Business and the environment: rise of Berlin generates a construction boom around the Baltic

European Business Review

ISSN: 0955-534X

Article publication date: 1 June 2000




Orszag Land, T. (2000), "Business and the environment: rise of Berlin generates a construction boom around the Baltic", European Business Review, Vol. 12 No. 3.



Emerald Group Publishing Limited

Copyright © 2000, MCB UP Limited

Business and the environment: rise of Berlin generates a construction boom around the Baltic

Thomas Orszag Land

Keywords The Baltic States, Berlin, Environment, Investment, Transport

The Baltic is showing signs of recovery - thanks to a transport infrastructure investment programme and the decline of the polluting industries built by the region's former communist masters (From Thomas Orszag-Land in Berlin).

An aggressive investment programme around the virtually enclosed Baltic Sea, promoted by the economic restructuring of post-communist Europe, may at last bring much welcome relief to the abused marine environment. The trend generated by the spectacular rise of Berlin will benefit many industries as well as the environment.

Many billions of dollars are now committed by the world's top financial institutions to harbours as well as road and rail infrastructure serving the region. The biggest participants in the investment programme include the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Nordic Investment Bank, the Nordic Environment Finance Corporation and the World Bank.

The building boom is accelerated by the expansion of Berlin which is to regain its position as the national capital of Germany and the focus of the country's biggest industrial region by the turn of the century. It is also promoted by the decline of the obsolete industries in the formerly communist dominated countries around the highly polluted Baltic.

This is only part of a much wider picture.

The European Commission, the Brussels based administrative headquarters of the European Union (EU), reckons that the whole of formerly communist-dominated East-Central Europe must invest close to $100 billion in the transport industry by the year 2015 in order to catch up with the standards of the West.

The principle of an integrated "outline transport network" for the region was recently endorsed at a Vienna conference attended by senior officials representing the 11 prospective and 15 current members of the EU. The network will link 18,000km of roads, 20,000km of rail, 38 airports, 13 seaports and 49 riverports. It will include ten pan-European transport corridors such as road and rail routes between Warsaw and Helsinki, and Berlin and Moscow.

Major beneficiaries of the trend may well include enterprises in shipping, energy, trade, insurance, finance, manufacturing and construction. And the value to the whole of mankind of improved ecological conditions in the Baltic is quite beyond measure.

For many years, the Baltic Sea served as a receptacle for the untreated sewage and industrial wastewater generated by the notoriously polluting industries and population centres under communist rule, such as Upper Silesia in Poland and Ostrava in the Czech Republic. Metal concentrations in the region have increased five-fold over the last 50 years. Fish from many coastal areas are now blacklisted because they contain too much memory.

A report compiled for the Helsinki Commission for the Protection of the Baltic Marine Environment - better known as the Helsinki Commission (Helcom) - records a significant decline of pollution reaching the sun, due largely to the construction of pollution control facilities and the demise of the notoriously inefficient industries of the bygone Soviet command-economy. The accelerating economic transition sweeping the region may well intensify the trend.

Many ports have much to gain, especially in former East Germany, such as Rostock, which is currently engaged in a $2.52 billion investment programme for harbour and inland transport modernisation. But the economic effect of the transfer of Germany's capital from Bonn to Berlin, a consequence of the reunification of the divided two halves of the country after the implosion of Soviet power in 1989, is being felt throughout the Baltic basin housing nearly 80 million people.

The investment trend for the Baltic can be gauged through the success of the north German ports. Their proximity to the markets of Berlin and the surrounding prosperous Brandenburg countryside have led to dramatic industrial expansion fuelled by investment throughout the coastal state of Mecklenburg-West Pomerania in which the ports are situated.

Proposals for the transfer of the German seat of government to Berlin, projected with an estimated cost of $16 billion, were approved by the Bundesrat in a post-unification vote of euphoria in 1991.

The approaching deadline recently prompted a ministerial conference attended by all the Baltic countries to speed up the implementation stage of a long-projected investment programme to relieve environmental pressure on their common sea. The plan originally assembled by Helcon in 1990, calls for more than $20 billion investment over two decades.

Substantial additional investment is attracted to the area, as in the case of Rostock and the other former East German ports, by the lucrative business opportunities generated by the change.

Countries bordering the Baltic and underwriting the bulk of the investment are Germany, Lithuania, Estonia, Latvia, Poland and the Russian Federation, Sweden, Denmark and Finland. In addition, the programme affects areas in Belarus, the Czech Republic, Norway, the Slovak Republic and Ukraine that also drain into the Baltic.

Stephen Lintner, a specialist senior representative of the World Bank attached to the taskforce for the Baltic programme, explains: "The participating financial institutions have worked with the countries of the region to build the programme's priorities into their lending policies, with long-term loans complemented by grants from Germany, the EU as a whole and the Nordic countries".

Germany's enormous economic effort exerted in response to the challenge of reunification is now stimulating a massive revival of its Baltic ports. The four - Wismar, Rostock, Stralsund and Sassnitz - are linked by the north German canal network to Berlin's own commercial waterway, the river Spree. They handle over 23m tonnes of goods, up to 30 per cent on 1992.

After the country's trade with the former Soviet Union collapsed, these eastern German ports were taken over by the Treuhand privatization agency and transformed into companies transferred into private ownership in 1993. The result was the emergence of modern port enterprises modelled on their counterparts in western Germany.

Most impressive is the performance of Rostock handling some 16m tonnes of cargo, a quarter of the volume handled by Hamburg, the latest German port. Rostock's port authority and harbour-related infrastructure were separated. The reorganization and modernization programme, including the construction of access roads, cost $1.52bn. There were initial job losses eventually made up by new commercial enterprises. Rostock has now launched another $1bn programme to improve its canal system.

The trend is followed in neighbouring Poland. The London-based EBRD, which has so far raised over E(c)500m to promote the economic transition process there, recently announced an additional $132m investment in three of the country's Baltic ports. The EBRD as well as the EIB and the EU's Phare programme are also part-financing a $385m investment to modernise the Warsaw-Berlin railway line, part of the expanding trans-European network, cutting 80 minutes from the travelling time and introducing important safety features such as barriers and level crossings.

Authoritative projections issued by the Warsaw administration estimate at $13bn the minimum investment essential to upgrade the national transport infrastructure by the year 2003 when the country hopes to join the EU. A further $30bn investment is earmarked for road, rail, sea and air transport facilities by the year 2015.

Much of the money is expected to be raised from international sources - such as foreign direct investment as well as institutions like the EIB, the long-term financing arm of the EU, and the EBRD. Both of them are heavily involved already in modernizing and expanding Poland's national transport infrastructure.

An internationally financed technology transfer and training programme is already under way to re-define the relationship between the central government, local government, port authorities and the private sector in order to establish an efficient administrative structure for the national transport industry.

Via Baltica, the most important road link between Warsaw and Helsinki through Lithuania, Latvia and Estonia, has been upgraded at a cost of some $50m, with financial assistance raised by the World Bank, the IBRC and the NIB as well as the EU Phare programme.

A new container terminal and the upgrading of the existing ferry terminal are under way at the Lithuanian port of Klaipeda, increasing the harbour's capacity by a third to 30m tonnes. Much of the $180m investment for the project has been raised by the EIB and the World Bank. The EIB earlier assisted the modernisation of the international airport of Vilnius.

Perhaps the most impressive Russian project in the region is a $180m shipping infrastructure development masterplan to revitalize the seaport of St Petersburg. The lion's part of the scheme is nearly to double the port's throughput from 10.5m tonnes of cargo to up to 18m by the turn of the century.

Additional investment generated by the masterplan will result in a substantial improvement in telecommunications as well as the rescue of the rapidly deteriorating famous architecture and monuments of the historic heart of St Petersburg and a reduction of industrial pollution.

With its 5m inhabitants, many factories and inadequate sewage treatment facilities, St Petersburg is one of the 132 pollution hot spots in the Baltic - 35 of them in the West and the rest in formerly communist-dominated Europe - identified by the regional environmental watchdog as in need of the most urgent attention.

Helcom says hundreds of metal finishing enterprises regularly discharge their pollutants into the city's sewers. Apart from directly polluting the Baltic, these discharges disturb treatment processes and municipal sewage works and contaminate the sludge produced there. But the privatization or bankruptcy of state-owned enterprises in the former communist world has already led to measurable savings in industrial pollution.

A jubilant Helcom specialist describes the halving of phosphate and nitrate pollution in the southern waters of the Baltic associated with deoxygenating algal growth. Dietwart Nehring of the German Institute for Baltic Research, who has contributed to the Helcom studies, says the improvement has been so dramatic "I dare hardly tell the world about it".

The progressive recovery of the Baltic is due to the introduction of waste treatment plants as well as tough and intensifying emission controls. Germany is now the region's most environmentally conscious country, Helcom says, with enormous investments committed to the modernisation of waste treatment plants.

Candmium and copper levels have decreased in the Baltic by 5-7 per cent a year. There have been steady decreases in PCB, DDT and hexachlorocyclohexane levels, although they are still several times higher in the Baltic than in the North Sea and the Atlantic Ocean.

Helcom - comprising Germany as well as Denmark, Estonia, the EU, Finland, Latvia, Lithuania, Poland, Sweden and Russia - now intends to phase out discharges of all hazardous substances in the next quarter century. The ultimate aim of the organization is to achieve "close to zero concentrations for man-made synthetic substances" in the marine environment within a generation.

The economic transition of the former communist world could make that possible.

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