Making the most of the recovery in Visegrad
The Visegrad region has been hit hard by the pandemic and its economic fallout, but major funds are available to support the recovery and transition to towards a greener and more digitalised economy.
By Doris Hanzl-Weiss, Vienna Institute for International Economic Studies (wiiw)
The COVID-19 pandemic has hit the economies of the world in 2020 and economic growth collapsed. The Visegrad countries were affected less than the EU as a whole, but nevertheless suffered deep GDP declines in 2020, ranging from -4.2% in Poland to about slightly above 6% in the other three Visegrad countries (wiiw CONSENSUS Forecast December 2020, wiiw.ac.at). The recovery will start in 2021, but due to new mutations and slow vaccination none of the Visegrad group will return to pre-crisis levels of GDP this year.
The EU has set up an ambitious help programme called Next Generation EU to fight the crisis and bring back countries on their growth track. The Recovery and Resilience Facility forms the main part of this help with a sum of EUR 672.5 bn, distributed in grants (EUR 312.5 bn) and loans (EUR 360 bn). The Visegrad countries will receive for the period 2021-2023 grants of about EUR 6.7bn in Czechia, 6.3bn in Hungary, 23bn in Poland and 5.8bn in Slovakia (in 2018 prices).
In terms of GDP, Slovakia profits the most, receiving about 6.2% of 2019-GDP, Poland and Hungary about 4.3% and Czechia about 3%. Until April 30, 2021, the countries now have time to draw up their national recovery plans. Money can be spent on six pillars, of which a minimum of 37% should be spent on green investments and reforms, a minimum of 20% on digital transformation, the rest on the remaining four pillars (smart, sustainable and inclusive growth; social and territorial cohesion; health & resilience; policies for the next generation).
In addition, common European challenges in the field of green transition and the digital transformation are encouraged to be tackled through multi-country projects within the RRF and the Commission formulated six European Flagships – three for the green transition and four in the area of digitalisation – in its 2020 Annual Sustainable Growth Strategy (COM/2020/575 final), all of which are of particular importance for the Visegrad countries.
Digitalisation needs and flagships
The COVID-19 pandemic has turned our lives upside down and moved it into the digital sphere. Shortcomings in this respect turned up more clearly, such as connectivity problems, problems in online-teaching, shortage of digital skills or the need for e-commerce - problems most common in all countries, not only the Visegrad ones. Looking at the digital performance of the Visegárd countries, Czechia performs best – both in terms of the 2019 Network Readiness Index and the EU 2020 Digital Economy and Society Index (DESI) –, while Hungary, Slovakia, Poland and are ranked lower but closely together. However, the Visegrad countries perform below the EU-average according to the EU’s DESI-Index and thus have improvement needs: Czechia is ranked on the 17th place, Hungary on the 21st, Slovakia on the 22nd and Poland on the 23rd (including UK, all data from here).
All countries try to focus on the challenge of digitalisation and have drawn up national strategies, such as the Digital Czechia in Czechia adopted in 2018 or the 2030 Digital Transformation Strategy for Slovakia adopted in 2019. Still the Recovery and Resilience Facility provides more sources to foster the digital transition and 20% should go into this domain. European Union country specific recommendations in 2020 already took into account the increased digitalisation needs resulting from the COVID-19 pandemic and highlighted as main challenges for all four countries digital infrastructure, digital skills in Czechia and Slovakia, and the digital transformation of companies and public administration in Poland.
Flagship Connect promotes increased access to rapid broadband services and the widest possible uninterrupted 5G coverage for all areas. Reflected by the DESI-Index component connectivity, Hungary is doing very well in the EU, ranking at the 7th place, also Poland is close to the EU-average (15th place). Only Slovakia (21th place) and Czechia (24th) fall behind. Overall, the fast broadband (NGA) coverage is high for Czechia and Hungary (about 90%), but below average in Poland and Slovakia with only 76%. Also, in terms of 5G readiness (meaning the spectrum assigned as % of total 5G spectrum) Hungary is doing best, with 61% of spectrum assigned compared to an EU average of 21%. Also, Slovakia lies above the EU average with 33%, while in Czechia only 17% is assigned and zero in Poland. 2020 Country specific recommendations suggest improving the digital infrastructure in all four countries with a particular focus on schools in Hungary.
Improvement of public services and advanced digitalisation is on the agenda of all Visegrad countries and can be fostered through the flagship Modernise. It aims at digitising publish administration and ensuring the provision of the European digital identity (e-ID). In fact, all Visegrad countries lag behind in digitalisation of public services: In the DESI-Index component digital public services, all four countries rank rather low: Poland does relatively best and comes in on the 20th place, Czechia on the 22nd place, Hungary on 24th and Slovakia only on 26th. The share of e-government users in percentage of internet users needing to submit forms is far below the EU-average of 67% and ranges only between 55% in Hungary, 54% in Poland to only 52% in Slovakia and 51% in Czechia.
Visegrad companies are also in need to foster digitalisation of enterprises aimed at the flagship Scale-up which aims to double the use of cloud computing and big data in EU enterprises. Digitalisation of enterprises ranges again below the EU average of the 2020 DESI component integration of digital technology, with Czechia however being a pleasant outperformer ranking better and placed on the 9th place. The other Visegrad countries are rather on the lower end of the ranking (Slovakia 21st, Poland 25th, Hungary 26th). While in the Czechia e-commerce of SMEs is responsible for this good performance, the country still lags behind the EU average in terms of use of cloud computing and big data: Only 16% of Czech companies use cloud computing, 8% big data (EU: 18%, 12%). Slovakia does quite well in big data usage compared to its regional peers (9%), while Hungary and Poland trail the end of its peers and even of all EU countries in these respects.
Digital sills can be supported through the flagship Reskill and upskill which aims to improve digital competences and to increase the share of people with basic digital skills by 2025. Digital and human skills are especially important to overcome the COVID-19-pandemic and to strengthen resilience. In terms of the 2020 DESI component human capital, the Visegrad countries range slightly below the EU average, whereby Czechia is close to it (14th place, 19th place Hungary, 20th place Slovakia and 22th place Poland). In Czechia even 62% of individuals have at least basic digital skills thus range above the EU average (58%). In Slovakia the share reaches 54%, in Hungary and Poland less than half of the population have at least basic digital skills (49% in Hungary, 44% in Poland). While Czechia is doing well in basic skills, the share of people with above basic digital skills is lower (26%) than the share in Slovakia (27%), while Hungary (25%) and Poland (21%) range at the end of their peers. The 2020 European semester country recommendations suggest supporting digital skills and access to digital learning in Czechia and Slovakia.
Green transition and flagships
Investment needs and challenges turning the Visegrad economies green and reaching climate neutrality in 2050 are manifold and costly. When judged by greenhouse gas emissions per capita, Czechia and Poland face the biggest challenges: These two countries are amongst the EU countries with the largest greenhouse gases per capita. In fact, Czechia is the fourth largest greenhouse emitter in the EU, Poland the seventh largest. Slovakia and especially Hungary have lower per capita emissions and rank below the EU-average (16th place and 23rd place respectively). The Europe 2020 target for greenhouse gas emissions have already been overfulfilled by Hungary, they should be met by Slovakia and Czechia while Poland risks not reaching the goal (European Commission, European Semester country reports 2020). In their National Energy and Climate Plans – sent to the Commission end of 2019 – the countries set out new targets, which very evaluated as not being very ambitious. New priorities are also proposed: Slovakia will, for example, prioritise energy efficiency of households, but also focus on reducing energy intensity of industry or investing into renewable energy (European Commission, CSR 2020). Hungary intends to prioritise investment in renewables particularly solar, energy efficiency and electromobility (European Commission, County Report 2020). The three flagships under the Annual Growth strategy in the field of green transition focus on established areas like renewables and renovation of buildings on the one hand while also support new technologies like hydrogen in terms of production, transportation and distribution on the other. Investment is needed in all these fields in the Visegrad countries.
The flagship Power-up promotes the use of renewables and lays the foundation for hydrogen lead markets. The share of renewable energy in gross final energy consumption is below the EU average of 18.9% in 2019 in all four Visegrad countries: it lies at about 17% and 16% in Slovakia and Czechia, 13% in Hungary and only 12% in Poland only 12%. While Slovakia and Czechia already outperformed their national 2020 target for renewables in 2019, Hungary is on track, while Poland still misses 3 percentage points.
The flagship Renovate aims at doubling the renovation rate for public and private buildings. There is a clear need for enhancing the energy efficiency of buildings in the Visegrad countries (European Commission, European Semester Country reports). While the energy renovation rate (based on floor area, average 2012-2016) for residential building has been above EU average in Czechia and especially Poland, it was below in Slovakia and Hungary. Particularly the renovation rate for deep renovations was tiny. For non-residential buildings, the energy renovation rate was above EU average in Poland, especially higher in Slovakian and Czechia but below in Hungary.
The flagship Recharge and refuel targets the building of charging stations for alternative fuels, which is in its infancy in the Visegrad countries. Overall, there are about 600-800 charging points for electric cars in each of the four countries in 2019, which represents only 0.4% of the EU total in each country. At present, the sales share of electrically chargeable cars is very small in all four countries and much below the EU average of 3% (data for 2019). It is particularly low in Slovakia (0.4%), but also in Czechia and Poland (0.5%), while only in Hungary it is a little bit larger (1.9%). Looking at hydrogen filling stations, there is one in Czechia but none in the other Visegrad countries.
Conclusion
Summing up, the Visegrad countries face considerable challenges in the field of digitalisation and green growth, with investment needs for all flagships in these two areas. A lot of money is now available in form of the Recovery and Resilience fund. It provides the chance and opportunity to both overcome the huge GDP decline faced during the Covid-19 pandemic and to stir this recovery into a much-needed direction – to make economies greener, more digitalised and ready for the 21st century. In case the Visegrad countries take this opportunity and make the right policy choices they could emerge out of this crisis even stronger.
