Worst-case scenario for the WB economic growth – political tensions

SARAJEVO – High unemployment, migration of highly educated people and lack of political vision for the region are seen as the most prominent problems of the Western Balkans countries, it is written in the Policy Report “The rise of the underdog – Economy of the Western Balkans”, by the think tank Populari.

According to the World Bank annual 2016 Report, Western Balkan countries have experienced different economic growth – Serbia and Albania were the only ones to experience acceleration, while Kosovo, Macedonia and Montenegro had slowed down. Only Bosnia and Herzegovina remained steady.

It is stated that even though there is a tendency of people leaving the WB region, employment growth has accelerated, especially in Serbia.

However, one thing remains common for all the countries.
“Given that the overall regional development is supposed to be about the economy and job creation, it is truly remarkable how little the economic analysis features in government planning,” points out Populari in its Report.

The Report is assembled of the interviews with prominent economists on various economy issues regarding the WB countries.

Asked whether the WB will be able to catch-up with the more developed EU in the next 20 years, Regional Director of Central and Eastern Europe at Economist Intelligence Unit, Laza Kekić explains that this would not be the case since the region is dealing with problems such as poor demography, high political risk as well as weak innovation performance.

“Even under the best-case scenario of relatively high growth rates, at a level or above those that preceded the recent crises, it is highly unlikely that any WB country can reach the EU average over the next two decades,” Kekić points out.

Economic Analyst, Managing Director and Founder of Archivanalitics Company, Velimir Šonje believes that the key issues for this to happen would be weak institutions and corruption.

“Incompetent governments may create vicious circles that lead to permanent developmental lags,” says Šonje.

In order to break up these circles, he believes that EU entry is the only “outside shock” that may change the bad economic situation.

However, William Bartlett, Senior Research Fellow in the Political Economy of South East Europe, would not agree with these statements, as he believes that the WB have a lot of growth potential, but in order to catch-up with the EU, WB need to have an inflow of capital and foreign investment.

When it comes to the main challenge of the region, economists agree on one – political crisis.

They have always been a major obstacle to the economic growth of the region. Other than that, economists mentioned low export, corruption and direct government involvement in the economy.

“The region is lacking in foreign investments when it comes to manufacturing and agriculture, and even in some places, tourism or services. Due to all kind of reasons, fragmented market and political uncertainty would be, among them, main causes,” thinks Vladimir Gligorov, Senior Researcher at the Vienna Institute for International Economic Studies.

The biggest burden for all of the WB countries would be ineffective state apparatus.

“Much of it is the legacy of former Yugoslavia and in many of the countries, particularly Serbia, Bosnia and Herzegovina and Montenegro have not been adequately reformed yet,” says Ellen Goldstein, the World Bank’s Country Director for the Western Balkans.

Balkans expert at the German Institute for International and Security Affairs, Dušan Reljić points out one severe problem which the WB countries face, and which has a lot of impact on economic growth – emigration.

“Since 2000, approximately 1/5 of the population of the region has emigrated, and among those who left, there were often the best and the brightest,” explains Reljić.

Some of them return with obtained masters and doctoral degrees, but only small part of them returns.

Having in mind all the obstacles for economic growth, in order to reverse existing models of growth, WB countries should encourage innovation, as well as to improve access to credit for small and medium enterprises (SMEs).

The EU funds are seen as one of the tools which could help, as the EU is the biggest donor of the WB countries.

However, there are other funds which could be used as well.
“The opportunities can be from Russia, Central Asia and increasingly from China,” believes Hubert Warsmann, independent professional.

In order for the WB countries to attract foreign direct investment (FDI), they need to improve the business environment and to offer tax incentives. Even if they achieve to attract FDI, there is a limit on what the countries can do.

“The Balkans still face an image problem: for many potential foreign investors, the word Balkan conjures up troubled images of war and conflict, rather than investment opportunities and economic potential,” says Milica Uvalić, Professor of Economics at the University of Perugia.

When it comes to the worst-case scenario which could damage the economic growth potential in the WB, all of the professors agree with one – political tensions.

“The worst possible scenario is to create more tensions, in the first place in Bosnia and Herzegovina, or in Macedonia”, states Fikret Čaušević, professor of economics and international finance at the School of Economics and Business, University of Sarajevo.