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With some of the fastest average internet speeds in the EU, there are several nations in Central Eastern Europe (CEE) who stand to benefit from expansion of their connectivity infrastructures and enhanced digitalization of their business sectors. In Romania, for example, a recent survey in which PwC polled a number of executives revealed that Romanian companies have sharply ratcheted up their digitalization over the past year. More than 40% of the executives polled estimated that they were two or three years ahead of schedule in terms of digitalization—a trend which would only be accelerated further by removing regulatory barriers to digitalization and offering targeted support to SMEs, writes Colin Stevens.
In Hungary, meanwhile, average broadband connections are in the top 10 worldwide – but availability in more remote areas is less developed. Given that small- to medium-sized enterprises (SMEs) comprise 99% of all business across Europe, and that SMEs often operate outside of large urban metropoles, addressing connectivity deficits is a key step in driving CEE economies forward as they seek to extricate themselves from the lengthy and deleterious downturn engendered by the Covid-19 pandemic.
Bucharest looking to boost digital performance
Romania accelerated its push towards a deep-seated digital transformation last year with the creation of the Authority for Digitalization of Romania (ADR), with the goal to set up digital tools for public and private institutions in order to drive digitalization forward. Regulatory obstacles are apparently the second biggest barrier to the digitalization of Romanian SMEs, so it’s hoped that the ADR will be able to help address such issues effectively.
The other main difficulty for SMEs in Romania to overcome is a lack of financial resources. Given that studies have shown that digitalization produces an average increase in revenue of 25% and reduces costs by 22% in SMEs, getting over the first hurdle appears to the biggest challenge facing the sector. With EU member states able to access 13% of the funds allocated to them in the Next Generation recovery instrument this year, Bucharest would do well to use that money to support SMEs in the country, since the long-term benefits of doing so could be huge. Indeed, a recent report from Deloitte found that digitalization of European services and supply chains could boost Romanian productivity by 16.7% and GDP by 16.5%.
Hungarian potential hampered by practicalities
As for Romania’s neighbor to the west, Hungary’s average internet speed of 99Mbps is the fastest in the CEE region, outstripping all of the Big 5 economies in Europe by some distance. However, the country’s overall digital performance could be improved; it is ranked 21 out of 28 EU member states in the Digital Economy and Society Index (DESI) for 2020, with connectivity the only metric in which it outperforms the European average. That deficit is costing the country a potential €9 billion per year, according to a study by McKinsey.
Commerce is one of the key areas which must be addressed by the Hungarian government if it is to access those untapped resources. The fact that 62% of Hungarian SMEs (and 82.3% of all businesses) regard Industry 4.0 as a priority in the years ahead is encouraging, but that positivity is immediately offset by the pitifully low percentage of them (8.5% of SMEs and 18.6% of all businesses) which actually have a viable plan in place. Managing this transition and providing the resources and expertise which business owners need to upgrade their operational models will be key to unlocking that lucrative potential and the raft of other benefits that digitalization brings.
UK offers educational case study
Regional CEE governments on the lookout for inspiration could do worse than to examine the Broadband Connection Voucher Scheme that was implemented in the UK between 2014 and 2016. Covering 50 cities across the country, the initiative allowed 42,500 SMEs to improve their connectivity speeds by an average of 18 times their previous velocity. That resulted in an average profit of £1,300 each year per company, with an overall return on the government’s investment of £8 for every £1 spent. The fact that only 17% of the funding went to the three biggest providers was also instrumental in encouraging competition and consumer choice in the sector.
For its part, the EU is introducing a similar €200 million scheme in Italy, though at the moment it is reserved exclusively for use by low-income families and students. While the initiative could play a vital role in allowing the bloc to achieve its goal of connecting 50% or more of European households to broadband networks with a speed of 100Mbps or higher, the latent potential of the policy is far greater. Were the EU to open it up to businesses as well, that would signify a true leveraging of the digital single market and a statement that member state economies and businesses are amply supported by Brussels.
CEE countries must act now to leverage EU aid
The rewards of doing so could be incredible for all involved. In fiscal terms, one report found that new digital technologies could deliver cumulative GDP benefits of €2.2 trillion across the bloc by 2030. The environment could also benefit, with improved fuel consumption (facilitated by the Internet of Things technology) saving up to 4.8 tonnes of carbon emissions annually, while public health would prosper thanks to the 165,000 deaths that could be prevented each year by a full rollout of eHealth services.
Therefore, it makes prudent sense for the EU and individual CEE governments to put their heads together and settle upon a course for utilizing the former’s funds and the latter’s policies to equip their business communities with the tools they need to excel. The internet speeds in Hungary, Romania and other CEE countries are already brisk enough to facilitate their success; all that’s required now is a similarly clipped pace in accelerating the digital transformation across the board.