With all eyes on the eurozone, it is easy to forget the possibilities in central and eastern Europe. Following on from our euro special, Victoria Madine discovers that these markets are about to become mainline stations on the European Union's gravy train
After 40 years behind the iron curtain and a decade-long struggle against political and economic instability, Poland, Hungary and the Czech Republic are about to pull Europe's centre of gravity eastwards. These former Warsaw Pact countries are at the front of the queue of nations waiting to join the European Union, and could be full members by 2005.

Economically, the states have already been partly integrated into global capitalism, with car makers racing to exploit cheap, underemployed labour and retailers and telecoms companies eager to get their hands on virgin markets.

The construction industry has its own opportunities in the wild east, above all in the programme of capital investment from EU institutions, intended to modernise the candidates' economies. The result is that economic forecaster Euroconstruct expects the market in the three countries to grow by an average of 12% over the next two years (with Hungary likely to be the one that gets closest to an economic miracle). The figures are lip-smacking, but moving into these market is, as always, problematical.

"There are major potential opportunities for both consultants and contractors," says Nigel Peters, director at the British Consultants and Contractors Bureau. He points to the ISPA (Investment for Structural Policies for Pre-Accession) funds pouring into the area – for example Hungary was recently awarded a £26.9m loan for public works programmes. When the three join the EU, they will become eligible for further structural funding of the type that has done wonders for the economies of states such as Ireland, Greece and Portugal.

The result is that, as Ray Tanner, managing director of cost consultant Gleeds Europe, says: now is the time to act. "Companies are going out there early to make sure they have the capacity, the offices and contacts to make the most of the opportunities when they arise."

David Lawrence, regional managing partner for Europe at consultant EC Harris, says facilities management is a particular growth market in Poland. "These types of services simply aren't offered by the local market. Also, as companies seek to cut costs, outsourcing their non-core businesses is becoming the norm." The company's Polish office is its most profitable on the Continent.

Arup is another consultant that has seen its workload in the area swell – the company's Warsaw office has grown to a staff of 55 in three years. These companies have broken into the market on the back of inward investment from clients such as Tesco. "We're following industry east," says Philip Dilley, director of European business at Arup.

As yet, few British contractors are working in central Europe. Bill Tallis, chief executive of the Major Contractors Group, says the market does not need companies that are more expensive to hire than local firms. "You must offer something that local players haven't got," says Tallis. But western European contractors including Strabag, Skanska, Hochtief and Bilfinger + Berger have successful operations across central Europe.

The British embassies in central Europe say UK contractors could be losing out to them. The advice the BCCB's Peters gives contractors is to be committed – they will have to be if they want to win market share – but he assures them, "it'll be worth it in the long run."

Czech Republic

Population: 10 million
GDP: £93bn
Construction output: £3.63bn
Annual change in construction output 2002/3: 5.4%

The long-term outlook for Czech construction is positive and officials expect output growth to hit 5.5% in 2005 as the state’s plan to renovate old apartments kicks in. But this year the sector is in decline and Vojenske Stavby, one of the country’s largest contractors, has gone to the wall. The result is that British consultants are finding opportunities, though few contractors have live projects there. Steve Tennant, director of consultant EC Harris in the Czech Republic, says the commercial sector is buoyant. “We are expecting things to be tougher next year, but for now the property market is active, and new investors are coming in.” Large projects under way in the country include office developments in Prague, and an extension to the city’s metro being built by Metrostav, the county’s largest contractor. The largest project is also the most controversial – the government recently awarded Israeli contractor Shiran Group the rights to build a motorway from Lipnik, in the north of the republic, to south Poland.


Population: 10 million
GDP: £80.13bn
Construction output: £3.60bn
Annual change in construction output 2001/2: 6.4%

Hungary boasts the fastest growing economy in Europe and a robust construction market, with the retail and leisure markets performing particularly well. Major projects in the pipeline include a third terminal for Budapest airport and a rail link between the airport and capital. But the country is struggling to attract British companies. Colin Parish, commercial adviser at the British embassy in Budapest, says contractors are too cautious. “We are trying to encourage them out here – especially to work in joint ventures with local firms. Austrian contractor Strabag is very successful.” Nigel Peters, director at the British Consultants and Contractors Bureau, admits that the Hungarian market is difficult, but “there is a growing interest in innovative funding techniques like PFI”. Rea is anticipating Hungary’s accession to the EU to bring further growth opportunities. He says, “The European Investment Bank is funding major European transport corridors. There is plenty of work for those who are persistent and patient.”


Population: 38 million
GDP: £231.62bn
Construction output: £13.08bn
Annual change in construction output 2001/2: –5.5%

Construction output in Poland may be shrinking, but the market is expected to pick up by 2003 as the country gears up for EU entry. The British embassy in Warsaw says a big drop in public spending over 2001 is to blame for the hard year ahead. “There are no new public orders coming in so we are relying on foreign investors,” says a spokesperson. Despite these troubles, British companies, including consultant EC Harris, contractor Bovis Lend Lease and architect Chapman Taylor, have made inroads. But the biggest future opportunities will be in road infrastructure and environmental protection works such as sewage systems. Together these sectors will require an outlay of 20bn zlotys (£3.35bn) a year until 2010. British interior designer Jestico + Whiles is working on a hotel in Warsaw. Associate James Dilley says working in Poland is fun, but building regulations can be a trial. “Some of the regs are more stringent than ours. It is also up to the architect to get a building permit, which can be very time consuming,” he says.