Ceepackaging

Analysis

Excellent run for Austrian economy

Not only is Austria rich and getting
richer, but its wealth is reasonably well
spread. According to the OECD, the Gini
coecient of income distribution in 2000
was about 25, roughly on a par with
Scandinavia, against an OECD average of
31 (the higher, the less equal). Some of Austria’s
nine federal states are better o than
others, with Vienna getting most of the
cream, but the dierences are not vast. And
Europe’s opening to the east has helped
border regions that previously found
themselves, as one banker puts it, at the
end of the world.
Ination, at 1.4%, and unemployment,
at 4.2%, are both enviably low by European
standards. The budget decit, at 1% this
year (on the Maastricht denition), is already
modest and will continue to fall,
thanks to relatively buoyant tax revenues.
Pay settlements are generally reasonable,
helped by the system of social partnership
. In three of the past ve years, including
2007, net real incomes from employment
have barely budged even though the
economy has been growing steadily, yet
workers are not mounting the barricades
(though nor are they throwing their
money around). Austria’s schilling was
pegged to the Deutschmark for many
years, keeping producers on their toes, and
since 1999 membership of the euro zone
has had a similar eect. As a result of all
this, unit labour costs in manufacturing in
euro terms in the ten years to 2005 fell by
an astonishing 38%. Over the same period
Germany managed only a 7% drop. (In services,
however, Austria’s productivity record
is much less impressive.)

Being small, Austria has traditionally
been an open, export-oriented country,
and in the past few decades it has become
the very model of internationalisation.
Unlike Switzerland, it has no really big
multinational companies and only a few
well-known international brands (such as
Swarovski, an upmarket maker of crystal
jewellery and trinkets, and Red Bull, a fashionable
energy drink). Its strength lies in its
small and medium-sized companies,
many of them family-owned, that make
highly specialised, top-quality products
and export them all over the world.
In the economic globalisation index
produced by the Swiss Institute for Business-
Cycle Research (KOF), which measures
the free ow of goods, capital and
services across countries, Austria moved
up from 29th (out of 97 countries) in 1970
to 7th (out of 109) in 2004, well above the
average for the EU 15 and the OECD countries.
The downside of this openness is
that Austria depends heavily on the economic
health of its trade partners. Germany
alone takes 32% of its exports, so the economic
chill there a few years ago had a
knock-on eect in Austriawhich has
made the recent German recovery all the
more welcome.
Agolden opportunity
But the favourite new playground of Austria’s
export-oriented rms is central and
eastern Europe. Thanks to their cultural
and historic links with the region, Austrian
businesses were able to establish themselves
quickly in the new markets, securing
a rst-mover advantage that may
prove quite durable. Many of the countries
in the region are small, but for Austria’s
small rms the extra business they bring
represents a big net addition. And most of
them (except Slovenia and the Czech Republic,
which are already relatively rich)
still have many years of catching up ahead
of them, so both their economies as a
whole and some of the markets within
them are likely to grow much faster than
their west European equivalents.
Some of the most lucrative markets
have opened up in nancial services. According
to an analysis by Austria’s central
bank, foreign rms have secured around
70% of the banking market in the region,
and two of the top three international
banking groups that operate there are Austrian.
The market leader is Milan-based
UniCredit, which also has an Austrian
component (Bank Austria). Number two is
Erste Bank, Austria’s biggest bank. It was
later than some of its rivals to arrive in the
region (in 2000), but has since snapped up
ten banks and accumulated a total of
about 16m customers there. Its biggest
transaction to date was the purchase in
2005 of a 62% stake in Banca Comerciala
Romana, Romania’s largest bank, with
2.8m customers.
Erste’s boss, Andreas Treichl, says there
are still acquisitions to be made and plenty
of new business to be developed: for example,
customers in the region have been
so busy borrowing that they have barely
started to think about saving and investing.
He reckons it will take 20 or 25 years for
these countries to catch up, but that some
of them could eventually overtake older EU members such as Portugal and Greece.
In the meantime they will be growing a lot
faster than the rest of Europeand as they
grow, Austria will benet.
Raieisen International, the quoted
arm of Raieisen Zentralbank, has an only
slightly smaller balance sheet than Erste in
the region, and it is growing even faster.
Walter Rothensteiner, the group’s directorgeneral,
tried to buy market share in the region
as quickly as possible, starting in
2000. The bank now has 13m customers
there, against just 1.7m in Austria. People in
these new markets have literally been
queuing up to open accounts, he says, so
they can take out loans for cars and other
consumer goods.
Raieisen started o by setting up new
banks from scratch, wary of taking over existing
ones for fear of nding skeletons in
their cupboards; but it is now also buying
up existing banks. Mr Rothensteiner does
not think there is much left to take over,
which will help to keep out other foreign
banks. Austria’s historical and family connections
in the region also count for a lot,
and Vienna’s accessibility is good for keeping
vital personal contacts going. Most importantly,
he says, Austrians understand
their eastern neighbours’ easy-going mentality.
He notes that Swiss banks have kept
out of the region.
For the moment the bonanza shows no
sign of slowing. According to Raieisen’s
research arm, the combined balance sheet
of the banking sector in central and eastern
Europe last year grew by 28%, to
1.1
trillion. By the end of 2011 it is expected to
reach
2.5 trillion, and by 2016 it could
double again. The biggest growth will be in
retail banking. Total retail credit in central
and eastern Europe last year averaged less
than 18% of GDP, against about 54% in the
euro zone, so the potential is vast. The market
is also extremely protable. According
to Austria’s central bank, in 2005 the subsidiaries
of Austria’s banks in central and
eastern Europe made up 16% of their consolidated
balance-sheet total, but about
35% of their prots. Austrian bankers say
they need to charge a bigger risk premium
in these markets. They may also be making
hay while the sun shines.
Nor is it just Austrian bankers who are chasing opportunities in central and eastern
Europe. Boris Nemsic, the boss of Telekom
Austria, the incumbent telecoms
company, is scouring neighbouring countries
for mobile-phone acquisitions. Austria,
he points out, has the lowest mobilephone
prices in Europe and its market is
saturated, so any growth has to come from
abroad. By targeting smaller neighbours to
the south-east and east, Mr Nemsic’s rm,
which went public in 2000, has expanded
its market from 8m potential customers in
Austria (including babies and centenarians)
to 44m. The actual number of subscribers
is currently 11m and rising: Telekom
Austria has recently bought MDC, a
mobile-phone group in Belarus, and is still
looking for further acquisitions.
Moreover, a number of foreign companies
are now using Austria as a base for
their operations in central and eastern Europe.
Brigitte Ederer, CEO of Siemens Austria,
the country’s leading technology and
infrastructure company, explains that as a
rule the German company’s foreign operations
are controlled from its headquarters
in Munich. But in the mid-1990s the German
bosses decided that it was too di-
cult to keep an eye on the company’s fragmented
activities in the region from there,
so they transferred overall responsibility
for eight of the countries to the subsidiary
in Vienna, closer to the action and better
suited to what Ms Ederer describes as the
small-scale grind of this business.
Not all Austrian eorts to do business
in the region have gone without a hitch.
Earlier this year OMV, a big Austrian energy
company, increased its stake in Mol,
Hungary’s national energy champion, and
subsequently launched an informal takeover
bid to create Europe’s fourth-biggest
renery group after Total, ExxonMobil and
Royal Dutch Shell. But Mol rejected the offer,
backed by the Hungarian government,
which has since passed a law to make it
harder for foreign o take over strategic
 companies. The European Commission
is threatening legal action against the
Hungarians’ protectionism. OMV is keeping
its ngers crossed.