Dependence on coal, low wages, export of low-sophisticated products and brain drain... these are the main structural ones problems economy in the region as indicated in a new publication of the Aspen Institute.
How do countries Western Balkans how are they when it comes to structural reforms, digitization, renewable energy sources? What is the political impact on the economy, how are things with brain drain and wages?
Mostly bad and there is a lot of room for improvement - that is the summary of the analysis of the German Aspen Institute called "Structural changes in the Western Balkans". The publication, which DW is the first to see, is the epilogue of an expert conference on this topic that was held in Tirana in October, reports Deutsche says.
The moment, experts and editors of this paper write, is delicate - the European Union has its troubles, but geopolitical reasons dictate its expansion into the region. And yet, Serbia and neighboring countries are not yet ready in many areas that affect the economy.
"After years of stagnation, there is now a real opportunity for the Western Balkans to advance in the EU accession process," reads the introductory speech of Gunter Krichbaum, Minister of State at the German Ministry of Foreign Affairs.
"Despite geopolitical instability, the war in Ukraine and the strengthening of authoritarianism, progress is clearly visible. I encourage everyone to join efforts and undertake reforms - especially in the fight against corruption, organized crime and emphasizing democratic values," says Krichbaum.
The EU is an "anchor", but it has its troubles
The Aspen analysis highlights the low productivity of the region's economies as a key problem – and this is evident in the struggles with competition from the EU, as the region moves closer to the single market.
Furthermore, the poor infrastructure that further fragments an already small region, then demographic problems, the emigration of young and skilled workers, dependence on coal "which requires an expensive transition that many governments are just beginning to address."
"At the same time, the region faces a complicated geopolitical environment shaped by competing external actors, which puts additional pressure on already fragile institutions and further complicates efforts to align with EU standards," the institute's analysis reads.
It is added that the EU accession process still remains "the most important external anchor", but it is difficult to translate into concrete steps because it is directly related to the reform of the EU itself. This refers to the skepticism towards EU expansion in some member states, because even now, with 27 countries, consensus decisions are difficult to make in Brussels.
What does the region export?
Matteo Bonomi from the Rome Institute for International Affairs analyzes the structure of economies in his text.
He writes, for example, about Serbia's subsidy policy, which has "attracted multinational companies and raised exports", but mostly in the "less sophisticated" sector. The share of high-tech products in Serbian exports is "negligible", writes Bonomi, since it rose from 2,1 to 6,8 percent from 2005 to 2020.
Regarding Bosnia and Herzegovina, he writes that the brakes are "permanent political crises and the questioning of legitimacy" which leads to slow reforms. "High emigration exacerbates human capital shortages and increases structural vulnerability relative to other countries."
The paper repeatedly highlights the problem of the region and, in particular, BiH, with the outflow of labor. It states that around 50 percent of all citizens do not live in BiH.
The current Growth Plan for the region (2024-2027), in which a total of six billion euros should come from Brussels, Bonomi calls "an attempt to inject fresh momentum into a region that has languished in the EU's waiting room for a long time."
But even that plan has many flaws, which Bonomi lists, and recommends that the EU prepare significantly more money. The funds, he writes, are "modest" when compared to the funds available to EU members.
No one to work?
In the following text of the publication, Branimir Jovanović from the Vienna Institute for International Economic Studies writes that the situation in the labor market of the Western Balkans has improved in the last 15 years, as unemployment has dropped from 25 to 11 percent.
But there are snags. "First, some groups are faring much worse than the unemployment, employment and economic activity averages show. Three groups stand out: women, the young and the low educated."
Second, Jovanović writes, wages are still "far below the EU level" - making up between one and two fifths of the EU average.
And thirdly, there are dramatic differences between regions in the share of the unemployed. For example, while there are only 6,2 percent of unemployed in Belgrade, there are twice as many in the south and east of Serbia. It is similar in BiH, where unemployment in Republika Srpska (9,1 percent) is significantly lower than in the Federation of BiH (15) and especially in Brčko District (21,1).
The most extreme example in this regard is Montenegro, whose coast has only 3,1 percent of unemployed, while in the north of the country it is even ten times more (31,9).
Jovanović states a problem that can be summarized as follows - there is no one to do some jobs, and no one wants to do others.
"Employers are increasingly reporting difficulties in finding both low- and high-skilled workers," he writes. When it comes to lower qualifications, one of the problems is precisely "persistently low wages and desperate working conditions". And there are few highly qualified people, and besides that, they "emigrate continuously".
Still coal
Ana-Maria Boromisa from the Zagreb Institute for Development and International Relations dedicated her analysis to the energy sector. It is striking that it is heavily dependent on coal, which is responsible for between 55 percent (Albania) and 90 percent (Kosovo) of greenhouse gas emissions.
"Most of the electricity in the region (except for Albanian hydropower) is obtained from lignite, and this contributes to the highest levels of pollution in Europe," writes Boromisa.
She recalls the goal of establishing a carbon dioxide "price" in the region by 2030. Otherwise, he says, the region will face significant costs when it exports electricity to the EU.
As for Serbia, Boromisa recommends strengthening the capacity of wind farms and solar power plants, diversifying gas sources and interconnectors, and beginning to phase out coal. "It requires investments estimated at 14 billion euros over the next decade."
Boromisa praises the project of the Trans-Balkan Energy Corridor, which should connect Serbia, BiH and Montenegro. This can ensure that "a surplus of renewable energy in one country compensates for deficits in another".
Something else looms over all of the above - the rule of law. This is emphasized by the editors of the publication, warning that "institutions often face political and economic pressure that allows the rules to be circumvented."
They add that it is not enough to just pass laws, but to implement them. And to make it clear that they apply to everyone.
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