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Research analyst Dániel Cséfalvay: The CEE in 2023 under a political risk lens

About the author: Dániel graduated from the Central European University with an MA in International Relations, focusing on conflicts and security. He has political risk experience from Oxford Analytica, Horizon Intelligence, and London Politica. His research focuses on Middle Eastern and Central-Eastern European politics.

Political risks in Central and Eastern Europe

With crucial elections ahead and the ongoing Russian invasion of Ukraine, the CEE region is facing a turbulent year. In the following article, I highlight why in 2023, political risk analysis in the CEE region will be crucial.

The term political risk often invokes a narrow image of an insurgent group posing risk to a government. In this sense, the CEE is generally considered to be a stable region. However, political risks cover a much wider area. It is crucial to acknowledge the existence of numerous other risks such as regulatory, reputational, and government interference or expropriation, in addition to political violence. These are often the most significant indicators to consider for political stability, as well as the business environment. Similarly in the CEE, the regulatory environment sets the tone for investment attractiveness, which is in turn influenced by political risks. Therefore, the diligent analysis of these risks is key to understanding the political nuances and successful business.

Rather than viewing political risk as a source of exact future predictions, I would describe it as a way to provide clarity in a chaotic political sphere by providing an understanding of key actors and their connections, unraveling spheres of influence, or researching regulations and legislation affecting businesses. Instead of predicting the future, having a well-researched political risk analysis report offers businesses coherence, a degree of clarity, and guidelines for their consequent decisions.

Central and Eastern Europe: The Outlook for 2023

Since Princeps recently published an outlook for 2023 with excellent insights, I will try to avoid repeating this analysis and focus on different events.

After a turbulent 2022, to say the least, the expectations for 2023 are unlikely to bring much respite. In 2022, one of the most notable divisions in the CEE occurred after the Russian invasion of Ukraine. The vastly different stances taken by Hungary and Poland caused a rift in a seemingly strong alliance. Both countries engaged in intense negotiations to appease the EU and unfreeze their allocated resources from the EU structural funds and the EU post-pandemic recovery fund. In 2023, the fiscal and monetary policy of both countries will continue to be tested by the energy crisis, cost of living crisis, and inflation, in addition to ongoing efforts of addressing the concerns of the EU with the rule of law in both Poland and Hungary. As Poland enters a year of parliamentary elections, the rift with Hungary may prove significant to the campaign: while the government is likely to profit from distancing itself from Prime Minister Orbán, it may at the same time need Hungary’s assistance in accessing EU funds.

Furthermore, after a vote of no confidence, a collapsed minority government and a recently failed referendum, Slovakia is most likely headed towards snap elections. The early elections are planned for September 30, 2023, rather than their original date in February of the following year, but the proposal is still awaiting parliamentary approval. With the current political climate in Slovakia, these snap elections are likely to bring significant political change. It is too early to draw definite conclusions, but the lasting dissatisfaction with the former governments is likely to translate into a significant domestic political shift. The trends following the anti-government sentiment are presently set to see a comeback of Robert Fico’s social-democratic party Smer SD, currently not too far behind the leading Peter Pellegrini’s social democrats of Hlas SD, many of whose members are formerly of Smer SD. Significant are also the gains of PS – Progressive Slovakia, a left-leaning liberal party, and the far-right Republika. These trends highlight the deep discontent with the government that stands to massively lose support in the snap elections if these tendencies continue.

Main takeaways

To conclude, in 2023 the region of Central Eastern Europe looks to be dealing with many issues that over-spilled from 2022, primarily understanding their roles and responsibilities towards Ukraine but also positioning themselves closer to the EU and the West, which is likely to render domestic political changes and consequent shifts in their foreign policy. 2023 will be the year for setting the political direction for the upcoming years, likely showing how the region of CEE battered by crises will react to these challenges. Navigating any business in the CEE region will be even more difficult than before and relying on well-researched and comprehensive political risk analysis will become even more significant to keep up with the developments.

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