New European Union Frontier Countries: Economic Situation and Investment Climate

Introduction

The new European Union frontier countries ( NEF coun* tries ) comprise a region that is truly emerging intoa market economy. They include Bulgaria, Romania, Croatia, Ukraine, Albania, Macedonia, Moldova, Serbia andMontenegro, Bosniaand Herzegovina. Thesecoun* tries should be of particular interest to financial institu* tionsand investors in Europe because they have thefol* lowing attributes: • sustainable economic growth and macroeconomic stability • an improving business environment and investment climate • a highly skilled, well educated labor force of significant size • a low cost region at a strategic crossroads • good access to the major markets of the European Union • large domestic markets In the last three years, these economies have been among the fastest growing economies in Europe and are unquestionably some of the most rapidly growing in the world. At the same time, this group is not homogenous. Some of them, such as Bulgaria, Croatia, Romania, and Ukraine, have shown extraordinary economicperfor* manceinthelast four years that considerably exceeded the average level of the NEF countries . This group of four countries (Bulgaria, Croatia, Romania, and Ukraine) can be defined as the More Advanced New European Fron* tier Countries (MANEF countries) . Although the perfor* manceofthe Less Advanced New European Frontier Coun* tries (LANEF countries) including Albania, Bosniaand Herzegovina, Macedonia, Moldova, Serbia and Montenegrowas lower than in MA NEF countries ,it is still remarkable. Although all countries of the NEF region show some progress in stabilizing their economies, improving the business environment and moving to a free market econ* omy, the MANEF countries performed substantially better than others in the region. Despite unevenim* provementamong MA NEF countries , most have made good progress in deregulating business activities, im* proving legal systems and governance, liberalizing trade, reforming the financial sector, and reducing pub* licdebt. For these economies, the desire to gainacces* siontotheEUwill continue to be the driving force of their policy*making agendas over the coming years, al* beitwithwidely different time horizons in individual countries. One of the greatest benefits of EU accession for foreign investors is the transparency andhomogene* ityoftheEU regulatory system, which all countries in* volvedinthe integration process are required togradu* ally introduce download