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CEE is experiencing an economic overhaul driven by digital solutions that are revolutionising industries such as manufacturing, banking, and logistics. Investors who have hitherto ignored the region need to start taking a closer look.
That Central and Eastern Europe is emerging as a major player in the global digital economy, with digital transformation creating a wealth of opportunities for investors, is no secret to those with a presence in the region.
This rapid shift is reshaping traditional industries, driving innovation, and producing a new generation of tech start-ups. With (in some parts, at least) strong government support and a wealth of untapped potential, the region is poised to become a significant destination for digital investment.
However, for this transformation to be inclusive and sustainable, targeted efforts are needed, especially to support female founders, who remain significantly underfunded. It also requires investors who have hitherto ignored the region to take a closer look.
- The emergence of CEE as a global investor
- Soft power and FDI inflows: Understanding the relationship
- Once considered peripheral, CEE has become integral to the EU’s economic wellbeing
CEE is experiencing an economic overhaul driven by digital solutions that are revolutionising industries such as manufacturing, banking, and logistics. The region is uniquely positioned to leverage digital transformation, as it combines a rich talent pool with comparatively lower costs of doing business.
In Poland, for instance, McKinsey predicts that Industry 4.0 technologies, such as automation and artificial intelligence (AI), could increase the productivity of the manufacturing sector by up to 35 per cent by 2030.
A study from the European Bank for Reconstruction and Development (EBRD) found that companies adopting digital technologies in Hungary and Slovakia have seen a 30 per cent increase in operational efficiency, positioning the region as a competitive alternative to Western European markets.
The banking sector is similarly transforming. A report from Deloitte found that 75 per cent of banks in CEE are now prioritising digital channels for customer engagement, up from just 45 per cent in 2020.
Countries like Hungary and Czechia are leading the way in fintech innovation, with blockchain-based payment systems and AI-driven loan approvals becoming commonplace. This shift has not only streamlined banking but also opened new avenues for investment in fintech platforms.
In logistics, while Russia’s war on Ukraine has bolstered Central and Eastern Europe’s role in the global supply chain, it has highlighted both vulnerabilities and resilience within the region. Initially, the conflict caused significant disruptions in logistics and supply routes, particularly for industries heavily reliant on Ukrainian and Russian resources, such as energy and raw materials.
The immediate impacts included interruptions in the delivery of goods, increased costs due to rerouted supply chains, and a general atmosphere of uncertainty affecting investment and operational decisions. For example, the automotive industry faced challenges due to the scarcity of specific components previously sourced from the region, leading to production delays and increased operational costs.
Beyond the immediate logistical hurdles, the conflict has precipitated broader geopolitical shifts. Sanctions imposed on Russia and countermeasures have disrupted traditional trade routes, prompting businesses and countries in the region to seek alternative suppliers and markets.
This reorientation has accelerated the diversification of supply chains, with companies increasingly exploring options within the region or in other parts of the world less susceptible to geopolitical tensions. This creates a wealth of opportunities for investors.
Government support for digital innovation
Governments across the region are doubling down on digital transformation, providing significant financial and policy support. The EU’s Digital Decade initiative is providing much-needed momentum, but national governments are also stepping up.
The Polish government is pushing development and investment in new technologies, such as additive manufacturing, that will drive Poland’s economy to the next level, and there are grants and other resources available to support innovative research and development (R&D).
According to the European Innovation Scoreboard 2023, Poland is an Emerging Innovator, with the performance at 62.8 per cent of the EU average, and performance increasing at a higher rate than the EU as a whole. Poland spends 1.32 per cent of its GDP on R&D.
Estonia, often regarded as a digital leader, is about to celebrate the 10th anniversary of its enormously successful e-Residency programme, which has registered over 100,000 digital entrepreneurs from 175 countries.
Meanwhile, Lithuania’s ambition to become the fintech hub of the region is backed by its regulatory sandbox, attracting more than two billion euros in foreign investment in just the past two years.
Tech start-ups leading the charge
CEE’s tech ecosystem is flourishing, with several homegrown startups gaining global recognition.
Romania’s UiPath, a leader in robotic process automation (RPA) now listed on the New York Stock Exchange, has become one of the fastest-growing software companies globally.
Poland’s Booksy, an appointment-booking platform, has expanded to the US and beyond, securing over 120 million US dollars in funding.
Estonia’s Bolt, valued at over 10 billion euros, is disrupting the ride-hailing and micromobility markets across more than 50 countries. A Lithuanian unicorn, Vinted, is Europe’s go-to marketplace for second-hand clothes.
These success stories demonstrate the scalability and growth potential of CEE start-ups, making them attractive targets for investors seeking to diversify portfolios in high-growth markets.
Supporting female founders: An untapped opportunity
Despite the region’s growth, female founders remain underrepresented. A report by European Women in Venture Capital shows that women-founded start-ups in CEE receive just six per cent of total investment, compared to 11 per cent in Western Europe.
This disparity underscores the need for targeted programmes and funding initiatives to ensure women have equal opportunities in the tech landscape.
Investors who prioritise diversity will not only help close the funding gap but also benefit from the proven success of gender-diverse teams, which research shows outperform non-diverse teams by 15 per cent.
What’s clear is that as CEE continues to evolve into a global tech hub, now is the time for investors to act.
With growing government support, a strong pipeline of tech talent, and a rapidly expanding digital economy, Central and Eastern Europe is one of the world’s most promising regions for digital investment.
It’s time for investors—beyond those already ‘in-the-know’—to take it seriously.
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