Exploiting the Opportunities of Investing in Central Eastern Europe’s Chemical Industries

The chemical industry in Central Eastern Europe (CEE) is on the rise. Accelerated growth through European Union membership and a new privatization push, combined with world-scale production units and modern facilities, make for attractive business activities.

Opportunities are abundant, although caution must be exercised. Little has been done to free CEE countries from their strong dependence on Russian oil and natural gas sources; the availability of naphtha is scarce, sites are hardly integrated and there are still problems relating to soil and groundwater contamination.

Nevertheless, foreign investors might be able to exploit the given potential – provided they have comprehensive knowledge of the specific domestic conditions and a careful evaluation of the specific investment has been performed.


After EU-accession in May 2004, the Central Eastern European (CEE) chemical industry has moved into the spotlight as a potential target for international investors.

The gap between local consumption and local production is significant and expected to grow – offering attractive prospects for investments in new production capacities. High GDP growth rates and a favorable economic environment are triggering additional demand for chemical products. Moreover, total per capita consumption is still below Western European average. Polish polyethylene consumption, for example, is expected to rise from 10% to about 70% of Western European per capita consumption within the next ten years. Several commodities are already scarce, e.g. plastics, and have to be imported in ever growing quantities. Chemical production is already responding to the increasing demand with growth rates of 8 to 9% p.a. However, in the mid-term, CEE’s production growth will not be sufficient to keep up with the growth in demand. As a consequence, capacities will certainly need to be expanded further.

Looking at the region, several chemical sites offer interesting investment opportunities. Installed plant is technically in good condition, and many CEE sites own competitive, world-scale production units that represent elevated economies of scale. Nonetheless, there is a rising demand for technical facilities of higher quality and advanced technology, which puts pressure on CEE’s chemical industry and thus offers opportunities for Western investors. Since production portfolio structures differ widely among CEE countries, investors must pursue a targeted and customized approach for each country.

Because CEE’s chemical industry focuses on commodities like basic chemicals and plastics, opportunities for downstream production are abundant. Basic chemicals for specialties production are available and offer a good and competitive base for investors.

It seems important to mention that the current situation is strongly de- termined by privatization approaches in CEE countries. Poland and the Czech Republic, in par- ticular, are forcing special privatization concepts for the chemical industry and offer unique opportunities for investors to acquire competitive production units or even whole sites.

Investors can exploit these investment opportunities, but should be aware that current growth dynamics are temporary and several investments are already on the way. Investors there- fore need to develop a clear forecast for the industry’s development in the region and to position themselves accordingly by defining their own strategic approach. But the window of opportunities is getting smaller continuously, and investors are urged to act soon.


Potential investors should be aware that a number of obstacles have to be overcome.

First of all, CEE countries suffer major feedstock bottlenecks. Especially ethylene and propylene are in short supply. To meet the increasing demand for these basic chemicals, additional cracker capacities are indispensable.

However, even naphtha, as feedstock for crackers, is scarce. To allow further growth, CEE not only needs additional cracker capacities but also additional cracker feedstock, be it naphtha or gas. The basic and crucial hurdle for CEE investors is the shortage of various raw materials or single-source-dependence. The strong growth in plastics production is already being jeopardized by the scarcity of ethylene feedstock, while naphtha, the source for ethylene production, is hardly available. Further expansion in the industry is at risk if feedstock shortage cannot be overcome.

Supply with basic feedstock is critical. Oil and gas supplies are currently monopolized by Russia, and alternative sources can only be tapped in the mid- term or even long-term. Thus, the industry depends on a single source that may be subject to political developments. Furthermore, this monopoly pushes up feedstock prices, a crucial drawback in this feedstock-cost intensive business. In the future, production hold-ups are not unlikely. The chemical industry would normally shy away from exclusive dependencies of this kind.

Another big issue is that, unlike the industry standard, petrochemical produc- tion flows in CEE are hardly integrated and productions steps are often dis- tributed among different geographic locations. This results in reduced produc- tivity and a less competitive cost position. CEE lacks an extensive ethylene pipeline network, and only a few locations offer necessary ethylene feedstock at competitive prices. In general, the reliability of feedstock supplies does not always fulfill Western investors’ expectations. This causes inefficiency and cost disadvantages.

Investors in the chemical industry must bear in mind that secured access to feedstock and integrated sites may be crucial and is probably one of the most vital competitive factors in the mid-term.


Investors can take part in the prospering development in Central Eastern Europe and can overcome the existing impediments. Investments in carefully selected sites and production units will make it possible to exploit the market

and acquire a leading competitive position. Building up new, world-scale units can cut costs to a new low level. Investors tackling the market need detailed knowledge about site structures and the specific local circumstances. Different privatization approaches go hand in hand with specific political situations.

Union power differs from country to country and legal issues will be treated in different ways. A very critical issue, namely the possibility of splitting-up of sites and separately purchasing single production units, may not be covered by existing privatization law and will therefore be difficult to enforce. Even then, it might be favorable to invest in new production units by taking advantage of the existing infrastructure.

Investing in a CEE site should generally start with the evaluation of the existing infrastructural conditions, feedstock issues and production flow aspects. Privatization approaches of each single country do not always include well- defined infrastructure concepts. Services such as utilities, logistics and security are crucial for the success of a chemical investment and therefore need special consideration and attention. A competitive infrastructure is often the key to acquiring a leading competitive position in the chemical industry. The com- plexity arising from multi-owner sites exacerbates the challenges posed by infrastructure issues. Proven infrastructure-management and organization models to solve these issues already exist, especially in Eastern Germany. Foreign investors should ensure the implementation of such models when investing in existing chemical sites in Central Eastern Europe.

Getting access to potential investment sites can be challenging. Whether it is better to communicate with the desired site directly or through the authorities depends strongly on the specific domestic situation, an issue that is seemingly fairly dynamic and may change on a daily basis. To succeed, therefore, it is crucial to utilize the best communication channels and to look for experienced local support while approaching the targeted site.

Central Eastern Europe offers great business opportunities. However, it will be crucial to approach those opportunities in a way that is specifically adapted to the local situation, and to be aware that the timeframe for successful action is limited.