Op-ed

The Western Balkans: from a history of conflict to a future of prosperity

La Stampa, 30 October 2003

by Jean Lemierre

Two factors that have been absent in the turbulent Western Balkans -- stability and regional cooperation - are now being acknowledged as a lifeline to prosperity and seem to be genuinely achievable.

If the countries of this region -- Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia and Serbia and Montenegro - can convince the local and international community that peace and stability are here to stay, they will have good prospects for attracting domestic and foreign investors. There are ample investment opportunities in these emerging economies. But only if investors find one further factor - that stability and cooperation have created a market of critical mass in an economic space.

Nationalist and ethnic tensions that kept neighbouring countries isolated over the past decade have gradually been resolved. Sniping and traffic in arms across borders have given way to the likes of a fruit juice producer from Serbia who has expanded into neighbouring Bosnia and Herzegovina, or a Croatian pharmaceutical company building on its business to tap into the Serbia and Montenegrin market. Narrow nationalist agendas are slowly being eclipsed by local entrepreneurs who want to talk business - across borders.

A legacy of ethnic and political differences and recent conflicts has made it difficult for these countries to individually integrate into the world economy. But they have accepted that, collectively, as a region of nearly 23 million people, their success can lie not in isolation, but in collaboration.

This theme will be the main focus at a conference held in Venice today, hosted by the Italian presidency of the European Union, where it will be specifically suggested that cooperation could be spurred in the areas of energy and transport as mechanisms to enhancing regional cooperation and growing the private sector.

Linkages between the power companies in the Western Balkans would forge ties between countries, make the region more stable and secure, and provide a reliable supply of energy. And it would bring economic benefits, especially when each country fully integrates into the Southeast Europe Regional Electricity Market, expected by 2005.

An integrated transportation system would bind countries and improve transport links that can facilitate cross-border trade and investments, offer better opportunities for tourism and make it easier for people to move around. Better transportation links to the EU - the Western Balkans' main trading partner, would improve economies. Countries like Croatia and Serbia are well-placed to take advantage of opportunities to work with the private sector to improve their roads as well as the wider European Corridors that connect Southeast Europe through to Western Europe. Public private partnerships would encourage private-sector investment and reduce the strain on State budgets.

The European Bank for Reconstruction and Development, the largest investor in the Western Balkan countries with more than €2.2 billion invested to date, will continue to play its part in the development of these cross-border initiatives, all with a view to attracting more domestic as well as much-needed foreign investment. Investors will have a greater appetite to work in the region if they are assured that the principle of free trade with neighbours, to which all these countries have agreed, is observed in practice. A major car maker, for example, will only consider opening operations if there are opportunities to export cars to neighbouring countries without having to endure obstacles such as punishing customs duties, taxes or red tape.

Likewise, small and medium-sized enterprises are engines of growth that can be encouraged to develop. Entrepreneurs are fundamental for private sector growth. Patterned on the €570 million EBRD/European Union support for SMEs in Central European countries, a facility is envisaged for the Western Balkans to accelerate the development of businesses and the culture of entrepreneurship.

The tightening of ties and development of the private sector can only happen if there is effective reform, and the prospect of closer association with the EU is a strong incentive for reform. As part of the EU Stabilisation and Association Process, the Balkan countries are slowly integrating their economies and policies on the basis of their belief that integration with the EU is important, and that integration with one another is equally so.

As a sign of its hope for the region and encouragement to keep the priority on stability, peace, regional links and private sector development, the EBRD will hold its annual meeting in the Western Balkans in 2005. This reflects the Bank's vision of an economically integrated region after years of stunted growth, conflict and sanctions. By joining together on initiatives like energy, transport and development of a regional market with free trade, the Western Balkans will certainly be writing a new page of history.

Jean Lemierre is president of the European Bank for Reconstruction and Development.