Page 9 - SE Outlook Regions 2022

inflation and wage growth, as well as the expected inflows of EU funds.

Heading into 2022, several industries are already struggling as a result of the
hike in energy prices. After the semiconductor crisis caused problems for car
manufacturers worldwide, a growing number of industrial companies are now
cutting back or suspending production in response to soaring energy prices.
Some examples in Southeast Europe include Montenegro’s largest industrial
company KAP that has shut down production for a year and Romanian
aluminium producer Alro that is currently operating at only 40% of capacity.
The impact of the hike in energy prices doesn’t only affect metals production,
though. Other sectors to have been affected include agriculture; Albanian
farmers protested last year over the high cost of fuel, fertilisers and other
inputs, while Bulgarian farmers are warning they can’t afford to heat their
greenhouses.

Among the worst hit countries in the region are some of the smaller countries
whose governments are less able to help companies and households through
the crisis. Moldova has twice been threatened with having its gas supplies cut
off by Russia’s Gazprom, and more crises and last minute scrambles to pay
may occur until the end of the heating season. North Macedonia has declared
a state of emergency in the energy sector, while Kosovo has announced
blackouts over the coming weeks as it struggles with similar issues.

The green transition poses some tricky questions in the coal-dependent states
of the Western Balkans. Not only is coal an important part of the energy mix in
five of the six states and communities are dependent on the mining and power
generation industries; the current crisis has forced some states in the region to
increase their reliance on domestic coal generation. At the same time, plans
for new coal power capacity are struggling to find (or keep) financiers,
especially after Chinese President Xi Jinping announced Beijing will no longer
fund new coal projects overseas. In the meantime, a growing number of
renewables projects are being launched.

In politics, Bosnia & Herzegovina needs particular attention following moves by
Bosnian Serb leaders to end Republika Srpska’s participation in state
institutions including the Bosnian army.This is seen as a step towards the
potential breakup of the country.

April will be a critical month for two of the region’s populist strongmen,
President Aleksandar Vucic in Serbia and Prime Minister Janez Jansa in
Slovenia as both countries are holding elections that month. Meanwhile,
Montenegrin President Milo Dukanovic’s long-ruilng Democratic Party of
Socialists (DPS), which was ousted in 2020 after 30 years in power, may be
poised for a comeback as rifts within the current ruling coalition deepen.

Romania now has a new government after its two largest parties, the Social
Democratic Party (PSD) and National Liberal Party (PNL), put their differences
aside to form a broad coalition to tackle the passing financial and health issues
in the country. This will enable the new government to respond to the
pandemic as well as put to work inflows of EU funds, though it’s as yet unclear
if the coalition will hold together until the next general election.

For Albania and North Macedonia the burning question is the quest for EU
accession. The progress of the two candidate countries is currently stalled as

9 SE Outlook 2022 www.intellinews.com