Inclusive and sustainable economic growth in the Western Balkans depends on greater economic competitiveness. However, the biggest risks for these countries are the high share of the informal economy, which on average accounts for more than 40% of GDP, and the lack of modern infrastructure. Despite these challenges, Serbia, Montenegro and Bosnia and Herzegovina in particular are becoming attractive destinations for investment and exports by Slovak companies. Eximbanka, which has supported Slovak exports to more than 100 countries worth almost €50 billion since its inception in 1997, has directed €0.5 billion in support to the Western Balkans.
Inclusive and sustainable economic growth in the Western Balkan economies depends on greater economic competitiveness. Although the gap is gradually narrowing, living standards in these countries are significantly lower than in OECD and EU countries. This is according to the latest Western Balkans Competitiveness Outlook 2024, published by the OECD in June 2024.
The Western Balkan countries are assessed in terms of risk in the same way as other countries that are classified according to the OECD Consensus. There is a persistent lack of openness and weak competitiveness in the region, with a negligible role for trade and exports, in particular the untapped potential for exports of business services and information technology. Structural reforms and policy efforts are therefore crucial to reviving the region’s growth.
“One of the main risks for the region is the political instability that has persisted since the break-up of the former Yugoslavia. This factor, together with stagnating EU accession processes, may negatively affect the investment climate. Unfinished business from the 1990s and persistent grievances between countries are potential sources of conflict and civil unrest, especially during pre-election periods. The high share of the informal economy, which on average accounts for more than 40% of GDP, the lack of modern infrastructure, the administrative burden and the persistent risk of corruption can also be obstacles to the economic development of the region,” says Tatiana Gécová, Eximbank’s country risk expert.
Despite these challenges, the Western Balkan countries are small but dynamically developing market economies. Over the last 25 years, there has been a significant increase in exports, which has contributed to the gradual harmonisation of their economies. Serbia, Bosnia and Herzegovina and North Macedonia focus mainly on manufacturing, while Albania and Montenegro are more oriented towards the service sector, especially in tourism.
Serbia is becoming an increasingly attractive destination for Slovak companies looking for export and investment opportunities. The country has seen a significant increase in foreign direct investment and has focused its efforts on promoting the investment climate, taxation and education to ensure a steady supply of skilled labour. Serbia is also focusing on promoting the export of services in the information technology, finance and trade sectors.
“There are approximately 40,000 Slovaks living in Serbia who can be natural partners for Slovak companies seeking to expand into this market. Their cultural ties and knowledge of the local environment represent a significant asset for the development of economic and business relations,” emphasises Tatiana Gécová.
Montenegro is a magnet for investors. The country offers great economic freedom, monetary stability and constitutionally protected private property, making it an attractive destination for foreign investment. Bosnia and Herzegovina in turn offers investors a low tax burden, developed industrial zones, a solid banking sector and a strategic location.
Northern Macedonia is known for its government policy aimed at foreign direct investment, quick and easy procedures for setting up a business. Albania, on the other hand, has a strong currency, cheap labour and tax measures such as VAT exemptions. The advantage for foreign investors, in the case of both countries, is the same treatment as domestic investors.
“Compared to neighbouring countries such as Greece, Turkey, Cyprus and Malta, there is still significant scope for investment in tourism, especially in the areas of tourist services, infrastructure and security, which would strengthen the international connectivity and openness of the region,” concludes Tatiana Gécová.
Eximbanka, which has supported Slovak exports to more than 100 countries worth almost €50 billion since its establishment in 1997, has directed €0.5 billion in support to the Western Balkans, and sees investment opportunities in the Western Balkans mainly in the sectors of machinery and equipment manufacturing, metal structures, transport equipment, chemicals, petrochemicals, energy, clothing, forestry and wood processing, food processing, real estate business and construction. This year, Eximbanka also organised an Export Club on the Western Balkans, during which Slovak companies were exposed to opportunities and possible support for their export activities to the territory.
As Rastislav Chovanec, State Secretary of the Ministry of Foreign and European Affairs of the Slovak Republic said during the March Export Club: “It isin our interest that economic diplomacy develops. It is not only about export promotion, but also about assistance in attracting investors to Slovakia, joint twinning projects with other countries and development assistance. Our aim is to give more prominence to helping companies, to help Slovak entrepreneurs succeed abroad. And it was the entrepreneurs who mentioned the Western Balkans as a territory of interest to them and where they would like to potentially do business. Personally, I see a lot of room for Slovak companies in countries with which we share a similar past and geographical proximity, for example in Serbia or Bosnia and Herzegovina, in sectors such as engineering, food, energy, real estate and development, or digital and innovative technologies.” At the same time, the State Secretary of the Ministry of Diplomacy added that the Ministry of Foreign Affairs last week presented a new network of the Slovak Republic’s embassies abroad along with the development of economic diplomacy. Slovakia will more than double the number of full-time economic diplomats from the current 17 to 43. New posts of economic diplomats will be created, among others, in Sarajevo and Belgrade.
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ABOUT EXIMBANK SR
As the only direct instrument of the state for export financing, EXIMBANKA SR is an important part of the chain responsible for promoting the country’s economic policy in the field of external economic relations. It is an important instrument of state support for exports in the field of financing, provision of guarantees and insurance of credit risks. It offers a wide range of export-related financial products, in particular credit insurance, financing and guarantees. As a state export credit agency, it enables Slovak exporters to enter into trade and investment relations where the commercial financial sector is less interested in taking on risk and therefore performs a complementary function.
Photo source: Eximbanka