CNBC Business | austria

austria

With recent elections likely to produce another coalition, there is,  says Justin Keay, at least one thing the parties agree on: Centrope

Veteran observers of Austria’s fractured political scene greeted the results of the 28 September election with weary resignation. Although there were major gains for the far right parties (the Freedom Party and Jörg Haider’s breakaway Alliance for Austria’s Future), most expect another coalition of the parties that have governed Austria since the war, but who polled their lowest results ever,  the Social Democrats and the People’s Party.  

“I would expect them to negotiate long and hard but to agree to a different allocation of ministries so this government can function more effectively than its predecessor. I would also imagine the rightist parties would be happier in opposition rather than having to dilute their doctrines,” says Grace Annan, Austria analyst with US consultancy Global Insight.  

However, she argues that, whichever government emerges, two priorities will govern decision-making. The first will be continuing the social welfare policies of its predecessor, which prior to the election passed a bill aimed at improving living conditions and support for low- and medium-paid workers, and reducing health and tuition fees. The second will be continuing the focus on Centrope, the central European business intiative, with the aim of consolidating Vienna’s position as a gateway to eastern Europe and boosting FDI.  

Centrope, initiated in the early years of the decade, has cross-party support with even the far-right parties seeing Hungary, Slovakia and the Czech Republic as key partners within a revived central European ideal. With higher government spending encouraging increased FDI, there is recognition that Centrope is a more compelling entity for investors than merely Austria’s 8.5 million consumers.  

As recent investments have proved. BMW announced plans to relocate its Austrian sales and distribution centre from Salzburg to Vienna because of the capital’s strong and growing links to central Europe, while US door maker Jeld-Wen chose the Styria region, in Austria’s south-east, as its European HQ, for the same reasons. With Austria also committed to reinventing itself as a hub for high-tech, knowledge-based manufacturing — aided by its 13 universities with applied science centres — observers expect more such investments. The interest currently being shown in Austrian Airlines from rivals also has a central European element – virtually since the Wall came down in 1989, the national airline has sold itself to business travellers as having the best connections to the region.  

However, if Austria is to retain this track record, it will have to ensure that bureaucracy and costs stay under control. Keen to rebut the image of Austria as a high cost location, the national agency Invest in Austria is at pains to point out that between 1991 and 2001 unit labour costs actually fell 11.8% as a result of rising productivity. Taxes have been altered to benefit investment: corporate tax is a flat 25% while Vienna recently scrapped inheritance tax to help safeguard the future for family-owned businesses. Meanwhile, Transparency International’s Corruption Perceptions Index sees an improvement in Austria’s already high position, from 15 to 12; the next highest central European country, the Czech Republic, is well-behind in 45th position.  

“Centrope has been a good deal for Austria, so expect the new government to do everything it can to encourage its development,” says Annan.