVSKY, 1998): - being one of the main instruments for a successful transformation; - they assist partly in the financing of deficits of the public household; - they support an eased transfer of management and marketing know-how; 87

14 - they are a signal and indicator for reforms in economic policy. The following issues can be considered as the main barriers for foreign investors: - lack of information as far as the market potentials are concerned; - rapid turnovers in the personnel of the administration; - lacking management abilities of local authorities; - unreliability as far as dates of negotiations are concerned; - unclear property issues (restitution). Facing these uncertainties, investors tend to make rather small "pilot"-investments. A frequent strategy is the purchase of minority shares in order to get accustomed to market characteristics (e.g. in Hungary in 1990 approx. 40% of Foreign Direct Investment was in companies with minority stakes). (21) Recent trends in Foreign Direct Investment In the course of transition, the patterns of Foreign Direct Investment distribution varied. For several years Hungary had been the main target, whereas more recently, investors have targeted Poland. High privatisation revenues in Hungary and the Czech Republic were collected in Also, in 1995 and 1996, Hungary, Poland and Czech Republic attracted by far the highest inflows of Foreign Direct Investment. The most notable cases in 1995 were investments in the telecommunications sector in the Czech Republic and in the gas and energy sector in Hungary. In 1997 a new trend of increasing inflows into Bulgaria, Romania and Slovenia was reported, with the case of inflows to Bulgaria and Romania being partly due to recent changes in economic policy. The following table illustrates the distribution of Foreign Direct Investment from 1994 to It shows the leading position of the Czech Republic and Hungary. 88

15 Table 12 Total Foreign Direct Investment in the Core Countries Country Total Foreign Direct Investment Inflows in USD million Jan-Jun 1997 WIIW estimate Bulgaria Czech Republic 869 2,562 1, ,000 Hungary 1,300 4,570 2,100 1,200 2,300 Romania Slovak Republic Slovenia Total 3,159 8,055 4,990 2,717 5,300 Source. HUNYA, 1997a, p. 23 The following table shows the distribution of the stock of Foreign Direct Investments in the core countries. Comparing 1994 and 1997 shows that the ranking between the countries according to the shares has remained stable with the exception of Romania and Slovenia - Slovenia has fallen behind Romania, although this should be seen in the light of the different sizes of the countries. Table 13 Foreign Direct Investment Stock 1994, 1997 Country Foreign Direct Investment Stock in USD million 1994 % share of countries % share of countries 1997 Bulgaria , Czech Republic 3, , Hungary 8, , Romania 1, , Slovak Republic , Slovenia 1, , Total 15, , Source: HUNYA, 1997a, p. 23 In all of the countries investigated, manufacturing held the largest shares of Foreign Direct Investment stock in 1996 (Slovenia with 35%, Czech Republic and Romania with about 38%, Hungary and Bulgaria with about 40% - in the Slovak Republics manufacturing had a share of 47.5%). 89

16 (22) Where to the money goes In 1997 Foreign Direct Investment (FDI) in Bulgaria amounted to 500 million USD, which is more than the total Foreign Direct Investment received from 1991 to 1996 (the Foreign Investment Act has been amended to provide better protection for foreign investors). In general the country shows the widest gap between the capital region and the least favoured region (Montana) - national average = 100; Sofia = 1,395 and Montana = 6. Apart from Prague, Mid-Bohemia has attracted considerable amounts of Foreign Direct Investment. Within the Czech Republic the gap between the most and the least favoured region is (together with Hungary) the smallest within the core countries. Hungary has been the most successful country in attracting Foreign Direct Investment. It accounts up to now for 40% of all FDI directed to Central and Eastern European Countries and New Independent States (NIS). Although by many indicators the country appears to be highly centralised, the north-western regions attracted considerable shares of foreign investment; and in the vicinity of near Budapest a new growth pole is emerging (Székesfehérvár) 1. This seems partly due to infrastructure bottlenecks in the capital. Compared to Hungary and Bulgaria the capital of Romania is in a less dominant position as far as the share of Foreign Direct Investment is concerned - partly other economic centres counterbalance the role of the capital (Constanţa, Cluj, Braşov and Timişoara). Slovak Republic: Bratislava shows the second-largest concentration of Foreign Direct Investment. Further concentrations of FDIs exist in e.g. Žiar n. Hronom and Humenné. Despite the comparatively low political risk for investors, Foreign Direct Investment in Slovenia performed rather moderate in the recent past. Nevertheless taking the size of the country into consideration, the stock of FDI is considerable. Last, but not least, regional development is being shaped by certain policies and their regional ramifications. Besides regional policy proper and the provision of infrastructure, research and development policy seems to be of particular importance. (23) Research and development determines future perspectives Economic transformation implies industrial restructuring which often focuses on the application and integration of new technologies. Thus in general, industrial upgrading requires consulting, as well as research and development (R&D). State funding for research and development is accepted in western countries - thus the R&D sector of Central and Eastern European Countries might also be in a special position in the course of transition. Public private partnerships and networking on the national and regional scale are important topics of 1 Business Central Europe, June

17 research and development policies in Western Europe. Maintaining existing research and development capacities and advantages as well as solving financial problems are the central issues in Central and Eastern European Countries. Due to a kind of industrial specialisation on the national level during the Socialist era most of the countries have Centres of Excellence in certain branches (e.g. ship-building in Romania and Bulgaria, or institutes for welding (in Slovak Republic)). In the first years of transition, the structure of the research and development sector in Central and Eastern European Countries has undergone significant changes (COOPERS, LYBRAND, 1997c): in general, a process of downscaling prevails, after an initial period of significant brain drain - the phenomenon has come to a halt now with the exception of Bulgaria (estimations speak of 300,000 graduates who left the country starting in 1990); Czech Republic profited from the inflow of highly qualified Slovak citizens, and the sector is partly fragmented due to the downsizing and restructuring of large companies; often restructuring meant a split down to several small units ignoring technology links or R&D capacities or representation in foreign countries In the course of transition, research and development policies in Central and Eastern European Countries have had to tackle a series of problems. Internal brain drain endangers the research and development potential, i.e., qualified (mainly younger) research and development employees are leaving the sector and moving to other economic activities for higher wages. This trend implies an ageing staff within the field of research and development. New skills are required - fixed funds are shrinking and competition for funds among the institutes is increasing. Thus, applied research has to meet the needs of the industry to survive. The process of market-orientation means that marketing, cost and project management and networking (on the national as well as on the international level) is decisive. In the field of training and education programmes, Poland and Slovenia have developed promising solutions. A further structural deficit is the fragmentation of responsibilities in the field of research and development. Lacking coherence between research and development policy and industrial policy is a major hindrance for an integrated research and development system. Establishing bridging institutes, i.e., focal points for the transfer of information and technologies, is a major task in all Central and Eastern European Countries. Incentive programmes enhancing the mobility of researchers and institutional co-operation are missing. A successful example for the formation of Centres of Excellence is given by Hungary (Zoltan Bay Institutes). 91

18 Considering the demand side, it is obvious that industry suffers from lacking financial resources. Another important issue is that the structure on the demand side has undergone a rapid change due to the emergence of a dynamic SME sector. SMEs in many cases are marked by research and development demands deviating significantly from those of large enterprises. An accelerated pace of technological diffusion and the development of practical packages range among priority tasks to meet SMEs' needs. Overcoming the prevailing mismatch between demand and supply in the technology market has also been recognised as a major future task within research and development policies. Western economies offer a complex system of different incentives to stimulate the demand side. The elaboration of these systems has now started in a few Central and Eastern European Countries (especially Czech Republic). Funding levels on a national scale show a declining GDP share of government funding for R&D for most countries. The EU shows a rather stable level of 2%, whereas the shares in transition countries range from 0.5% to 1.5%. (24) Regional R&D policies require networking As in most Western countries research and development potential has been traditionally centralised. Most of the potential is concentrated in the capitals. Decentralisation and regionally oriented technology transfer started in most Western countries at the end of the seventies and flourished during the eighties with the formation of technology and innovation centres. The implementation of such regionally based networks of business advisory and incubator centres has been started now in most of the Central and Eastern European Countries. Nevertheless, their effects and contributions towards a more balanced regional development should not be overestimated. In most cases, the first group of centres is located in the second league of major cities, whereas less developed regions will profit from such opportunities only in a long-term perspective. The quality of such networks obviously depends on research and development policies on the national level. Thus re-organisation on the national level will be the priority agenda for most countries. 92

19 6.2 Structural Change in the Transition Process The following table gives a brief overview of the tremendous "inter-sectoral" shifts occurring in the course of transition. Output estimations for the service sector have to be dealt with care, since the dynamics within the sector are shaped by private SMEs. These SMEs are only partly covered by national statistics. One of the sources for the assessment of inter-sectoral shifts are the Commission's Agenda 2000 Reports. If one compares such overviews from different sources, it is astonishing that for some countries often not even the perceived trends are comparable. This applies especially to the role of agriculture in Bulgaria and the development of industry and construction in Hungary. The following developments in the period from 1990 to 1995 have to be highlighted: the role of agriculture in Bulgaria and Romania, the decline of the industrial sector in the Czech and Slovak Republics, which is in sharp contrast to the sectors stability in Hungary, an overall stable weight of the construction sector with the exception of the Slovak Republic, and a booming service sector (only in Romania the developments from 1990 to 1995 exhibit a lag behind). Table 14 Structure of Production - Share of Sectoral Gross Value Added 1990, 1995 Countries % Share of Gross Value Added Agriculture Industry Construction Services Bulgaria Czech Republic Hungary Romania Slovak Republic Slovenia Source: CEC - Agenda 2000 Country reports 93

20 (25) Trends in agriculture point out two groups of countries Comparing the role of agriculture in employment, two groups with marked differences exist: the Czech and Slovak Republics, Hungary and Slovenia: in these countries the role of agricultural employment may be compared to EU Member States - the share of total agricultural employment ranges from 6% (Czech Republic) to 9% (Slovak Republic), within the EU-15 it averages 5%, in Romania, Bulgaria (also e.g. Poland, Moldova) agriculture's share is by far higher ranging from 23% (Bulgaria) to 34% (Romania). In the first group of countries, the transformation of agriculture was marked in part by severe job losses across regions. The sharpest decreases in employment during the transition were reported in Hungary - its share decreased from 17.9% in 1989 to 7.5% in Nevertheless, the figures have to be viewed cautiously, because the reduction of employees is in part due to the fact that before 1989, employees of co-operatives which worked in building or machinery were part of the agricultural sector (e.g. Czech Republic and Hungary). In general, further declines are expected for most of the countries. The future trends in Romania and Bulgaria will depend on the pace of general economic recovery. The most important producers of agricultural products in the Danube Space are Hungary and Bulgaria: agricultural goods account for a considerable share of exports. In contrast to Bulgaria, agriculture's share of GDP in Hungary is by far lower. Romania is in a completely different position - among the countries investigated it has the highest agricultural share of GDP although exports hold a rather modest position. When comparing the agricultural production of the core countries and its development in the course of transition it is important to note that the most dramatic declines were reported in the production of cereals in Romania and Bulgaria, which were due to the emergence of small-scale farming and the cutback in subsidies (especially for subsidised fertilisers), in the field of milk production, the Czech and Slovak Republics, Hungary, Slovenia and Romania were able to either increase or stabilise production, whereas Bulgaria shows a marked decrease. 94

21 (26) Land use patterns hint at divergent issues The countries investigated show great differences as far as land use is concerned. Hungary has the highest share of arable land, whereas in the Slovak Republic and Slovenia, forested land has a higher share of the total area than arable land. Slovenia has by far the lowest share of arable land: 70% of its agricultural land is in areas with difficult cultivating conditions. Also Austria and Switzerland show a high share of agriculture in areas with difficult cultivating conditions. In the northern periphery, the Republic of Moldova, with its extremely high share of arable land and the practically non-existent forested areas within its territory is of interest. In the South Ukraine, before 1990, Odesa Oblast was one of the major agricultural regions, however, due to severe declines in production it has lost its position. In 1994, the L'viv and Odesa region together accounted for 8.4% of total agricultural production. Within the southern periphery, Serbia and Montenegro are by size and share of arable land, the largest agricultural producers. In all Danube Space countries there are regions with agriculture-related sets of development problems. Quite often they cumulate low levels of productivity, permanent out-migration, infrastructure weaknesses and environmental strain. (27) Land restitution, privatisation and investment One of the main structural heritages is the far-reaching degree of nationalisation in the former period, e.g. in Czech Republic and Romania up to 90% of the land had been nationalised, whereas in Hungary it had been only to 30% nationalised. Bulgaria was marked by vast stateowned agricultural complexes (300 complexes averaging 18,000 ha each). A high degree of nationalisation also meant a high level of integrated social services within the former cooperatives and state-owned enterprises. The breakdown of these social services imposes costs for the public (e.g. social networks for the elderly). The issue of re-privatisation has specific features in most of the countries. For example, in the Slovak Republic, new small- and medium-sized trade companies perform best, which is partly due to the fact that they use the assets of co-operatives under favourable circumstances. In general, the structure of former co-operatives with new types of management still shapes the agricultural sector in the Czech Republic and in the Slovak Republic and also to a lesser extent in Hungary. In Romania, privatisation issues have been delegated to the local level, leading to serious problems as far as administrative capacities are concerned. In Hungary, the assets necessary for cultivation were privatised according to different rules than the land leading to different ownership structures. 97

22 Bulgaria: The process of land restitution was rather rapid, whereas farm machinery remained in the possession of farm collectives, which often led to a degradation of these assets; Czech Republic: In the first step of transformation (1993), former co-operatives were partly transformed into new private co-operatives, but in general their structure remained unchanged, and as new elements trading companies and limited liability companies were founded; the number of self-employed farmers decreased in the course of transition - leasing of plots to co-operatives. Privatisation of forested land is restricted, however, there is a general aim to achieve a 40% rate of privatisation. Hungary: Small farms with a diversified production (representing over 1 million exploitation - most of which own less than one hectare) and large state farms (averaging 2,000 hectare) dominated the agricultural structure in the past, since 1989, about 50% of the state farms have been privatised, resulting in the acquisition of 80% of agricultural land by large private production units (averaging 1,700 hectare). Romania: In 1989, co-operatives and state-owned enterprises owned 74% of agricultural land. Land ownership was then concentrated in regions with favourable cultivating conditions. In 1997 about 76% of agricultural land was part of the private sector in different forms, but the process of privatisation and land restitution is still not completed. The agenda was delegated to the local level, which led to serious problems with administrative capacities. Also, cases of court appeals against land ownership as well as application for shares in privatised state-owned companies are numerous. Also, production and prices of newly established trade companies are still under the influence of the state. Slovak Republic: The country's agriculture is marked by the dominant position of cooperatives: to a certain extent, former co-operatives have been split-up and limited liability companies have emerged, but in part, structures have remained unchanged. In many cases, new companies took over the co-operative's assets under favourable conditions, which led to non-operating "remains" of co-operatives. Slovenia: Most agricultural land had been under private ownership, thus decollectivising or land restitution were not main issues. Agriculture in the Danube Space Accession Countries suffers from a gap between price increases and fixed prices for goods and foodstuffs and the rapidly rising prices for machinery. Overall, the stock of agricultural machinery is deteriorating due to the impossibility of reinvestment. Most of the countries show a reduction in the stock of machinery and also a sharp reduction in the use of fertilisers, e.g., Czech Republic from 350 kg per ha (1986) to 83 kg in Comparing the ratio of tractors to arable land, a large gap between Eastern and Western Europe exists. In Romania, it is one tractor per 60 ha of arable land or for Hungary and Croatia 98

23 more than 100 ha per one tractor, whereas Austria, Slovenia, Italy or Germany show ratios of between 5-10 ha per one tractor. Additionally, there are obvious investment gaps in many countries. In general, agriculture is of minor interest for domestic and foreign investment. The insignificant role of foreign investment is partly due to restrictions on the land market. For example, in Bulgaria the food-processing industry ranked first in 1995 regarding amounts of invested foreign capital (17% of total Foreign Direct Investment), whereas agriculture held the lowest share of foreign investment (2%). In the case of Hungary, where highly productive export-oriented branches exist, some productions, e.g. sunflower oil, are is completely under foreign ownership. An important trend especially in Romania and Bulgaria is the return of city-dwellers to their rural origin. This partly means a return to subsistence farming. Especially in Romania, the winding-up of former co-operatives resulted in a rapidly increasing number of self-employed farmers. In many regions, structural problems aggravate the situation, especially the lack of appropriate infrastructure and technology, upland terrain, and poor soils: in Hungary for example, it is estimated that in the mountainous parts of the country only 60% to 70% of the farms will be able to make profits in a market economy. The same situation applies to some regions in the Slovak Republic. The table on the following pages briefly reviews the major country specific agricultural issues and problems. Additionally the leading agricultural regions as well as the main problem zones are presented. 99

24 Table 15 Main Agricultural Issues by Countries Country Specific agricultural issues Specific problems of the agricultural sector Leading agricultural regions Problem zones In General globalisation of agricultural trade various national interests to protect domestic producers increasing prices for production inputs low attractiveness for investment future competitiveness of SMEs in general great plains and Danube lowlands seen by countries: Hungary mountainous zones cumulating socio-economic problems in certain regions land restitution to urban dwellers By Countries Austria net importer (surplus in cereals, cattle and dairy products) complex system of programmes at the national level as well as at the level of federal states competitiveness of small producers high shares of part-time farming Lower Austria Burgenland large mountainous zones Bulgaria net exporter sector instruments (State Fund) and wheat programme high share of agricultural employment fragmented patterns of land ownership subsistence agriculture lacking attractiveness to invest in pluriannual cultures Varna region Lovech, Rousse (Danube lowlands) Bourgas semi-mountainous and mountainous zones - especially Sofia, Montana and Haskovo regions initially high interest rates, slow emergence of loan and grant programmes lacking maintenance of irrigation systems Czech Republic net importer (surplus in dairy products and cattle) new role of the former co-operatives decrease in the number of self-employed farmers tendency towards the reduction of arable land recently serious impacts of EU imports on domestic production soil pollution in certain areas South Moravia Central Bohemia hilly and semi-mountainous zones due to the cultivation conditions small-scale environmental problems due to ploughing of pastures and meadows 100

25 Table 15 (Continued) Main Agricultural Issues by Countries Country Specific agricultural issues Specific problems of the agricultural sector Leading agricultural regions Problem zones Hungary net exporter competitive production and food-industries (considerable FDIs) land markets in western border regions deforestation (in general and recently due to privatisation) Southern Transdanubia Southern Great Plain cumulating socio-economic problems in Northern Hungary and Northern Great Plain Romania has lost its position as an exporter almost complete wound-up of former co-operatives high share of agricultural employment, increase in the course of transition fragmented patterns of land ownership subsistence farming unclear property issues South: Southern Great Plain (Bărăganu, Danube lowlands) Danube Delta (environmentally sensitive) north-east of Romania Carpathians and Apuşeni mountains Slovak Republic net-importer (in general but also with respect to its most important trade partner, the Czech Republic) new role of the former co-operatives non-operating remains of co-operatives Nitra region Trnava region (Danube lowlands) Presov region parts of Kosice region forestry: Banská Bystrica and Žilina region Slovenia net importer (surplus in dairy products and poultry) marginal transition problems (land was mostly in private ownership before compared to other CEECs high level of subsidies special strategies (low interest loans) 70% of agricultural land is in regions with difficult cultivating conditions low competitiveness of small producers afforestation demographically threatened regions only 15% of agricultural land is arable land - i.e. in the plains (Pomurska plain, Maribor basin, Celje basin) and larger river valleys (Drava, Vipava valley) large areas with difficult cultivation conditions enlargement of irrigated zones Source: Country reports 101

26 (28) Specific developments of the industrial sector A high degree of specialisation following an inter-industry trade pattern was organised between the member states of the Council on Mutual Economic Assistance (CMEA). Thus, the industrial structures had often been planned for large "markets", which on the local and regional scale turned out to be a type of structural megalomania. Examples may be found in Bulgaria for mechanical engineering and electronics, in the Czech and Slovak Republics for machinery and consumer goods, etc. For example, the large-scale production of shoes in Partizánske (Slovak Republic), which collapsed, induced enormous regional unemployment rates among women. To a great extent the heavily industrialised areas are remains of this international division of labour based largely on economies of scale that do not prevail under the new market regime. The problems associated with the reorientation within the international division of labour do not only pose a challenge on the national level, but even more so on the regional and local levels. The spatial distribution of industry shows characteristic industrial "zones" or "axes", which are in most cases due to the distribution of raw materials or energy (e.g. the availability of oil in the central and south-eastern parts of Romania). Other important locational factors were the distance to the USSR as a main provider of raw materials, the water supply and concentrations of man power. According to HALLET (1997) there are two groups of Central and Eastern European Countries to be distinguished with respect to the locations of industries: Some countries did not undertake much effort to reduce inter-regional disparities - industries were allocated according to traditional location advantages (especially natural resources and agglomerations). In the Danube Space this especially applies to Hungary, mainly due to the fact that the country had already established industrial centres (e.g. in Hungary industrialisation focussed on Budapest which provided 42% of industrial employment in 1960). The other group did try to allocate industries to all parts of the country establishing new industrial centres (this strategy is often called "district-industrialisation") - it applies especially to Romania and the Slovak Republic and to a lesser extent to the Czech Republic (which was industrialised before the Socialist period). Despite these differing strategies, their influence on the economic situation of industry in the period of transformation should not be overestimated. The strategic decentralisation of industry very often created rather weak centres. These centres suffer from the fact that the necessary inputs cannot be supplied at competitive prices due to high transportation costs. Romania was in a special position due to its policy of self-sufficiency, which led to the strategy of national diversification with regional specialisation also resulting in partial structural megalomania (e.g. the steel combine Călăraşi, founded in the 80's). 102

27 A brief review on the development of industrial employment for the period from 1990 to 1996 points out the contraction of the industrial sector during transition. The strongest contraction among the core countries was reported for Bulgaria and in the Danube Space's periphery for the Republic of Moldova. Austria, which took a different development path has also shown a slight decrease in industrial employment. (29) Transformation of Industry in the Core Countries A dramatic decline in industrial production and in industrial employment stood at the beginning of the transformation process in the Danube Space except for its western parts. In all transition countries, industry has been a central policy issue and privatisation a long-lasting sensitive process. Bulgaria: The process of privatisation started rather late. In 1994, only 18% of industrial employees were working in the private sector and only 63 out of 1,200 large enterprises were in private hands. A programme of mass or voucher privatisation was launched in 1996 aiming at the privatisation of 1,000 of the largest companies. Recently progress has become visible: in 1997 the private sector accounted for 35% of production. In the strategically important food processing industry, still less than 10% of total production has been privatised. Czech Republic: As in other sectors, the transformation of industry was marked by a rather rigid and stable course of privatisation and the attraction of considerable Foreign Direct Investment. By 1995, the share of industrial production in GDP had dropped from a remarkable 58% in 1990 to 41% in Now small firms account for 98% of all industrial firms, but only for 2.5% of industrial employment. Mass privatisation by a voucher system led to a rising importance of investment funds in the ownership structure. These funds are also strongly involved in the banking sector and are thus often in interest conflicts of interest. The remarkably low levels of unemployment also seem to hint at remains of industrial excess labour. Hungary: A sharp decline in the number of large enterprises was paralleled by a considerable increase in the number of SMEs. The beginning of transition was marked by the implementation of a broad range of instruments for privatisation. Due to the already existent private sector, Hungary did not implement mass-privatisation. Initially a system of direct sales was preferred, aiming at foreign capital. The first comprehensive Law on Privatisation was introduced rather late in The privatisation of large industrial enterprises was marked by a rather lagging pace in 1994 and 1995 compared to the rapid process in the initial stage of transformation. Foreign direct investment contributed to a faster restructuring of certain sectors, e.g., the strategically important food processing industry. Romania: The pace of transformation is rather lagging compared to other countries. Considerable public spending on industry marked the whole course of transformation: in 1993 the private sector accounted for only 6.2% of industrial production. The need for change and 103