Page 20 - bneMagazine March 2023 oil discount

20 I Companies & Markets bne March 2023
He cites company executives from Germany and other countries who disclosed they are having second thoughts about investing in Serbia because of the political uncertainty. “So far, they are postponing decisions to invest in Serbia, but if things do not improve they might also cancel investments. It seems Serbia is [paying the] price for its uncertain position re the Russia and Ukraine war.”
The winners
By contrast to Serbia, 2022 was a very good year for North Macedonia, and to some extent for Bosnia too. Both countries have attracted large amounts of investments into manufacturing over the years, while Montenegro, and to some extent Albania, has seen more investment into tourism and real estate.
North Macedonia has been a strong performer for years; even during the political turmoil towards the end of former prime minister Nikola Gruevski’s rule it consistently performed well on the World Bank’s annual Doing Business ranking. Now investments into manufacturing are growing strongly, especially in the automotive sector.
While Serbia has suffered for its politics, the opposite appears to be true of North Macedonia. Jovanovic says he believes the resolution of the name dispute and North Macedonia’s entry to Nato have paid a dividend.
“North Macedonia has been a strong performer for years; even during the political turmoil towards the end of former prime minister Nikola Gruevski’s rule it consistently performed well on the World Bank’s annual Doing Business ranking”
Bosnia suffers from endemic political turmoil but that conceals an economy that is quietly growing, with the benefits of a relatively skilled workforce and transport links to neighbouring EU member Croatia.
Another positive development in the region has been the gradual increase into investments into higher value activities. This looks like the start of the trend long seen in Central Europe – now a major destination for the electric vehicle (EV) industry and other higher value sectors.
Undoubtedly, the Western Balkans’ large pool of cheap
labour remains a selling point. With a population of around 20mn people, Jovanovic estimates there are up to 1mn people unemployed. “In terms of numbers, [I] think they have capacity at last for attracting companies for another decade or so,” he says.
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While output per worker remains lower than in the EU, the region retains some of the legacy of the socialist era, when the region had a highly skilled workforce – some employers from Germany still arrive with a positive image of Yugoslav workers from the Gastarbeiter era.
Still, there is a strong need for investment into the region’s labour force, along with infrastructure, which also still lags behind the EU countries in the region.
When the war ends
When the war eventually ends, there will be a massive reconstruction effort in nearby Ukraine. Figures already being estimated for the cost of rebuilding the damage done by almost a year of fighting are in the range of $500bn-$750bn.
Belan believes it will be more difficult for the Western Balkans to attract nearshoring investments when attention turns to post-war Ukraine, with its much larger economy and inflows of billions in reconstruction funds.
“The selling point of region before war to investors was to focus on labour costs, cost savings ... now it will be much harder for the Western Balkans to make that pitch. They need to focus on new competitive factors: not only on labour costs and short distances, they need to think about the quality of the labour and better infrastructure,” she argues. “Ukraine
is a bigger market, and the Western Balkans is still small and fragmented.”
She argues that rather than competing with post-war Ukraine for investment, the Western Balkan countries “need to gear themselves to what Ukraine might need for reconstruction”.
Another factor that will make the region of small and fragmented economies more attractive is regional integration.
“First and foremost, the region needs a harmonisation of the markets, of the business climate, rules and regulations ... so they do not see each other as competitors but as complementary, and work together to scale up production, access to resources, innovations, technology and infrastructure,” Belan says.
However, this is not easy, as the experiences of the last 20 years have shown. Initiatives like Open Balkan, set up to create common market for goods and labour in the region, target this goal, but typically become bogged down in the divisions between the countries in the region; so far Open Balkan’s three founders have failed to persuade the other three countries to join.
The Western Balkans has advantages that it is using to attract growing amounts of investment, but it also has many legacies of the past to overcome.