The West-“Balkan” region (here: the Yugoslavia succession states and Albania) is one of the prime clients of the European Bank for Reconstruction and Development. Its member countries range – in terms of closeness to the EU – from Slovenia, a member of the Eurozone, to Bosnia-Hercegovina and Albania, both countries with very large development and transition challenges, which on Nov. 8, 2010 were “rewarded” with visa-free access to the Schengen Countries, albeit with an escape clause by the European Commission (in case there were a mass exodus). In between are “candidate” countries, of which Croatia is very close to EU accession, Serbia and Macedonia, and Montenegro which is expecting candidate status soon.
Looking at the 2011 Doing Business Report by the World Bank Group’s IFC, most of the Balkan countries rank in the upper half of the 183 countries surveyed (Macedonia-FYROM 38, Slovenia 42, Montenegro 66, Albania 82, Croatia 84, Serbia 89), but Bosnia-Hercegovina is only ranked 110, very close to some very backward African countries. These indices cover a wide range of facts, from the ease of starting a business, both in terms of time and licences needed, to contract enforceability, to more general rule-of-law issues and regulatory burdens. While nearly all countries have made improvements in their rankings, they still hamper their faster transition towards functioning market economies by excessively burdensome regulatory regimes.
The Balkan region was hit by the recent crisis quite severely. GDP in Croatia in 2009 fell by 6%, in Slovenia by 8%, in Bosnia by 3%, in Macedonia by 1%, in Montenegro by 6% and in Serbia by 3%. Only Albania showed further GDP increase (3%). Recovery is relatively slow, with further falls in GDP in Croatia and Montenegro, and only low growth of between 1% and 2% in the other countries.
Things are not helped by the fact that the political situation in large part of the region is still fraught with the after-effects of the Yugoslav war (1992-95). This can be especially felt in Bosnia-Hercegovina where the constitution imposed on the country after the end of hostilities by the Dayton Agreement proves extremely dysfunctional for development and transition, with a very weak central government and with two sub-regions “entities”, marred by ethnic hostilities and seemingly irreconcilable differences about which way to move forward. The Bosniak-Croat entity sports one of the most extensive (and thus expensive) political governance apparatus with its 10 cantons, each with a full parliament and government. The Republika Srpska, occupying the smaller part of the territory, has a better functioning governance structure, but seems loath to any project which might give the appearance of a unified federal state, directing many of its trade and economic, plus political activities to the “big brother” Serbia. Thus, apart from the army and the foreign service, there is only one unified economic institution in the country, the National Bank of Bosnia, while supervisory authorities, electricity companies, telecoms companies exist in triplicate form, one each in Mostar (Croat), Sarajevo (Bosniak) and Banja Luka (Serb). Foreign firms trying to do business need different licences, elections are usually fought and won along ethnic dividing lines, government offices and public employment organized according to ethnicity. This is not only a problem for citizens who do not belong (or feel to belong) to one of the three ethnic groups, but also for domestic and foreign businesses trying to set up shop.
These problems are less pronounced, and take different form in the other countries of the region, but in Macedonia, Serbia and Croatia some of the same problems exist. Albania has just received a rebuke in its ambitions for EU accession from the Commission because of its non-functioning parliamentary situation. A very special problem is Serbia’s relation with break-away Kosovo, where the European Union (among others) also has made an improvement in the situation a condition for closer cooperation with Serbia.
While most recently encouraging signs have been set by some of the regional leaders to overcome the legacy of the devastating war, many of these largely symbolic very courageous gestures are attacked heavily within deeply divided populations. The recent visit by the Serbian President Tadic in Srebrenica (where 8000 men and buys were killed while under UN protection), following a resolution by the Belgrade Parliament condemning this massacre, his visit in November to Vukovar, a Croatian town destroyed by Serbian troops during the war, the Croatian President’s similar gestures – all these are hopeful signs, albeit they are denounced not only by fierce nationalist opposition, but frequently also by members of the respective Presidents’ ruling parties.
Economically, it is not only the difficulty of doing business in these countries which holds them back – and has induced millions of their citizens to leave their countries in search of a better future for themselves and their children – but the nearly complete absence of regional cooperation. Each country looks for its own “energy security”, instead of interconnecting grids with their neighbors; countries rather trade with the core EU members than with each other, partly for political reasons, partly because their previously joint transport infrastructure has fallen into disrepair and usually ends at the borders. It is only the international institutions, foremost the European Union, the European Investment Bank and the European Bank for Reconstruction and Development, to a lesser degree the World Bank, who put regional cooperation projects (especially road and rail networks and energy grids) on the agenda and implement them in spite of sometimes very hesitant client countries. Again, the European Commission in its report on accession published on Nov. 7, 2010 has urged all countries to move forward on this very important issue as a pre-condition for further steps in the accession process.
The economic potential of this region is considerable, certainly sufficient to provide its citizens with an adequate and improved standard of living. However, confidence by citizens in their political leadership to deliver on this, seems to be waning, as the large exodus from the region shows. While this is understandable from the individual’s point of view, it is a medium to long-term catastrophe for the countries concerned, as they lose valuable human resources. This further hampers their development and puts extra urge on the politicians to reconciliate and lead.