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Is Central Europe an Emerging Market?

28/11/2013 by Aviation Times

Vaclav Havel Airport in Prague

Central Europe is a steady growth market for business aviation with a continuing growth potential. That may be the correct way of describing it. “Emerging Market” is a trendy expression just as “Innovation” has become a trendy word. One cannot draw a zero on a dollar bill and claim it was a 10 dollar bill and then call it monetary innovation or consider it emerging growth in capital assets. One cannot bet on the guess that one has a winning hand just from looking at the own cards. Examining the 68 page “Wealth Report 2012; A Global Perspective On Prime Property And Wealth” by Knight Frank Research/Citi Private Bank, it may be disappointing to find that none of the Central European countries or cities is mentioned for anything and neither now nor in future projections.

Deca and Centa
Who is the clientele for private aviation? Let’s simply say: Millionaires. Well, maybe not. How about Deca-Millionaires? They have 10 million in assets. Can they afford buying an airplane with that amount in assets? How about Centa-Millionaires? The super rich
with $100 million in disposable assets who are more likely to be able to afford buying an aircraft. Now that we have sorted that out, what are HNWI (High Nett Wealth Individuals) and who are UHNWI (U for Ultra). Who cares anyway? It is important to understand right who is what when one goes through the numbers and statements of the wealth reports of the various institutions who are trying to keep track of millionaires and wealth, like WealthInsight, Merrill Lynch, Datamonitor, Boston Consulting Group, Capgemini/RBC , KPMG, Ledbury Research, etc. According to Ledbury Research there are “only” 63,000 centa-millionaires worldwide.

Potential Enough
The London-based wealth consultancy WealthInsight, lists none of the Centralor Eastern European countries among the top ten where millionaires live. As for cities in the world where they live, Moscow is listed as number 20. Knight Frank/Citi suggests that although the concentration of global mega wealth shows an undeniable momentum with the world’s major emerging economies like Brazil, Russia, China, and India, when it comes to a home, education, or health, the familiar places are still drawing the super rich, and in Europe London, Paris, Geneva and Berlin are listed. Isn’t that frustrating not to see at least Prague, Budapest, or Warsaw listed, when one really believes in the strength of Central Europe market? It shouldn’t be. How many millionaire customers can a single business serve anyway? Central Europe maybe relatively small on a global scale, but there is no reason the region cannot flourish. There is ample potential and opportunity.

Music in the Air
According to the research of the investment bank Merrill Lynch, Bulgaria alone has over 10 thousand millionaires and Eastern Europe is one of the three regions with the biggest concentration of millionaires – Latin America and the Middle East are the other two regions. Capgemini /RBC Wealth Management’s World Wealth Report states that Poland saw its number of millionaires fall 7.8 percent however KPMG estimates that the number of centa-millionaires in Russia may increase by 76 percent, a figure that is also found in the Knight Frank/Citi Wealth Report. Generally it is claimed there are more than 65,000 millionaires across Central & Eastern Europe and that Russia has the largest millionaire population. What does this all tell you about CEE? There is music in the air!

M.R. Štefánik Airport (Bratislava Airport)

Transparency and Public Opinion
One wonders where the wealth figurescome from in any case. If one reads Forbes/Societe Generale’s “Emerging Markets; Joining The Global Ranks of Wealth Creators” one finds that when it comes to openness about wealth Central
and Eastern Europe score 3,9 on a scale from 0-10. However, overall transparency seems to be on the rise in Central and Eastern Europe, with Poland and the Czech Republic leading the way. As a result, the Ultra High Nett Wealth Individuals in these countries are more forthcoming and assets are easier to analyze. Actually, their countrymen are beginning to take pride in them. Yet, in some of those countries it is still an up-hill battle for entrepreneurs to convince their fellow citizens that wealth creation is a positive phenomenon. Iordan Mateev, editor of Forbes in Bulgaria points out that the negative perception affects all wealthy individuals. “Even the honest businessmen are not transparent,because the general public hates rich people and believes not one has gotten
rich honestly.” That makes one wonder what the Public Opinion of Private or Business Aviation in Central and Eastern might be. In Western Europe and the USA it is a concern for different reasons.

Well Positioned
None of the Central European countries is considered a major emerging market in the global economy. China and India are considered Tiger Markets. Usually BRIC countries (Brazil, Russia, India, China) are named as emerging markets. Africa is an emerging
continent. Then there are EAGLE countries, the “Next Eleven”, and so on. In more modest terms when looking at the summary of Emerging Markets by various analysts (IMF, FTSE, MSCI, The Economist, S&P, DowJones, BBVA, Colombia University) and excluding
Brazil, Russia, India and China, then Poland and Hungary score quite well, followed by the Czech Republic. Mind that the strong and steadily growing economy of Germany has an impact on the economies of Poland, Hungary and Czech Republic as it is the largest destination for Central European exports. With a strong neighbor to the West, a stabile economy at home, and a major emerging market to the East, the Central European countriesare well positioned and have a good potential for growth.

Warsaw Chopin Airport

Where and Why
When looking at how well private and business aviation are performing, a common mistake is made by what figures to look at. Reports on aircraft manufacturing and statistics of aircraft sales are usually dominating the media. However, nothing flies without an airport. If one is looking for figures that really matter to a geographical area, then get some numbers from airports about movements, where the aircraft are coming from and where they are departing for. It pinpoints how much, where, when, and how often. Still, one element is missing: why? Every passenger flying to a destination goes there for a particular reason. Every passenger arriving on a private aircraft is a potential investor in the region. The impact of business aviation on a region is what counts. The primary  reason for private and business aviation is not to get somewhere fast, but rather to get to a destination for a particular activity which could be business, or could be leisure. Either way, in order to increase the aviation activity, regional economic development,
is crucial. The more development, be it commercial or leisure, the more need for transportation by large and small aluminum tubes with cockpit and wings.

Is Central Europe an “Emerging Market” for Business Aviation?
There are three ways of trying to make a  point. One is based on objective facts like statistics and proven results; facts from the past. Another is based on a subjective way of making things plausible and believable, including collecting opinions of what others think will happen in the future; intelligent guessing. The third option is quoting the Prophecies of Nostradamus; oracle fiction. Serious investors are very careful people. They don’t go by assertions. They want more; at the least they want to see a reliable study. Yet, they know very well that some studies contain multiplier effects which may be categorized as assumptions. So, after having looked at the study, they will still insist on having a due diligence report. Due diligence is a degree of carefulness that a prudent person would exercise as a legitimate relevant standard for establishing liability. What is the serious investor’s philosophy? They don’t believe everything that is said and don’t take anything for granted.

Cdr. Bud Slabbaert