Companies in SEE need to invest more in innovation, work across borders

By Nevena Krasteva

The European Investment Bank (EIB) is the leading investor in Southeast Europe (SEE). In 2016, it extended loans and guarantees of 467 million euro to Bulgaria and lent 1.1 billion euro to Romania. Since 2006, the bank has financed projects totalling 6.4 billion euro in the Western Balkans. In 2016, the EIB signed financing contracts amounting to 427 million euro in the Western Balkans.

Vazil Hudák
EIB vice president

The EIB has said that in Bulgaria it will look to diversify into sectors such as agriculture and pharmaceuticals. What about the rest of Southeast Europe, will there be a change in the priority sectors that the bank will be financing in the short and the medium term?

I would not say that there will be a major change because our priorities are basically the general priorities of the bank, as we will continue to support cohesion, innovations, SMEs, and energy efficiency.

The specific situation in each country requires a different approach. In Bulgaria until now we were mostly focused on supporting SMEs by working with local banks. Now, we want to focus more on doing some projects directly with larger companies in sectors like agriculture, pharmaceuticals and tourism.

This means that these projects have to be bigger. Basically, we finance projects directly if they are more than 40 million euro in total amount, as we usually finance 50%, i.e. the minimum budget for our part of the funding is around 20 million euro. In countries like Bulgaria, Hungary, Slovakia, the Czech Republic or Romania, this is a problem as you do not find too many projects worth more than 40 million euro which are managed by private companies.

In Romania, the government wants us to do much more in the area of healthcare, so we have agreed to a programme to help finance and develop regional hospitals. In other countries we have other priorities.

One new area where we want to do more is crossborder projects. For example, the gas interconnection between Bulgaria and Greece is one such project that we are ready to support.

Earlier this year the countries of the Western Balkans agreed to enhance economic cooperation in the region as a step towards their EU accession. How will the EIB support their efforts?

We do a lot in private sector development, in support of SMEs in the region. We are also working on supporting infrastructure projects, in particular the so called trans-European corridors, which go through the Western Balkans, and we are participating in some other projects to build railway or highway networks. For example, one such project is in Slovenia, the Koper – Divaca railway link, connecting the port of Koper with Divaca, which is a transport and logistics centre in Slovenia.

Which are the biggest risks, both external and domestic, to Southeast Europe’s economic development?

One issue is stability and this is a traditional issue for the Western Balkans – to make sure that the area is stable, that there are no conflicts and that investors can feel comfortable investing in this region. The other issue is corruption – to make sure that you can invest without having to bribe officials, and also the rule of law – making sure that if you have any problems you can go to the local court of law and protect your rights.

So I think these issues continue to be important for the investors in the region, and we are investors as well, so for us this is important as well.

Looking at the local businesses, what are the main issues that they need to address to become more competitive?

To be competitive you need to invest in R&D and innovation. You cannot just stay a traditional local business. And this is one area in which businesses in Southeast Europe are lagging behind.

The countries in the region are small so they need to broaden their market and that means they need to be able to work across borders. Businesses in this region need to get together much more. What we have now is more a mentality of competition rather than cooperation.

We at the EIB are financing many projects in the Western Balkans, some of them quite large, where the suppliers or construction companies could be from Bulgaria or Romania, for example, but they are usually not big enough. If they come together maybe they would have a better opportunity to compete against German or French or Italian companies. But I think that the businesses are still not ready to team up.

In which sectors in the region do you see the biggest growth potential?

Given the fact that this region has a strong history of good technical education and also computer science in Bulgaria, I think there is a good potential for IT and the so called big tech startups – specialised startups based on some specific technical solutions. I think that if these countries create a good environment to support such innovative companies including financial framework in terms of venture capital funds and growth equity funds, then there is a good potential to develop a strong sector of IT and technological innovations.

I think that the region has a good potential to be a strong energy market for Europe but again it has to cooperate through interconnections between the east and west, north and south. Whether it is gas corridors or electricity corridors, they have to be coordinated and the region itself should develop its own strategy for energy, energy cooperation, and energy competitiveness.

I think the car industry is already in a top and very strong position here. The different countries have their own areas in which they can be strong, In Bulgaria, I think tourism can become a very competitive high-added value industry for the country, pharmaceuticals are very strong, agriculture too, if it could be modernized. It is very difficult to generalise for the whole region as different countries can become competitive in different sectors.