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Business is bullish on the Balkans

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Moderator Misha Glenny and Mladen Ivanic, Bosnia and Herzegovina's Minister for foreign affairs.

Slobodan Vucicevic, Grand Coffee CEO and Erhard Busek, South-east Europe Stability Pact.

Dimitrios Papalexopoulos, Titan Cement CEO and Joaquin Almunia, EC Commissioner.

Mladen Ivanic, Bosnia and Herzegovina's Minister for foreign affairs.

But image still a problem for region at peace

The main western Balkans conflict ended 10 years ago. Major post-war reconstruction is complete and general economic and political transition are well advanced. Growth is outstripping that of the more advanced economies that joined the European Union last year.

So why is image still such a problem for the western Balkan countries – Bosnia and Herzegovina, Serbia and Montenegro, FYR Macedonia and Albania?

“If you were to judge by media in western Europe and the United States, there are two issues in this region: the Hague (war crimes trials) and Kosovo,” said renowned journalist and Balkans expert Misha Glenny in a seminar in Belgrade, Serbia yesterday.

“But if you talk to investment bankers and people in business, they have a much more positive attitude” to the Balkans, said Mr Glenny, who chaired the opening session of the Business Forum, part of the EBRD Annual Meeting underway on 22-23 May.

Bullish on more investment

Greek businessman Dimitrios Papalexopoulos agreed. His construction materials company has invested over EUR150 million in Bulgaria, FYR Macedonia and Serbia in recent years. “We’re making a good return and we are unabashedly bullish to invest more.”

When it comes to the Balkans, Mr Papalexopoulos said, “the world has been focused on the wrong thing” such as the Hague trials. “We have to ask, is south-eastern Europe becoming the new central Europe for foreign direct investment?” Mr Papalexopoulos noted the region has “obstinate bureaucracy, petty corruption and legal voids -- but no worse than in developing countries in Asia or the Middle East.”

(As though to confirm what was said in the Business Forum, there was so much demand for seats in a seminar on investing in Serbia and Montenegro that some Annual Meeting participants had to be turned away.)

The division of ex-Yugoslavia into smaller, distinct states led to the erection of trade and other barriers, several speakers noted. Since then, concerted efforts to reduce those barriers have gotten a little out of hand.

“There are 28 free trade agreements in the region,” noted Erhard Busek drily. The special coordinator for the Stability Pact for South-Eastern Europe added, “we’re looking to have one free trade agreement” between all the states. He said getting such treaties was not an issue: “the real problem is implementation,” with agricultural protectionism particularly rampant and mirroring that, he said, of the EU.

Kosovo situation easing

Several speakers agreed with Mr Glenny that the influence of The Hague trials on perceptions about the Balkans “is receding quite fast and will not continue to be an issue much longer.

“As for Kosovo, until a few months ago I was concerned it could lead to more destabilisation” across the western Balkans. But a renewed international commitment to resolving the Kosovo question has relieved some of the crisis there. “The international community is trying to establish a way forward for Kosovo, for Serbia and Montenegro, and for the region as a whole.”

The pull of possible membership in the European Union has and will continue to foster economic and political transition in the Balkans, several panelists said. However, they noted with concern the upcoming votes in France and the Netherlands on the proposed new EU constitution and that a ‘No’ vote could hinder further EU expansion to include Balkan countries. Bulgaria, Romania and Croatia have advanced the furthest down the accession track, with FYR Macedonia and Serbia and Montenegro in their wake. Several speakers noted that last year’s crop of new EU member countries have provided a template for Bulgaria, Romania and Croatia to follow as they pursue EU membership, and those latter three countries are similarly inspiring western Balkan states in how to join the EU.

Joaquin Almunia, European Commissioner for Economic and Monetary Affairs said it wasn’t just that the EU had to decide whether to let Balkan countries into the Union: those countries had to clearly show the EU they want to join the Union. (For example, popular support for EU membership in Croatia has wavered recently as the EU presses the country to turn over a war crimes suspect.)

Perspective on progress

The fact that some Balkan countries are further ahead in their economic and political transition should not be surprising, Mr Papalexopoulos said. “Serbia only embarked on this course four years ago; it cannot be in the same position as Bulgaria which started 15 years ago. All the same, he said, progress in Serbia “has been stupefying in its speed”.

Mr Glenny said the world shouldn’t lose perspective as to how far the Balkan states have come. “Sixteen years ago, Ceausescu was President of Romania and ripping the country apart. The progress since then has really been substantial.”

Mr Papalexopoulos said it was important to maintain the “virtuous cycle” in which EU aspiration promotes economic reforms that encourage greater foreign investment, which yields jobs, which builds security, “which makes EU membership more possible”. But, he said, maintaining such progress “cannot be taken as a given”.

The prospect of EU membership is an “anchor” for positive change in the Balkans, said World Bank regional Vice-President Shigeo Katsu. “I wish many other regions of the world had similar anchors.” He also noted that a joint EBRD-World Bank survey of business community attitudes in south-eastern Europe “shows the governance environment has worsened rather than improved.” He also said the size of the public sector “has to be wrestled down. There is a risk of crowding out the private sector.”

Businessman Slobodan Vucicevic, who has businesses in five Balkan countries, referred to perceptions of the region as “the black hole of Europe”.He said poverty and political instability were a reality government could address in part by working with the business community to promote sustainable growth.

“In my 15 years in business I was never asked for any advice or consultation” by government, said Mr Vucicevic, whose Grand Coffee business is supported by an EBRD loan.

Weaning the western Balkans off international assistance is part of the chore of gaining international respect and foreign investment, said several speakers, noting the weaning process is well underway. “It’s time for local institutions to take real ownership” of the political and economic levers in their countries, said Mladen Ivanic, Minister for Foreign Affairs, Bosnia and Herzegovina.

As the main battleground during the western Balkans conflicts, Bosnia has particularly suffered from image problems, he said. “But things have become boring, we’re not so often in the headlines” – a sign, others agreed, that Bosnia-Herzegovina is now “a normal country”.

Written by EBRD Senior Writer Kate Dunn.

22 May 2005