BELGRADE (Serbia), February 26 (SeeNews) – The six Western Balkans countries have strong economic potential for catch-up growth and convergence, but they must do more to improve their economic performance, the European Bank for Reconstruction and Development (EBRD) said on Monday.
Encouraging progress on regional cooperation in the past two decades is helping the six countries – Albania, Bosnia and Herzegovina, Macedonia, Kosovo, Montenegro and Serbia – progress towards eventual EU membership, but they face a major convergence challenge in relation to the EU, the EBRD says in a Diagnostic report published on Monday as the bank hosts its third Western Balkans Investment Summit in London.
According to the EBRD, it will take decades, even under optimistic scenarios, for the region to catch up with average EU standards of living. Full EU convergence will require states to implement a determined and comprehensive reform agenda towards boosting productivity and investment, the bank noted.
Low productivity is identified as the fundamental problem holding back the region's economic development, reflecting years of underinvestment, weak institutions and a difficult business environment. The biggest challenges persist in the areas of competitiveness and good governance. Institutions are often weak and the still-heavy state presence in certain industries is preventing the private sector – the main contributor to economic output – from reaching its full potential.
Private sector productivity across the Western Balkans is at just 60% of EU levels overall, with manufacturing at only 55% of EU productivity levels and services on average at 70%. Among the constraints on productivity and growth are corporate over-indebtedness, a low level of youth inclusion, unfair competition from the informal sector, corruption, cumbersome tax administration, problems with electricity and limited access to finance. These leave a European area – whose 20 million people are surrounded by EU countries – with an average GDP per capita of just a quarter of the level in the richest EU members in western Europe, the EBRD said.
"Our research demonstrates the issues that need to be addressed. But it is also important to see that these are challenges, not insurmountable obstacles. They show the need for the implementation of a comprehensive and wide-ranging reform programme," the EBRD Deputy Director for Country Economics and Policy, Peter Sanfey, said.
To close the prosperity gap, reforms aimed at building sustainable market economies must be intensified. The EBRD said that measures are needed to promote a dynamic private sector, backed up by strong domestic and foreign investment flows, as the state must play an important growth-enabling role by providing the rule of law, a stable macroeconomic environment and clear rules of the game for businesses.
To date, the bank's investments in the six countries of the region are over 10 billion euro ($12.3 billion), in some 600 operations. In addition, the EBRD is also active in policy engagement to create the foundations for sustainable growth.
Details on the investments of EBRD in the six Western Balkans countries follow:
Country |
Number of EBRD projects |
Investment (in billions of euro) |
Albania |
80 |
1.0 |
Bosnia and Herzegovina |
146 |
2.115 |
Macedonia |
109 |
1.634 |
Kosovo |
55 |
0.313 |
Montenegro |
56 |
0.538 |
Serbia |
218 |
4.709 |
($ = 0.81042 euro)