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Investing in energy. |
Improving municipal services. |
Increasing access to finance. |
Donors and investors meet at the Western Balkans Strategic Forum
With €2.7 billion already invested since 1991 in 204 projects in Albania, Bosnia and Herzegovina, FYR Macedonia, Montenegro and Serbia including Kosovo, the EBRD and its donors vow to do more. Nearly €450 million of investments are aimed at these countries for 2007 alone. The region, known as the Western Balkans, has seen it all - communism, war, national disintegration, democracy, market economy and more challenges ahead.
The challenges brought together donors, international financial institutions and investors from the region at the EBRD HQ in London in the Western Balkans Strategic Forum.
Peter Sanfey, the EBRD economist who covers the region, is optimistic about the Western Balkans. He believes that the region is progressing well and offers great investment opportunities. "It’s becoming easier to work in the Western Balkans and that is reflected in the growing foreign investment in the region," explains Mr Sanfey.
Dimitri Demekas, Chief of the IMF’s South-eastern Division, backed Sanfey’s remarks. "South east Europe has had stable growth with low inflation in recent years," he told the forum.
There are concerns, however. "High investments and low saving rates have led to very high current account deficits in south east Europe. Foreign debt is stable but high, twice as high as other emerging markets. The region is highly dependant on foreign currency loans and any shock affecting exchange rates will affect local borrowers who borrow mainly in euros," explained Mr Demekas. "There are important macroeconomic vulnerabilities in south east Europe," added Mr Demekas.
"Are south-eastern European markets heading towards a crisis similar to the 1998 east Asia crisis?" was the inevitable question of the forum participants.
"Europe is different," responded Mr Demekas. "First, cross-border financial integration is much more advanced than in any other group of emerging markets, and this provides opportunities for faster income convergence in the region. Higher current account deficits are the inevitable result, up to a point. Second, prospects for EU accession, however distant, anchor policies, spur institutional progress, and reassure investors. That the recent subprime market turbulence has not so far affected the financial systems in European emerging markets is encouraging, although in the event of a significant economic slowdown in the EU next year, these countries will of course also be affected," explained Mr Demekas.
A needy region – an unfinished agenda
"The pace of reform in the EBRD region, in 2006, was fastest in south eastern Europe, with most advances in the Western Balkans," said Claudio Viezzoli, EBRD’s Director for the Western Balkans.
"The EU accession has been good for the region but there is still work to be done to improve the business environment in FYR Macedonia, Montenegro and Serbia, to upgrade infrastructure in Albania and to help with large scale privatisations in Bosnia and Herzegovina," he added.
In the next two years, the EBRD will step up its role in improving policy dialogue between countries in the Western Balkans, will increase energy-related investments, will do more to improve municipal services and will improve access to finance to local companies and make them more bankable.
"To do these, we need donor support," explained Gary Bond, Director of the EBRD’s Co-financing Unit, responsible for managing donor funding for the Bank’s projects. "In particular, the Western Balkans need investment grants to bridge the gap between the funds needed for investments and the local capability to borrow."
"The combination of EBRD loans with donor grants and funds from different IFIs is the way forward to meet the arising needs of the Western Balkans," said Mr Viezzoli.
EBRD’s Group for Small Business, Municipal and Environmental Infrastructure, Transport and Energy Efficiency teams presented their views on the region’s needs and how donors can make a difference. "Institution building should be the main focus of donor assistance in the region," stressed Chikako Kuno, EBRD’s Director of the Group for Small Business. "Institutions in the Western Balkans have mastered the art of lending but need to manage their growth and improve corporate governance," she added.
"Development of transport infrastructure in the Western Balkans is key to increasing regional integration and economic prosperity. Donor funds are crucial for the preparation and implementation of transport projects in the region," added Sue Barrett, EBRD’s Transport Team Deputy Director.
Energy efficiency, an issue gaining momentum in the Western Balkans, also calls for more donor involvement. "By 2010, the region will face huge power supply deficit and it needs to address the energy efficiency issue now," explained Milko Kovachev of the EBRD’s Power and Energy Team.
In 2006, the EBRD and its donors established the Western Balkans Fund to coordinate efforts in addressing the region’s needs. Fifteen donor governments have pulled together over €14 million to fund projects in the Western Balkans. Donor funding for 20 projects has been approved so far and the Fund will meet in December 2007 to approve additional grant funds to support new initiatives in the region.
By Marjola Xhunga, EBRD communications adviser
Photos: EBRD
Contact: Official Co-financing Unit
26 October 2007
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