Artificial intelligence (AI) is becoming one of the key drivers of innovation and competitiveness in the global economy. CEE Digital's report on AI collaboration ¹ emphasizes that Central and Eastern Europe must work together to harness AI's transformative potential. The Central and Eastern Europe (CEE) region, with its dynamic economic development and growing technological potential, can play a significant role in this process. The European Commission's AI Strategy ² positions the region as crucial for Europe's digital sovereignty and competitive advantage. This analysis aims to explore the development potential of AI in the CEE area as an accelerator of innovation and competitiveness for Western Europe. We will examine both the positive and negative aspects of the CEE region for the business environment and define regional challenges, including the limitation of American chip exports and potential consequences for the region.

Potential of AI in CEE

The dynamic development of artificial intelligence in Central and Eastern Europe is transforming the region into an important center of innovation and competitiveness. In the Czech Republic, AI is used to optimize production processes and energy management ³, leading to increased efficiency and reduced operational costs. Companies like CEZ Group are investing in AI technologies to monitor and predict energy consumption, contributing to sustainable energy development. The Hungarian startup AImotive, specializing in autonomous vehicles, has attracted significant investments from global technology companies and venture capital funds ⁴. The Romanian company UiPath offers international tools that help businesses automate repetitive front- and back-office tasks ⁴. Infobip, a Croatian IT and telecommunications company, offers cloud-based communication solutions ⁴ such as SMS, voice messages, push notifications, and emails. The Bulgarian company Payhawk has developed advanced solutions for expense management and bill automation ⁴, allowing enterprises to monitor expenses in real-time, automatically match receipts to transactions, and automate accounting processes. The company is known for its innovative approach to managing corporate credits and expenses. These are just a few examples showcasing the developmental potential of this area.

Domino Effect

Why did we decide to examine the potential of the AI sector in the CEE region? We notice that the development of this sector in the discussed macroeconomic environment has the potential to trigger a domino effect, stimulating the development of other economic sectors. AI can be applied across a wide range of fields, such as medicine, education, finance, industry, transport, and logistics ⁵. The increased use of AI in these sectors can lead to enhanced efficiency, reduced costs, and the creation of new products and services. For instance, in medicine, AI can be used for diagnosing diseases, developing new therapies, and personalizing treatment ⁵. In education, advanced tools can create personalized learning programs and automate administrative tasks, while in industry, AI can successfully optimize production processes and automate tasks. Moreover, the development of AI can attract investments and talent to the region ⁶, further contributing to its economic growth. Technology companies from around the world may be interested in investing in CEE due to the availability of a qualified workforce and a rapidly growing startup ecosystem ⁴.

Regional Opportunities and Challenges

The Central and Eastern Europe area offers many advantages for the business environment conducive to AI development. One of them is low unemployment, characteristic of many CEE countries. Furthermore, competitive labor costs, relatively lower than in Western Europe, are attractive for investors seeking more economical locations for their research and development centers and operational bases. Importantly, the region also boasts a strong pool of specialists (including world-class ones), especially in IT and software engineering. The local potential in this field has roots in the tradition of technical education, developed over decades. High-quality education in STEM (science, technology, engineering, and mathematics) disciplines provides the foundation for a qualified workforce. Countries like Poland, Czech Republic, and Hungary have leading technical universities educating top-level engineers and programmers. The OECD AI Policy Observatory ⁷ highlights how these countries have integrated AI into their national innovation strategies. Training programs and educational initiatives also support the development of AI-related skills, contributing to the growth of specialists in this field. Additionally, the rapidly developing startup ecosystem in CEE creates favorable conditions for the development of innovative companies. Many regional 'unicorns' focus on creating innovative solutions applicable in various industries worldwide. Lastly, in recent years, there has been an increase in AI investments in the CEE region, indicating the growing potential of this sector.

Government AI Readiness Index 2024 - CEE Leaders

According to the Government AI Readiness Index 2024 by Oxford Insights ⁸, Estonia leads the CEE region with a score of 70.86, placing it among the top 25 globally. Czech Republic, Poland, Slovenia, and Hungary follow closely, demonstrating the region's commitment to building AI-ready governments. These rankings reflect investments in digital infrastructure, data governance frameworks, and public sector AI adoption.

Women in ICT Specialists - CEE Leaders (%)

The European Commission's Digital Decade Report 2024 ⁹ notes that CEE countries are making significant progress in promoting women in ICT roles. Bulgaria leads with 29% of ICT specialists being women, followed by Estonia at 27% and Romania at 26%, all exceeding the EU average. This diversity in talent is crucial for building inclusive AI ecosystems.

AI Technology Adoption by Country (%)

Nevertheless, it is essential to note that the CEE region is not free from challenges that can hinder its development. Limited access to capital, especially in the early stages of startup development, is one such constraint. Although infrastructure is improving, the World Bank's Digital Dividends in Europe and Central Asia report ¹⁰ indicates the region still needs to catch up in terms of availability and quality. High-quality telecommunications infrastructure and access to high-speed internet are crucial for developing technology companies. Likewise, investments in stable energy sources, heavily consumed by data centers, are necessary. Deloitte's Tech Trends 2024 for Central Europe ¹¹ emphasizes that the CEE area also struggles with a lack of an innovation culture, effectively hindering the development of startups and new technologies. Limited collaboration between the public and private sectors in research and development also poses a structural development barrier. Finally, this range of challenges results in the unfortunate phenomenon of a so-called 'brain drain.' More often than not, qualified workers emigrate in search of better developmental opportunities and financing, presenting a significant challenge for the development of the entire area and the local labor market.

Startup Landscape in CEE

In this context, it is worth mentioning the "State of AI in CEE 2024" report by The Recursive ¹², which analyzes the AI landscape in Central and Eastern Europe, covering over 1350 startups, investors, and industry entities. The publication shows that despite the slowdown in the VC market, AI investments in the region remain high. Since 2021, €5 billion has been invested, and by the end of August 2024, AI funding amounted to €593 million, with a chance of surpassing last year's €850 million. 11.VC's State of Venture Capital in CEE 2024 ⁶ confirms this momentum, reporting €2.3 billion raised across all sectors in the region. Leaders in investment are Poland, Greece, and Croatia, accounting for over 75% of funding.

CEE AI Funding Trends 2020-2024 (€ millions)

The funding trend shows remarkable growth from 2020 to 2022, followed by a market correction in 2023-2024, reflecting global VC market dynamics. McKinsey's State of AI 2024 ⁵ reports that 72% of organizations globally now use AI, creating unprecedented demand for AI solutions that CEE startups are well-positioned to provide.

CEE AI Funding 2021-2024 (€ millions)

The CEE region is attracting attention from Western investors, including giants like Andreessen Horowitz and Toyota, who have invested in local startups. European investors like Atomico are also engaging in the region. Dealroom.co's Central and Eastern European Startups 2024 report ⁴ highlights the emergence of vertical AI development, specializing in industry-specific solutions. The AI media sector secured over €120 million, with AI in healthcare attaining similar amounts. McKinsey's analysis of Europe's AI opportunity ¹³ suggests that healthcare, cybersecurity, and finance will become main areas of AI innovation in CEE. Although there is a lack of significant acquisitions, international technology leaders are making strategic acquisitions in the region.

AI Investment Distribution by Sector in CEE

CEE AI Investment Leaders 2024 by Country

The cumulative investment picture reveals the region's sustained growth trajectory, reaching over €5 billion by 2024:

Cumulative VC Investment in CEE AI 2020-2024 (€ billions)

Despite considerable VC interest, the development of high-quality startups does not match the available funding. The Global Startup Ecosystem Report 2024 by Startup Genome ¹⁴ ranks several CEE cities among emerging tech hubs. The report's authors emphasize that governments and ecosystem leaders should focus on attracting global networks, resources, and talents. The region's strengths include technical talent, cost-effectiveness, and a dynamic culture, attracting Western founders. The AI ecosystem in CEE is at a pivotal moment, with strong momentum and growing interest from global investors.

Poland's Role as a Development Leader on the European AI Map

Poland stands out among other CEE countries and could become a central AI development hub in the region if well-managed. Warsaw attracts international investments, demonstrated by companies like Google and Microsoft opening research and development centers there, contributing to strengthening the national AI ecosystem. Poland's attractiveness is mainly due to a high percentage of IT specialists and talents. Poland's National AI Strategy, coordinated by the IDEAS NCBR initiative ¹⁵, demonstrates the government's commitment to becoming a European AI leader through research infrastructure, talent development, and public-private partnerships.

It is worth noting that Poland has its language model, Bielik v2, and is working on another large language model, PLLuM (Polish Large Language Model), which will be fully open and free. The Stack Overflow Developer Survey 2024 ¹⁶ shows that Polish developers are among the most active in AI and machine learning adoption globally. Here are some examples of successful Polish startups:

Synerise is a software company specializing in big data and artificial intelligence. They develop and license platforms that analyze and interpret behavioral data, automate business processes, and provide actionable insights for organizations. Synerise's solutions are used in customer relationship management, business analytics, and other areas.

Vasco AI is known for portable translation devices supporting over 112 languages. These devices help users communicate effectively in various situations like travel, business, and daily interactions. Vasco AI offers features such as voice translation, photo translation, and text translation, making understanding and being understood easier in different languages.

Eleven Labs is a Polish startup specializing in AI-based text-to-speech technology. Their platform can generate highly realistic speech resembling human language in 32 languages, making it useful for audiobooks, voice recordings in films, and more. They received significant recognition and funding, valuing the company at over $3 billion.

DocPlanner, known as "ZnanyLekarz," is a global healthcare platform operating in 13 countries, helping patients find and schedule appointments with doctors. They also assist doctors in managing their practices and building their online reputation. DocPlanner operates in many countries and is known for comprehensive solutions for both patients and healthcare providers.

Booksy is a scheduling and booking platform for small businesses, including salons and spas. It enables customers to book appointments online and helps companies manage their schedules efficiently.

Campus AI focuses on human and AI collaboration, offering a platform for learning and applying AI-related skills. They provide interactive courses, an AI services marketplace, and community programs for gaining practical experience. Their goal is to help individuals and companies effectively integrate AI into their workflow.

Nomagic specializes in smart robotics for e-commerce and retail. Their robotic solutions handle tasks like picking, sorting, and packing items in warehouses. Their goal is to automate repetitive manual tasks, enhancing efficiency and reducing costs. Nomagic collaborates with logistics companies, offering customized solutions.

Sky Engine AI focuses on computer vision and deep learning solutions. They use synthetic data to train AI models, making the process scalable, efficient, and cost-effective. Their solutions aim to harness AI's potential in various applications.

According to the previously mentioned report ¹², Poland dominates funding, with Polish AI startups attracting over €171 million in 2024. Companies like Eleven Labs (€73.6 million), Campus AI (€9.2 million), Nomagic (€8 million), Synerise (€7.8 million), SKY ENGINE AI (€6.4 million), and Edrone (€4.7 million) are at the forefront of investments. Poland is also leading the region in the number of new VC funds.

Top Polish AI Startups Funding 2024 (€ millions)

On the other hand, the "Unlocking Europe's AI Potential in the Digital Decade" report from Amazon Web Services ¹⁷, published in 2024, emphasizes that AI adoption in Poland is growing fastest in the European Union ¹⁸, potentially contributing an additional PLN 576 billion to the Polish economy by 2030. Currently, 30% of Polish companies implement AI solutions, representing a 36% year-on-year increase. Increased investments, interest in AI technologies, and strong human resources suggest Poland's enormous potential in artificial intelligence.

Blows from the USA: Global Politics and Regional Potential

Just before Donald Trump was inaugurated as the 47th President of the United States, Biden decided to end his term with a bang. The previous administration published the "AI Diffusion Rule" document ¹⁹, effectively restricting the export of advanced artificial intelligence chips to selected countries, including Poland. The new regulations aim to protect the leading position of the United States in AI and prevent adversaries (including China and Russia) from using this technology for military and strategic purposes. Poland and the entire CEE region found themselves on the list of countries subject to partial restrictions - Tier 2 ²⁰, meaning they can import only a limited number of AI chips. This decision will negatively impact the ability of Polish companies and research institutions to develop advanced AI technologies, potentially weakening Poland's (and the region's) competitiveness on the international stage. These regulations will take effect before the end of a 120-day public consultation period ²⁰ and currently have a temporary nature. Poland's Minister of Digital Affairs, Krzysztof Gawkowski, remarked ²¹ that the White House's decision is "incomprehensible and not based on any substantive reasons." The foreign ministers of Latvia, Estonia, and Lithuania stated in a joint declaration ²⁰ that it undermines the "development of our national AI ecosystems." Vice-President of the European Commission Henna Virkkunen and Commissioner Maroš Šefčovič also issued a joint statement ²² on the matter: "We believe it is in the economic and security interest of the USA for the EU to buy advanced AI chips from the USA without restrictions: we work closely, particularly in security, and constitute an economic opportunity, not a security threat, for the USA… We eagerly await constructive cooperation with the next US administration. We are confident that we can find a way to maintain a safe transatlantic supply chain for AI technology and super computers, benefiting our businesses and citizens on both sides of the Atlantic." It is worth noting that the future of these regulations may change depending on the approach of Trump's new administration. Therefore, the fate of the CEE region is not yet sealed, but the USA's stance serves as a cautionary signal about how major political players position us in the hard game for dominance.

Another significant political blow to the CEE development in AI is the recent announcement by Trump of private sector investment in AI infrastructure in the United States, amounting to up to $500 billion ²³. Companies like OpenAI, SoftBank, and Oracle plan a joint venture called Stargate ²³, aimed at building data centers and creating over 100,000 jobs. The first data centers are already under construction in Texas ²³. The investment intends to strengthen the US position in AI technology and surpass rival countries. What does this mean for us? The announced funding scale of this initiative significantly widens the gap between global players and the economies aspiring to compete in the AI field. Consequently, we may be stifled, naturally accelerating the brain drain of IT talents.

Summary

Central and Eastern Europe is undergoing a quiet technological revolution, becoming a driving force of innovation. Companies like Romanian UiPath, Polish Docplanner, Croatian Infobip, and Bulgarian Payhawk demonstrate that AI can drive progress in various sectors. The region, with many engineers and STEM graduates, provides a solid foundation for the technological sector's growth. Rising company valuations and increased non-EU investment indicate the region's growing attractiveness. The region is rapidly developing as a center of AI talent, recording a 7.2% increase in AI specialists since 2023. The area offers increasing opportunities and expands the talent pool, particularly in machine learning, computer vision, and robotics.

Nevertheless, the region still faces challenges such as low research funding compared to leading global players, lesser private sector involvement, and a research and development deficit. The CSIS EU AI Continent Action Plan ²⁴ emphasizes the need for coordinated European AI development strategy. Although local initiatives strive to reduce the skill gap, broader strategies are necessary to effectively develop and attract AI talent. At the European level, activities like "Strategic Planning for AI Skills Development in Europe" aim to reduce this gap, but there is a lack of a coherent strategy on a broader level that would help nurture and attract AI talent. In response to these challenges, many CEE countries focus on AI-related research initiatives like Poland's IDEAS NCBR ¹⁵ and Bulgaria's INSAIT ²⁵, the latter backed by ETH Zurich, AWS, Google, and DeepMind. The Czech Republic's National AI Strategy 2030 ³ and Romania's AI Strategy 2024-2027 ²⁶ demonstrate national commitments to becoming AI leaders through investments in educational and training programs.

The EU AI Act (Regulation 2024/1689)²⁷, the world's first comprehensive AI legislation, provides a regulatory framework that benefits CEE countries by ensuring ethical AI development while promoting innovation. PwC's Digital Trust Insights 2024 for CEE ²⁸ shows that trust in AI systems is growing, with companies increasingly implementing governance frameworks. To fully harness AI's potential, the region's countries should focus on actions that help retain talent and increase the area's attractiveness for foreign investment, e.g., by improving infrastructure and reducing regulatory uncertainty. Faced with these challenges, the CEE region must act quickly to leverage AI's potential; otherwise, it risks losing talent.

From Innovation Hubs to Global Competitors: AI's Impact on Central and Eastern Europe