Europe needs to step up competitiveness, innovation, executives argue at Bucharest event

Europe needs to gain ground when it comes to productivity and the area's ability to innovate, executives speaking at Economist Impact's Fourth Romanian Business & Investment Roundtable event in Bucharest argued.

The productivity growth on the continent has lagged behind that of the US since 1995, David Born, director with the Roland Berger Institute, explained. Only Germany and France can keep up with the US regarding productivity in absolute terms. Countries in SEE have lower productivity, especially compared to the US, but the productivity growth, especially in Romania, has been significant over the past years. Still, the regional growth in productivity does not translate to Europe as a whole, Born said.

The continent is facing several challenges, including the diminishing working-age population. "By producing more output with the same input, we can mitigate that problem. But with the low productivity growth, we are instead exacerbating the problem," he argued. "Europe should increase competition in its market by getting rid of red tape that stifles competition, not only at European level but also at national and local level. We need more capital to allow our companies to grow. That requires a much more unified capital market across the union."

Bringing in the perspective of the telecom sector, Achilleas Kanaris, CEO of Vodafone Romania, voiced his concern with the pace at which Europe was losing its competitiveness. "Technology evolution is a blessing for those that embrace it, but it is a curse for those that don't. Unfortunately, with the introduction of AI and the pace with which I see AI transforming the way we run our businesses, the gap between the competitiveness of economies such as the US and China, and Europe is going to increase at an accelerated pace," he said.

He pointed to the need to act very quickly with respect to updating industrial policies. At the same time, while technologies like AI and what it can do in innovation give reason for optimism, he argued that speed is of the essence. "We are already seeing the contribution of Europe's GDP towards global GDP falling. We used to be at 25% a few years ago. By 2028, the forecast is the EU will be contributing 15% of the global GDP," Kanaris said. "We don't have the luxury of time anymore, and we need to act very quickly."

The CEO argued that regulation in Europe has reached a point where it is stifling innovation. "The telecommunication sector in Europe in the 1990s and early 2000s used to be the crown jewel, if you like, of communications globally, with valuations, investments. At the moment, unfortunately, we are trailing the US and China by miles. Valuations of telecom operators have declined more than 50%, with the exception of one player, of which 80% of the value is driven by US investment."