How are the Western Balkan countries doing when it comes to structural reforms, digitalization, renewable energy sources? What is the political impact on the economy, how are things with brain drain and salaries?
Mostly bad and there is a lot of room for improvement – that is the summary of an analysis by the German Aspen Institute called "Structural Changes in the Western Balkans". The publication, which Deutsche Welle (DW) has first access to, is the epilogue of an expert conference on the topic held in Tirana in October.
The moment, write the experts and editors of this paper, is delicate – the European Union (EU) has its troubles, but geopolitical reasons dictate its expansion into the region. And yet, Serbia and neighboring countries are not yet ready in many areas that affect the economy.
"After years of stagnation, there is now a real opportunity for the Western Balkans to move forward in the EU accession process," writes the opening statement by Gunter Krichbaum, Minister of State at the German Foreign Ministry.
"Despite geopolitical instability, the war in Ukraine and the strengthening of authoritarianism, progress is clearly visible. I encourage everyone to join efforts and undertake reforms – especially in the fight against corruption, organized crime and the promotion of democratic values," said Krichbaum.
The EU is an "anchor", but it has its troubles
The Aspen analysis highlights the low productivity of the region's economies as a key problem – and this is evident in the struggles with competition from the EU, as the region moves closer to the single market.
Furthermore, poor infrastructure further fragments an already small region, then demographic problems, emigration of young and skilled workers, dependence on coal "which requires a costly transition that many governments are only beginning to address."
"At the same time, the region faces a complicated geopolitical environment shaped by competing external actors, which puts additional pressure on already fragile institutions and further complicates efforts to align with EU standards," the institute's analysis says.
It is added that the EU accession process remains "the most important external anchor", but is difficult to translate into concrete steps because it is directly linked to the reform of the EU itself. This refers to the skepticism towards EU enlargement in some member states, because consensus decisions in Brussels are difficult to make even now, with 27 countries.
What does the region export?
Matteo Bonomi from the Rome Institute for International Affairs analyzes the structure of economies in his text.
He writes, for example, about Serbia's subsidy policy, which has "attracted multinational companies and boosted exports", but mostly in the "less sophisticated" sector. The share of high-tech products in Serbian exports is "negligible", writes Bonomi, having risen from 2,1 to 6,8 percent from 2005 to 2020.
Regarding Bosnia and Herzegovina (BiH), it writes that the brakes are "permanent political crises and questioning of legitimacy" which lead to slow reforms. "High emigration exacerbates the shortage of human capital and increases structural vulnerabilities relative to other countries."
The paper repeatedly highlights the problem of the region and, in particular, BiH, with the outflow of labor. It states that around 50 percent of all citizens do not live in BiH.
The current Growth Plan for the region (2024-2027), in which a total of six billion euros is to come from Brussels, is called by Bonomi "an attempt to inject fresh momentum into a region that has long languished in the EU's waiting room."
But that plan also has many flaws, which Bonomy lists, and recommends that the EU set aside significantly more money. The funds, he writes, are "modest" when compared to the funds available to EU member states.
No one to work?
In the following text of the publication, Branimir Jovanović from the Vienna Institute for International Economic Studies writes that the situation on the Western Balkans labor market has improved in the last 15 years to the extent that unemployment has fallen from 25 to 11 percent.
But there are pitfalls. "First, some groups are doing much worse than the averages of unemployment, employment and economic activity indicate. Three groups stand out: women, young people and the low-educated."
Second, Jovanović writes, wages are still "far below EU levels" – making up between one and two-fifths of the EU average.
And third, there are dramatic differences between regions in the share of unemployed. For example, while in Belgrade there are only 6,2 percent unemployed, in the south and east of Serbia there are twice as many. The situation is similar in BiH, where unemployment in Republika Srpska (9,1 percent) is significantly lower than in the Federation of BiH (15) and especially in the Brčko District (21,1).
The most extreme example in this regard is Montenegro, where the coastal area has only 3,1 percent of unemployed people, while in the north of the country it is ten times higher (31,9).
Jovanović states a problem that can be summarized as follows - there is no one to do some jobs, and no one wants to do others.
"Employers are increasingly reporting difficulties in finding workers with both lower and higher qualifications," it writes. When it comes to lower qualifications, one of the problems is precisely "persistently low wages and miserable working conditions." And highly qualified workers are few and "continuously emigrating."
Still coal
Ana-Maria Boromisa from the Zagreb Institute for Development and International Relations dedicated her analysis to the energy sector. It is striking that it is heavily dependent on coal, which is responsible for between 55 percent (Albania) and 90 percent (Kosovo) of greenhouse gas emissions.
"Most of the region's electricity (apart from Albanian hydropower) is generated from lignite, and this contributes to the highest levels of pollution in Europe," Boromisa writes.
She recalls the goal of establishing a "price" for carbon dioxide in the region by 2030. Otherwise, she says, the region will face significant costs when exporting electricity to the EU.
As for Serbia, Boromisa recommends strengthening the capacity of wind farms and solar power plants, diversifying gas sources and interconnectors, and starting a gradual coal phase-out. "This requires investments estimated at 14 billion euros over the next decade."
Boromisa praises the Trans-Balkan Energy Corridor project, which is supposed to connect Serbia, Bosnia and Herzegovina and Montenegro. This could ensure that "surplus energy from renewable sources in one country can offset deficits in another."
Above all of the above, something else looms – the rule of law. This is also emphasized by the publication's editors, warning that often "institutions face political and economic pressure that allows rules to be circumvented."
They add that it is not enough to just pass laws, but to implement them. And to make it clear that they apply to everyone.
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