Page 30 - BNE_magazine_04_2019

30 I Cover story bne April 2019
That’s looking at job creation, an urgent priority for governments in a region beset by high unemployment. But in terms of the size of investment, FDI remains low. An earlier report from the United Nations Conference on Trade and Development (UNCTAD) found that only Albania and Serbia reported
a significant increase in FDI above 2010 levels in 2016, while overall, “inflows to
from the European Bank for Reconstruc- tion and Development (EBRD) says it could take up the Balkans a stagger-
ing 180 years to catch up with Central Europe – but there is also a need to catch up politically as well. With some excep- tions, the Western Balkans countries perform worse than their counterparts from the EU on measures such as Free- dom House’s Nations in Transit report,
the Serbian population and international observers with an election win. However, the persistence of the protests has started to raise the question of whether Serbia could follow Macedonia to the eventual removal of its long-time leader.
“The developments are starting to look like those in Macedonia, which eventu- ally led to a change of government,” commented Vladimir Gligorov, senior research associate at wiiw, in a recent comment on the Serbian protests. How- ever, there are certain differences: “The weakness of the opposition parties is why the Serbian legitimacy crisis is only in its early stages. On the one hand, they have next to nothing to offer to achieve external legitimacy, in stark contrast to the Macedonian case, while they hope to come to power on the back of the civic uprising that they cannot offer leader- ship to,” wrote Gligorov.
The protests by themselves, even when they result in small-scale violence, are not a cause for concern for investors, and protesters have not targeted the assets of international companies. But what they might eventually lead to is.
“Political stability is always on top of the list for investors when they look at pos- sible risks. In Serbia, for example, they are not worried about direct attacks on business assets, but over instability and policy effects such events as a change of government could have,” says Koneska. “Often in this part of Europe a change of government means a significant reversal of laws including those that affect busi- ness, such as tax policies and incentives. The investment cycle for some sectors, such as energy, mining and renewables, is much longer than a government’s term in office so investors in these sec- tors look for longer-term stability. The other key type of risk concerns corrup- tion and the rule of law. Often domestic businesses linked to politicians have an unfair advantage, the playing field is not even and it’s not obvious where the pitfalls are.”
Too small to compete
Aside from the recent run of protests, the countries of the Western Balkans have structural problems that could rule them
“Infrastructure, if not destroyed in the wars, no longer made sense when borders were redrawn, and deteriorated”
the region have partially recovered from the post-crisis low of $3.8bn in 2012, but they reman far from the peak of $8.7bn in 2008.”
The organisation does, however, point to “significant potential” for manufactur- ing in the region “With its competitive labour costs and proximity to European and emerging markets in Asia and North Africa, the region is strategically placed to attract efficiency-seeking FDI in the manufacturing export sectors and
their value chains,” says the report. “This includes the automotive sector,
in which cars have been produced since the 1950s.”
A question of stability
While cars (and a plethora of other items) have been produced in the region for decades, the economy of ex-Yugoslavia was violently torn apart amid the wars of the 1990s. This meant the newly inde- pendent states started their transitions much later and from a much worse start- ing point than their counterparts in CEE. In Albania, which already lagged behind the rest of the region following the col- lapse of communism, there was also a turbulent early transition period and the country was plunged into violence after the collapse of pyramid schemes in 1997, only narrowly avoiding a civil war.
The economies of the Western Balkans therefore have a long way to go before they can catch up with the rest of Central and Southeast Europe – a 2019 report
www.bne.eu
which assesses democratic governance in 29 post-communist states. On the latest report in 2018, Montenegro and Serbia were classed as Semi-Consolidated Democracies, on a par with Romania and Bulgaria but behind Slovenia and most CEE states that were rated as Consolidat- ed Democracies. Meanwhile, the other Western Balkans countries were put in the Transitional Government or Hybrid Regime category. Most states from the region are ranked lower on Transpar- ency International’s annual Corruption Perceptions Index than their northern neighbours.
In the last few months, mass protests that in some cases have ended in violent clashes with police have erupted in Albania, Montenegro and particularly Serbia, where weekly demonstrations have been ongoing for months. Waves
of mass protests aren’t uncommon in
the region, where opposition groups often take courage and inspiration from demonstrators in neighbouring coun- tries. However, the latest protests have shown more staying power than most and in Serbia, for example, have brought together a broad spectrum of opponents to President Aleksandar Vucic’s rule, from liberal intellectuals to far-right nationalists.
Vucic has so far said he will not give in to demands from the street, and while he has said early elections are planned, the likely objective is to reinforce the legiti- macy of his government in the eyes of