By Radomir Radev
At the Western Balkans Berlin Summit in July, EIB President Werner Hoyer reaffirmed the bank’s readiness to step up support for the region’s transition to greener, more digital, and more inclusive economic growth. Within this framework, what areas and sectors will the bank prioritise?
The COVID-19 pandemic and climate change have created global disruptions that need to be tackled simultaneously. A COVID-19 recovery without parallel success from climate action in limiting global temperature rises to below 2ºC will be pointless in the long run. A green recovery that is mindful of our need to prevent an environmental catastrophe is the only meaningful way forward. This will require the transformation of our lives and business practices, as the global economy will need to shift to a circular and sustainable model. This will be the most effective way to mitigate the impact of these two calamities and increase the economy’s resilience.
Digitalisation will be an important part of that process, and will ensure companies are more competitive and improve their ability to create and retain jobs, but will also ensure more efficient public administration and business operations, as well as further innovations and research. The recently published EIB Investment Survey shows that during the pandemic, online activity and remote work were observed less among companies in the Western Balkans than in other regions, suggesting a digitalisation gap and need to prioritise these investments. We need to address this issue head on if we want to see sustainable, long-term economic development in the Western Balkans.
The EIB Group already started investing in the improvement of the digital capacities of companies and schools in Serbia in 2020, allocating 125 million euro to this goal. A project for financing the upgrade of existing digital infrastructure and rollout of the 5G network in Serbia also falls within the scope of our activities and we expect to sign this investment soon. We will continue within the same vein, financing digital projects across the region that will ensure competiveness on the global market in the post-COVID era and the creation of new jobs.
As the EU climate bank, the EIB intends to steer climate and sustainable initiatives aiming to help mitigate negative climate impact. Last year, we aligned all financing activities with the goals of the Paris Agreement, and committed to investing 1 trillion euro in climate action and environmentally sustainable projects in the decade to 2030 and ending financing for fossil fuel energy. In line with our Climate Bank Roadmap, the EIB will also step up its support for the development and preparation of energy projects that will enable the green transition. They will help create a more reliable, diverse and renewable energy network in the Western Balkans, which will mitigate severe environmental issues that heavily affect the quality of life of people throughout the region.
Along with the public sector, we will help small and medium companies adopt more climate-friendly and energy-efficient practices through specially designed credit lines available at commercial banks. In this way, we want to stimulate the private sector to start investing in climate action and raise awareness on this important topic that is reshaping the world as we speak. Companies that understand this will be able to secure a better market position in the long run. The EIB Enterprise Survey shows that green management among companies in the Western Balkans lags behind that in upper-middle-income countries. A majority of firms still do not see energy efficiency measures as a priority and they are therefore not widespread. However, the share of companies experiencing losses due to weather events is increasing, ranging from 10% to close to 20% in Bosnia and Herzegovina.
In 2020, the EIB increased its investments in the Western Balkans by 50% to 873 million euro. What is the estimated amount of EIB investments in the region in 2021 and planned amount for 2022?
As a long-standing partner to the region and a part of Team Europe, the EIB scaled up its support in 2020 to help the countries mitigate losses and recover faster, which resulted in an allocation of 873 million euro for crucial infrastructure and private sector projects.
We proceeded at the same tempo in 2021 and over the first six months of the year, the EIB already signed projects totalling almost 600 million euro dedicated to the development of vital infrastructure and private sector recovery. Our investment plans for 2022 will be closely aligned with the European Commission’s Economic and Investment Plan and we are looking forward to seeing the rollout of projects that are currently at the appraisal and preparation phase. The lending volume will largely depend on the dynamics of agreements with our local partners, national investment strategies and project readiness.
The EIB has said it plans to accelerate the implementation of projects to back the rollout of the European Commission’s 9 billion euro Economic and Investment Plan for the Western Balkans. Which sectors will absorb most of the financing and what are the first big projects that will benefit from the EIB’s support?
The plan entails close to 30 billion euro for key strategic projects that will accelerate the economic transformation and development of the Western Balkans. The aim is to encourage investments in sustainable mobility, the green and digital transition, inclusive growth and the creation of a common market. These initiatives should help improve vital infrastructure, digitalisation and alignment of the regional market with EU standards and boost private sector development
A special focus will be directed towards the private sector and the EIB will continue supporting small and medium enterprises as the major generator of jobs in the region. Since 2009, we have invested over 4 billion euro into the private sector in the Western Balkans, which helped sustain more than half a million jobs.
Regarding the projects I can announce now, the EIB is considering financing for the upgrade and modernisation of the Belgrade-Nis railway line with the EU Delegation in Serbia. This massive project is expected to be jointly funded by the European Union and by other international financial institutions. There are other projects in the appraisal and preparation phase in the areas of renewable energy, transportation, healthcare and digitalisation and their implementation is expected soon.
The economic gap between the European Union and the Western Balkans remains excessively wide. How will the EIB try to speed up the convergence process?
The prospect of EU membership and the reforms that this process entails are an anchor for the longer-term development of the Western Balkans.
Apart from substantial financial support, the EIB has put its expertise and technical and advisory assistance at the disposal of local partners. Teams of our experts are already developing a number of projects across different sectors important for better regional cohesion and living standards of people across the region. We are working together closely with our local partners, institutions forming the Team Europe initiative and our colleagues from financial organisations to help the region move forward with EU accession, recover and transform to find its rightful place in the global market. In the same context, the EIB is actively involved in many EU-lead initiatives that are helping the region adopt EU policies and move forward in the key sectors, such as the Berlin Process, Green and Digital Agenda, the Economic and Investment Plan, EU Sustainable and Smart Mobility Strategy, etc. The EIB is also participating in the initiative for coal transition in the Western Balkans and Ukraine, launched by the European Commission in 2020 and aiming to help targeted countries and regions move away from coal towards a carbon-neutral economy.
Environmental issues also affect transport, which is still among the sectors with the highest CO2 emissions, and, at the same time, among those hardest hit by the COVID-19 pandemic. It will therefore require substantial investments to modernise and enable a modal shift to more sustainable mobility options such as rail, waterways and urban transport. The EIB is already supporting these kinds of projects across the Western Balkans, including the improvement of waterway navigation across the River Sava and Danube, urban transport modernisation in the Canton of Sarajevo and several railway projects on strategic routes that are in the preparation and implementation phase.
How did the EIB support the economies of the Western Balkans during the coronavirus crisis?
Demonstrating unwavering support for the region during this large-scale crisis, the EIB has delivered on its 1.7 billion euro commitment under the Team Europe response to COVID-19, adopted in May 2020. This EU support also involves the ongoing deployment of two additional programmes, which will provide up to 900 million euro of new funding in the region.
The EIB Investment Survey shows that small and medium companies were hit particularly hard in 2020 and continued support remains crucial for them. On average, 38% of firms in the Western Balkans were temporarily closed during the pandemic, ranging from 19% in Serbia to 66% in Albania. About 60% of firms experienced decreased liquidity or cash flow availability in the region, leading ultimately to strong reductions in sales and workforce. Nevertheless, massive policy support and financial packages from international financial institutions helped prevent an even greater contraction of economic activity.
Since the onset of the pandemic, we have invested 715 million euro to improve access to financing for companies in the region facing difficulties with liquidity, retention of jobs and business continuity. As the funds were part of Team Europe support for the socioeconomic recovery of the Western Balkans, they are available under more flexible and favourable conditions, with increased maturities and lower interest rates. In this way, we aim to boost development of the private sector, save jobs and help firms recover and expand.
What opportunities does the crisis open up for countries in the Western Balkans?
The EIB Enterprise Survey confirms the higher integration of the Western Balkans into global value chains when compared to peer regions, driven particularly by companies from Serbia and North Macedonia. Innovation seems to be higher compared to other upper-middle-income countries, but our results show that companies in the region adopt innovation, rather than lead in the R&D process.
According to the same survey, over half companies in the European Union expect to increase their use of digital technologies in the future because of the pandemic. The Western Balkans region needs to become an integral part of the digitalisation process and green recovery. They will open up the path to stronger economic progress, innovations and a position on the global market.
In parallel, building modern connections in the areas of transport, energy, wastewater and digital infrastructure is essential for creating better conditions for investors and new job opportunities. Implementation of key reforms on the path towards EU accession will solidify the process to enable the creation of the common market. As such, it will easily integrate into EU value chains and benefit from the relocation of production (nearshoring) that is expected to take place over the course of this decade. That is a pathway to prosperity for the people across the region.