The place of the CEE countries in the EU’s digital future

The 2010s can now be truly called the first decade of digital disruption. This process was sparked by several innovations with a compounded impact on how we live, work, study and spend our free time. The critical milestones included the upgrade of mobile connectivity (4G and 5G networks), boost of the new social media including IG,  Big Data, Artificial Intelligence and Cloud data management.

These innovations made the economic transformation more consumer oriented. The digital economy is erasing borders offering consumers new products and services from the whole world. Public policy needs to actively adapt to the new environment.

SMEs at the heart of digitalisation

Finding digital solutions became a priority through the pandemic and economic lockdowns. Digital technologies have become essential for the economic survival of all businesses. In 2022, companies need to be digitally present across all sectors, boosting demand for cyber security and digital skills.

More than 9.9 million jobs in the region have been threatened by the pandemic and the lockdowns. This led to a doubling of the growth of the digital economy in the first half of 2020 (14.2%) compared to the rate of 2017-2019 (7.9%). At the same time, the share of Internet service users grew by 25%, which means more than 12 million new customers in the digital economy in a few months.

What should digital leaders be like

The region of Central and Eastern Europe has become a digital leader that inspires the whole Europe through business oriented reform initiatives and a digitalisation of the public sector. Estonia, followed by Poland or Latvia provide specific recommendations on how to become a  leader in the digital world while coming from a post-communist environment.

Estonia is the second across the EU in the field of digital public services. This is critical for public sector trust and motivates businesses to digital transformation. It is also a gateway to wider digital services for SMEs. This is an indicator where Lithuania and Estonia become within  the top ten in the EU, along with the leaders of the Western Europe. As the region can benefit from €200 billion in value added by 2025, countries with a faster start can put their businesses at a significant advantage.

The public sector management leads to the quality of the business environment and a strong position of the ICT sector. Leaders like Estonia, Bulgaria and the Czech Republic have an ICT sector reaching 5.6% or 5.5% of the country's GDP, respectively, with Romania, Hungary and Latvia also achieving over 5% in this respect.

These changes lead to higher productivity for the digitization leaders. Even before the onset of the pandemic, the difference between the leaders and followers was at the level of tens of euros per hour (€ 64 versus € 31). The problem of catching up is also deteriorated by a significant lack of capital in the region and the difference in capital stocks between leaders and followers.

It follows from these key strengths of leaders within the European Union and, in particular, within our region, that there is a need to set priorities for the future. The European Union has helped us in part to do this through investment priorities and objectives based on the Recovery and Development Plan. The current goal is to achieve a 90 % benchmark of individual components of the DESI index by 2027, which would increase GDP per capita by 7.2%.

Digitization requires honest preparation

Digital transformation like never before  is one of the most  critical parts to boost Slovakia's future economic growth. Its potential in terms of the added GDP to the economy for Slovakia is estimated at more than € 16 billion. However, Slovakia lags behind the leaders in the region as well as in the entire EU. According to the latest edition of the DESI Index, Slovakia ranked 22nd in the field of digital competitiveness, just ahead of Hungary (23rd) and Poland (24th).

Czech Republic is the V4 leader (18th), however Baltic region is further ahead with Lithuania (14th) and Estonia (7th place). These leaders dictate the pace of digitization, and Slovakia should have followed. The key reason for Estonia’s leadership stems from the successes in achieving digital public services that are beneficial for its citizens and businesses. Slovakia has focused its initiatives on the Smart Industry, Digital transformation and AI, where it has been following strategic documents with actions. These documents have identified key priorities for the public administration and have placed the digital solution at the centre of the public efforts. Weaker have been the initiatives in improving the critical services, such as the interaction with businesses, or the improvement of talent, where the Covid19 pandemic has been a major motivation to action. 

Region's policy for the future

It is critical for the region to plan its digital transformation with a specific vision and set of defined goals. The reform measures should focus not just on the digital legal framework or infrastructure nor create an overhaul of the approach by the governments in the region. A starting point should be a completion of the e-government and e-services for SMEs that can help build the e-commerce and transition of  SMEs towards the digital transformation economy. 

However, at the micro level, the change will take longer. Establishing new channels for capital and alternative sources of funding for SMEs as well as building up talent and ICT capacities represents long-term change l besides the coordination of selected parties in different sectors is not possible.