Why the Western Balkans can be attractive to investors?

Dragan Cigoja 2017-11-15 Belgrade

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Why the Western Balkans can be attractive to investors? There are seven features of the region that, in our view, are worth emphasizing. They are: prospective EU membership; macroeconomic stability; strategic location; favorable taxes; diverse economies; and low labor costs combined with a well-educated population and most important free access to the market of more than 1 billion consumers.

An important advantage for the Western Balkans region is its easy and free access to EU markets. This has been enabled by its geographic proximity to major European markets and the free trade agreements that the countries of the region have signed with the European Union. The region is linked with the rest of Europe through the Pan-European corridors X (connecting the central Europe with Turkey through Austria, Slovenia, Croatia, Serbia, FYR Macedonia and Greece), VII (connecting the Black Sea with the Ionian Sea and passing through Bulgaria, FYR Macedonia and Albania), and Vc (connecting central Europe with the Adriatic Sea via Hungary, Croatia, Bosnia and Herzegovina and Croatia again).

Owing to its geographic position between the East and West, the region is often known as a gateway to Europe. As sea shipping remains the cheapest way to transport goods from the Far East to Europe, China plans to establish a rapid transport connection from the Greek port of Piraeus, the first major European container port for ships entering the Mediterranean from the Suez Channel, through the Balkans further to the EU markets – the Balkan Silk Road. This will come as part of the “One Belt One Road” initiative unveiled by the Chinese President in 2013. Balkan Silk Road will be based on the existing railroad network linking central Europe with the Aegean Sea via Serbia, FYR Macedonia and Greece.

The first operational move to realize the plan was made when the Chinese shipping giant Cosco Pacific took over half of the Piraeus port in a 35-year concession with the aim of turning the port into one of Europe’s top five container ports. However, to take full advantage of the port, investments into transport links across the Western Balkans are needed, such as the €1.5 billion-worth high-speed railway between Belgrade and Budapest as signed between China, Hungary and Serbia. Location is also a major factor why the Western Balkans could play a role in improving the EU’s energy security through possible investments in new gas pipelines.

Investors can take advantage of both economies of scale and access to major export markets, primarily the European Union but also Russia, with which Serbia has a free trade agreement (the only country in the region to do so). The other five countries have less advanced agricultural sectors, mainly consisting of small-scale and inefficient subsistence farming. The potential for agribusiness to develop further in the region is significant provided countries can consolidate agricultural holdings, improve the quality of collection, storage and marketing, and develop agricultural support services such as insurance.

Several countries have strong potential for further growth in the tourism sector. In 2013, receipts from international tourists amounted to 21 per cent of GDP in Montenegro and 13 per cent of GDP in Albania. 9 Both countries, as well as others in the region, expect tourism numbers to increase significantly in the coming years, especially as the quality of infrastructure and services improves towards the standards of the most advanced western markets.

Economies in the Western Balkans region tend to be quite diverse, rather than relying on one or a few sectors, and therefore offer a wide range of opportunities for investors. A diverse economy is also one that allows human capital development to expand in many different directions.