1. Too west, too small, too Balkans

in Balkans 2019 · Crisis 2019 · EN · Europe 2019 · Nation 2019 · Politics 2019 127 views / 10 comments
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GEOMETR.IT  intellinews.com

* If a thing is worth doing, it is worth doing well. If it is worth having, it is worth waiting for. If it is worth attaining, it is worth fighting for. If it is worth experiencing, it is worth putting aside time for. Oscar Wilde

Central Europe has been enjoying a boom for the last few years driven by investment into export-oriented sectors. The region’s relatively low costs, high skills base and its proximity to Germany and other West European markets make it a highly attractive investment destination, especially for big carmakers and components manufacturing. But the fast pace of growth cannot continue. Countries in the region are starting to experience serious labour shortages. The boom has passed its peak and all the economies of the region are going to have to reinvent themselves once again.

  • A raft of statistics recently released in the region already shows the pinch setting in. Unemployment in the Visegrad countries has plummeted to levels not seen since immediately after the collapse of communism nearly three decades ago.
  • Wages are rising to record levels. And the slowdown isn’t limited to Central Europe; Southeast Europe’s largest economy Romania had the fastest growing labour costs in the EU in 4Q18, and there are reports of a tightening labour market in fellow EU member Bulgaria.

The magic recipe of low costs and high productivity is wearing off as the Central European economies emerge leading investors to start to look past Central Europe in the never-ending quest to find new, cheaper destinations. Cheap labour flooding in from a collapsed Ukrainian economy has brought some temporary relief – a fifth of Ukraine’s workforce is now overseas in the EU looking for work, 2mn of which are in Poland alone – but this won’t last forever.

The obvious place to go is to fan out southeast towards Romania and Bulgaria, then perhaps further afield to the Western Balkans countries, all of which are aspiring EU members. Arguably, the prospect of EU accession is the single most important factor driving reforms in the former communist countries.

Certainly the only strategy that has been a stand-out success for the former socialist block countries has been a very simple one:

  • join the EU. States have to demonstrate sufficient reforms and democratisation to secure candidate status, then go through the lengthy accession negotiation process that comprises dozens of chapters on areas from movement of goods and labour, to agricultural policy to the judiciary.
  • The pay off is off-the-shelf functioning institutions, huge grants for infrastructure investment and unfettered access to one of the largest and richest markets on the planet.

This isn’t to say EU accession is a panacea to all the problems faced by the post-communist economies. “There wasn’t a transformational moment when the first wave countries from CEE joined the EU. There were a lot of problems that didn’t disappear on accession — corruption, rule of law and so on,” says Cvete Koneska, associate director at specialist global risk consultancy Control Risks, in an interview with bne IntelliNews. However, she adds, “I still think that if a West European investor looks at two markets where all else is equal and one is an EU member state, they probably would choose the member state.”

The long road to accession

The violent breakup of Yugoslavia caused the fortunes of its successor states to diverge dramatically. While Slovenia was among the first wave of entrants to the EU from the former eastern bloc countries, it took the best part of another decade for Croatia to join – and the remaining countries from the region are still chasing membership.

Serbia and Montenegro are the closest, having opened negotiations several years ago, and the tentative accession target date of 2025 was set out in the European Commission’s new strategy published in 2018 with the aim of revitalising the enlargement process.

Previously, enlargement had slowed after Croatia’s entry in 2013, and observers noted worrying backsliding in democratisation in the region and the emergence of increasingly authoritarian local leaders as hopes of accession faded. Despite being preoccupied first by the migration crisis and more recently Brexit, EU officials are now devoting more attention to the Western Balkans countries. For some countries, especially those early in the process, more may be needed.

  • “In general the EU is an important institutional anchor for the Western Balkans, but only as long as the likelihood of accession is still there.
  • Probably at the moment people have the feeling that not a lot of changes are being made, and the EU certainly could support the efforts of those countries to take over the acquis communautaire by increasing support for investment, for example in infrastructure and state capacities,” said Richard Grieveson, economist at the Vienna Institute for International Economic Studies (wiiw), in a webinar on March 27.
  • Many complex issues still need to be resolved even among those states closest to accession. Serbia’s unresolved conflict with Kosovo is stalling its progress, while Montenegro is struggling with corruption and organised crime.
  • Among the other would-be EU members from the region, both Albania and Macedonia are candidates and hope to get the nod for accession negotiations to start this summer. Bosnia hopes to get candidate status soon, but political infighting and a gapping power vacuum that appeared following the October 2018 general election are holding it back.
  • Kosovo is the furthest off from obtaining candidate status, as five EU members do not recognise it as an independent state.

Even with EU accession as a far off prospect, there have been a significant number of investments into the Western Balkans by international manufacturers, even though volumes are for the most part small compared to those in CEE.

Italian carmaker Fiat usually takes the top spot among Serbian exporters, and is a longstanding investor in the country, while in recent months new factories were opened in Serbia by the US’s Amphenol Automotive Technologies, fellow auto-components producer from the UK Delphi, and Calzedonia, an Italian producer of socks, bathing suits and underwear. Announcements of new investments were also made by Chinese car-parts producer Minth, German automotive cable manufacturer Leoni and — from Serbia’s near neighbourhood — Slovenian household appliance Gorenje has shifted some of its production to Serbia.

North Macedonia (formerly Macedonia) aggressively pursued export-oriented foreign direct investment (FDI) for years under the previous government that was in power from 2006 to 2016. It’s too early to say what the change of government in 2017 will mean for investment, but there have been several recent announcements of fresh investment, including from Germany’s Gerreshimer, which supplies the pharma and healthcare industries, fellow German investor ODW Elektrik, and the US’s Dura Automotive Systems. As the political situation stabilised after a lengthy crisis from 2015 to 2017, exports from Macedonian free industrial zones revived, jumping by 20% in 2018 alone.

Serbia, meanwhile, came out on top of IBM’s 2018 Global Location Trends report based the number of job created in a country by FDI, relative to the size of the country’s population, and Bosnia and North Macedonia were also among the top ranked countries, although jobs created per million inhabitants dropped in North Macedonia in the crisis year of 2017 compared to 2012-2016.

Serbia “continues to receive significant inward investment in key sectors such as textiles, transport equipment, chemicals and electronics. Not surprisingly, manufacturing activities account for almost 80% of jobs created from FDI,” the report said.

“The continued strong performance by Serbia and the wider Western Balkans on this measure testifies to the region’s growing success in attracting foreign investment and cementing its position in global value chains. While the performance of individual countries varies from year to year, the region as a whole is experiencing a sustained high level of interest from foreign investors,” according to IBM’s study.

That’s looking at job creation, an urgent priority for governments in a region beset by high unemployment. But in terms of the size of investment, FDI remains low. An earlier report from the United Nations Conference on Trade and Development (UNCTAD) found that only Albania and Serbia reported a significant increase in FDI above 2010 levels in 2016, while overall, “inflows to the region have partially recovered from the post-crisis low of $3.8bn in 2012, but they reman far from the peak of $8.7bn in 2008.”

The organisation does, however, point to “significant potential” for manufacturing in the region “With its competitive labour costs and proximity to European and emerging markets in Asia and North Africa, the region is strategically placed to attract efficiency-seeking FDI in the manufacturing export sectors and their value chains,” says the report. “This includes the automotive sector, in which cars have been produced since the 1950s.”

The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at:  intellinews.com



  1. if it does not want to lose the Western Balkans. Such needs have been pulling in opposite directions, making it extremely hard to find ways of properly balancing between democracy and stability without prioritising one aspect over the other.

  2. It could be argued that the greatest obstacle to developing the region, in terms of democratisation and the rule of law, but also of stabilisation and of getting closer to EU membership, is rooted in a problem of political economy. The hitch is that the economic model proposed to the Western Balkans has not worked.

  3. On the other hand, advancing the EU-Western Balkans integration process could play an important role for the EU within ongoing efforts to improve its own resilience. This would help the Union to better define its relationship with an increasingly complex external environment.

  4. most Western Balkan countries have experienced a process of continuous deindustrialisation, large external account imbalances, high unemployment, falling living standards, rising inequality, and greater risk of poverty and social exclusion.

  5. However, close economic ties with the EU have not helped to consolidate economic modernisation or to support the Western Balkans’ capacity to accelerate development.

  6. People are less and less convinced that this model is the universal remedy for all political and economic troubles. Living in transition has meant the onset of reduced human security for most of the population and unreliable prospects for the younger generation.

  7. In contrast to the EU, however, Western Balkan countries have been stuck in transition for thirty years and have had no real chances to thrive in prosperity in the post-Cold War era, while fresh memories and unresolved disputes from the 1990s have been abundant and an inexhaustible resource for mobilisation.

  8. Given the small size of the Balkan countries (merely 3.5% of EU’s population) and their even smaller GDP, measures in this direction would have a limited overall impact on the EU budget, but they could go a long way towards restoring the credibility of EU policies in the region

  9. And how could the EU still rely on its enlargement policy, after passing from a time of representing it as its most successful policy to now seeing it much discredited?

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