BELGRADE, Serbia – If I were young and wealthy and thinking about where my money might grow best over the next 20 years or so, I’m quite confident I’d be setting up shop somewhere in Eastern Europe.
From Estonia up north in the Baltics, to Serbia, down south, here in the Balkans, money and wealth are flowing through the region, often out of view of U.S. investors because these places have three substantial knocks working against them:
- They’re part of the former Soviet Union, which means they’re largely overlooked, ignored, forgotten or misunderstood in the U.S.
- Some of them (the Balkans) have seen violent civil wars over the last few decades, and most Americans don’t know the Balkans from the Baltics and, so, just dump the entire region into the same bucket.
- Perceptions (not unwarranted) of bribery and corruption across the region … though, to be fair, there are examples where countries are getting it right. Slovenia, once a part of Yugoslavia, has a bribery rate of just 3%, on par with Germany, Belgium and Spain. Poland, perhaps the country closest to crossing over to the West, economically speaking, is at 7%. (The data are according to the most recent research from Transparency International.)
Overlooking these countries is a shame, because, despite the challenges that certainly do exist, the opportunities in many Eastern European countries are low-hanging fruit.
I’ve spent a great deal of time in Romania, for instance (something on the order of 30 trips). As I routinely do, I walk all over the place because it’s the best way to get a feel for the location, the people, their habits, what they buy, where they shop, etc. – all the traits I want to know about as an investor preoccupied with the rise of the middle class outside the West. The city is a unique dichotomy: part Soviet blandness from the 1960s and 70s (though even that’s becoming kitsch these days), part 18th- and 19th-century Parisian doppelganger. All over the center of the city you find beautiful Neoclassical, Belle Epoque and Art Nouveau facades that once had people calling Bucharest “Paris of the East” because of its wide boulevards and its Parisian appearance. Most of those buildings are desperately in need of a loving hand, but loving hands are beginning to arrive because that’s where a tremendous opportunity resides as investors turn these old buildings into upscale eateries, bars, shops, hotels, apartments, office buildings and the like.
The transformation still has years and years to go, for sure, and there remain an abundance of opportunities. But it’s quite clear to me over the last five or so years of visiting Romania that the pace of interest in revitalizing Bucharest is picking up.
It’s the same, I’m seeing, on this, my first trip to Belgrade.
Over the last two days I have walked 15.3 miles through the Serbian capital, assuming my iPhone’s pedometer is correct. Lots and lots – and lots! – of facades are crumbling and in serious need of repair. But in pockets around the city center that activity is beginning to occur, as the photo above points to. It’s a century-old building that has been completely gutted and modernized, and its facade totally redone. Belgrade is probably a decade to 15 years behind Romania, largely because while most of Eastern Europe was rebuilding and remodeling after the collapse of the Soviet Union, Serbia and its former Yugoslav neighbors were busy killing each other in a series of civil wars across the entirety of the 1990s.
That’s over with now, and Serbia is moving ahead.
Already, the former Yugoslav states of Croatia and Slovenia have joined the European Union, and both have become hugely popular destinations for investment. The EU has confirmed the candidacy of Serbia, along with Montenegro and Macedonia, and, I expect, investment will begin pouring in here, too, particularly into Serbia and Montenegro (which has a gorgeous coastal region that’s showing up on many must-see travel lists).
These countries won’t join the Union for several years, at the earliest, but each is following a road map to accession … and in that is a huge opportunity.
As countries progress toward EU membership, they must complete various “chapters” in the accession process that address everything from governance to finance to societal and legal reforms. Those reforms elevate the country to EU standards – a process that historically has done wonders for improving the local economy and strengthening the local currency.
That’s why getting in now represents such an opportunity. It’s like showing up to the party of the year when the host is still running around in sweatpants and her hair in a bun, the house a mess and the caterer hasn’t arrived. In investment terms, you have to tolerate the mess for some time, but once the big event approaches and arrives, you see your investment begin to pay off. And I’m not talking doubling your money … I’m talking a 10-bagger or more, meaning increasing your investment 10-fold.
You’re buying when the currency is undervalued relative to where it’s headed in time … and you’re buying assets in such a state of disrepair that you can get them at some fairly cheap prices. Invest in the remodel, lease them out, pocket the profits as the accession proceeds … and then make your killing when the countries join the EU and EU companies start flooding in with businesses and governmental offices and employees all looking for a place to own or rent. By then, Belgrade, in particular, will be what Bucharest is today – a much-more cosmopolitan city, with beautifully refurbished, century-old buildings housing galleries and restaurants and apartments.
It will be a Balkan pearl … that today can be had for the price of costume jewelry.