It’s been a rocky road for many of the young nations in central and eastern Europe that were established in the fallout of the Soviet Union’s in the late 1980s and early 90s.
With the exception of Estonia, many new nations lacked the natural resources and political stability that could bring financial security, and as a result suffered economic hardships across the board for many years on the approach towards the new millennium.
However, technology became significantly easier to adopt in the early 2000s, and suddenly large parts of central and eastern Europe were handed the chance to build a market that could help to ensure a degree of prosperity domestically. Nations like Estonia, Armenia and the Czech Republic jumped at the chance and the whole region embarked on a period of sustained success – despite being hampered by the continual exporting of talent to Western Europe and the US.
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Holding on to talented entrepreneurs and skilled professionals has been an issue with many emerging markets from former Soviet states in the past, but are we witnessing a changing of the tides? Here’s a look at why 2020 could become the year to invest in Eastern Europe:
Central and eastern Europe Innovation
It’s important to note that Central and Eastern European countries are still transitioning from more industrial backgrounds into the world of tech innovations, and are spending frugally in order to action these ambitions without taking too many risks.
With just 1.2% of GDP invested by these nations in the field of research and innovation, Eastern European economies are much more measured in their approach than the average EU rate of 2.1% – according to the European Commission. Furthermore, only around half of this investment is actually spent by businesses, as opposed to the public sector and universities.
(Image showing Estonian GDP. Image: Investing.com)
However, there’s no shortage in the different approaches and success stories adopted by the east. Estonia, for example, has developed scores of digital entrepreneurs in the 21st Century – and was the birthplace of the world-famous communications programme, Skype as well as TransferWise.
Elsewhere the Czech Republic and Slovenia are investing as much on research and innovation as the big hitters of Western Europe, while Slovakia’s levels of investment have skyrocketed four-fold when compared to the average growth in investment across the European Union.
Away from the notable successes of Estonia’s startups, we’ve seen some significant developments in the field of antivirus software coming from the Cech Republic in the form of Avast and AVG, as well as Slovakia’s Eset – which is another entity that’s well renowned in the cybersecurity industry. Prezi, a digital presentation application developed in Hungary has developed a user base consisting of millions.
The challenge of retaining talent
The tech workforce is growing at an impressive rate – three times faster than the average job market within the EU and Tech.eu estimates that there are around 5.5 million professional developers alone in Europe today. The continent also boasts half of the world’s top computer science institutions.
This burgeoning level of industry has caused a concentrated push from western nations to lure the talents within Central and Eastern Europe across the Danube and into already developed tech hubs.
Tech workforce in the EU
The lure of the west has seen Central and Eastern Europe lose out on some 12% of its domestic talent – with workers migrating primarily to the British Isles, Ireland and Baltics.
Successfully encouraging skilled tech workers to remain in Eastern Europe will hold the key to accelerating investment opportunities within the emerging markets. One nation looking to achieve this is the former Soviet state of Armenia. The nation’s GDP is growing at a modest rate of around 2% – however, Armenia’s tech industry is exponentially increasing by 20% year-on-year. As a nation that experiences large diaspora, this seismic level of growth could be the key to encouraging more citizens to work locally – leveraging even more prosperity within the field of tech.
Alexander Smbatyan, founding partner of Aybuben Ventures stated that “the government of the Republic of Armenia has been actively implementing programs to support technology companies in the country for a long time. However, the state is not taking on the role of an investor rather its main task is to create a favourable infrastructure and investment climate, to be in continuous dialogue with entrepreneurs and not to interfere in the market relations of different parties.”
Smbatayan’s company, Aybuben Ventures is a venture capital fund that has $50 million allocated towards tech startups pioneered by Armenian nationals both domestically and around the world. The endeavour shows the rich potential steeped within former members of the Soviet Union.
Central and eastern Europe and future changing technology
Following the dissolution of the Soviet Union, many new nations struggled to develop their own self-sufficient industries. However, a steady flow of skilled tech experts has helped to transform the fortunes of Eastern European nations, who have seen a flurry of successful endeavours make their way into the global markets.
The recurring outflux of industry professionals has hindered these emerging markets from realising their full potential in the 21st Century so far, but there are plenty of cases – not least in Armenia – of concerted efforts to invest heavier in startups and enable more new businesses to thrive. If the Eastern Europe diaspora can be reversed by new investments as well as continuing political uncertainty in the western hemisphere, 2020 may well be a watershed year for investing in tech in the former Eastern Bloc.