A new study by the Vienna Institute for International Economic Studies (wiiw) has confirmed that nearshoring to the Western Balkans is taking place post-pandemic. Foreign direct investment (FDI) inflows have significantly surpassed long-term equilibrium values in some countries, according to wiiw calculations. 

The report attributes the increasing interest in the Western Balkans to several factors, including geographic proximity to the European Union (EU), a skilled workforce and low labour costs. These advantages make the region particularly appealing for companies looking to relocate production facilities closer to the EU market — a trend that has gained momentum following the global supply chain disruptions caused by the COVID-19 pandemic. 

"Our analysis identifies concrete cases of near-shoring in five of the six Western Balkan economies – Albania, Bosnia & Herzegovina, Kosovo, North Macedonia and Serbia," said Branimir Jovanović, the lead author of the study and an economist at wiiw.

Nearshoring, the process of moving production facilities closer to consumer markets, has become an attractive strategy for companies looking to mitigate the risks of long supply chains, especially in light of recent global disruptions. The wiiw report suggests that this trend is particularly pronounced in the Western Balkans, where a growing number of foreign companies — particularly from Asia — are now establishing a foothold.

"Asian firms take a highly strategic approach, deliberately positioning their production facilities near the EU’s economic core in order to have shorter supply chains," said Jovanović. Companies from China, Japan and South Korea are among the most active in relocating to the region, driven by both economic and geopolitical factors.

wiiw interviewed 17 foreign investors in the region, with many confirming that locating production facilities closer to the EU was a priority. Geopolitical risks were also cited as a significant motivator for relocating to the Western Balkans.

This sentiment was echoed by other foreign companies surveyed for the report. In a survey of 65 foreign firms, 72% expressed satisfaction with their investments in the region, and 11% indicated that they had relocated production from more distant locations to be closer to the EU. The survey also found that two-thirds of these companies view the Western Balkans as a promising region for green investments, with many eager to increase their involvement if local suppliers made progress in decarbonisation efforts.

Despite the growing interest and positive FDI trends, the wiiw report also identifies challenges to investors in the Western Balkans. Poor governance, corruption, weak rule of law, underdeveloped infrastructure, and inadequate institutions remain significant barriers to further growth. Nevertheless, investors are cautiously optimistic about the region’s potential.

"Governments of the six Western Balkan states should prioritise assisting local companies in becoming more environmentally sustainable and fostering closer collaboration with foreign investors," Jovanović said.

In addition to industrial production, the report also highlights the region’s potential for green investments, especially in renewable energy. Jovanović pointed to major renewable energy projects already underway in Albania, Bosnia, Montenegro, North Macedonia and Serbia. 

"This illustrates the region’s potential in the green transition," he said, underlining the importance of this sector for the Western Balkans' economic development.

Environmental sustainability is becoming an increasingly important factor for companies considering where to invest. Many of the foreign investors interviewed by wiiw stressed the importance of environmental protection and CO2 reduction as part of their decision-making process. Jovanović said: "If local suppliers make progress in decarbonising their operations, we see significant opportunities for them to integrate into international supply chains and expand."

A survey of 382 local companies, also included in the wiiw report, reveals that many businesses in the region are aware of the need to reduce CO2 emissions, with two-thirds of respondents indicating that they see this as a way to boost exports to the EU. However, the report also notes that most local companies believe significant financial support will be required to meet these goals.