With its strategic location bordered by European Union countries, the Western Balkans is emerging as a destination for nearshoring and “friendshoring”, the European Bank for Reconstruction (EBRD) director for the Western Balkans, Matteo Colangeli, told bne IntelliNews ahead of a conference aimed at promoting the region as an investment hub.

The region of six EU-aspiring countries is seen as having high potential for increased foreign direct investment (FDI) amid the interest in shortening supply chains triggered by the disruptions caused by the coronavirus (COVID-19) pandemic and global trade wars. 

“The Western Balkans is ideally placed as a nearshoring destination because if you look at the map it is an island inside the EU. You can’t get nearer than that," said Colangeli. 

“Friendshoring is also an important angle. Despite the complexities, it’s clear that this part of the world carries comparatively less political risk than most alternative investment destinations for European manufacturers,” Colangeli added. 

He acknowledged that it is early days to see whether there has actually been a shift in investment to the region. “We are seeing lot of FDI coming to the region, but it’s not easy to connect the dots and connect it to something being closed elsewhere.” 

New enlargement impetus 

Colangeli made the comments in an interview with bne IntelliNews ahead of the EBRD’s Western Balkans Investment Summit conference that brings together leaders from six Balkan countries each year to promote the region as an investment destination, particularly to investors from outside the region, including the UK.

"This year's conference is particularly timely as we strive to showcase a new impetus in the EU approximation journey. EU leaders are sending a clear signal that initiatives such as the New Growth Plan for the Western Balkans, coupled with certain benefits of EU membership, will create new positive momentum in the region,” he said. 

Optimism regarding EU accession for the Western Balkans has increased, despite the countries’ long and sometimes frustrating path towards deeper EU integration. "This region has no alternatives to EU integration," said Colangeli. ”It's just a matter of how fast and in which form."

The war in Ukraine, which started two years ago this week, spurred a renewed political willingness to accelerate the region's approximation toward the EU. The last two years have seen Ukraine, Moldova, Georgia and Bosnia & Herzegovina admitted as candidate countries, and the go-ahead for Albania and North Macedonia to start accession negotiations. 

At the same time, the European Commission is working on the New Growth Plan for the Western Balkans that involves €6bn in loans and grants, as well as access to the EU single market.

“For a long time the EU dream has been in the background, but now geopolitics is accelerating matters. It’s understood in most countries that the opportunity is real, perhaps more real than it’s been in the past,” said Colangeli. 

Challenges to tackle

But while the progress on EU accession makes the region more attractive to investors, there are still a number of challenges to address. Colangeli singled out infrastructure as an area in need of investment given the big gap between the region and the EU. 

“The region still suffers from very big infrastructure gap with the EU. This gap needs to close, which will require very substantial investments,” he said. 

Specifically, he pointed to both transport infrastructure and environmental infrastructure. “Transport infrastructure impacts the ability of investors who choose to come here to move their goods out of the Western Balkans towards the EU.” On top of that, there is the need to speed up procedures at borders across the region, where long queues of trucks are a common sight. 

Environmental infrastructure, meanwhile, impacts demography and migration trends, according to the banker. “People are leaving because they want to have children in a place where the air quality is better and environmental services are good enough.” 

That has contributed to the brain drain in countries across the region, which has experienced a sharp decline in population over the last three decades. 

“The challenge for the region is be to retain talented people … workers are in really short supply in some countries,” said Colangeli. “More and more often we see workforce coming to the region from outside for certain industries, which was unthinkable five or 10 years ago. In construction, for example, Asian workers are imported to the region to fill the gap.” 

Also relevant is investors’ relationship with the local authorities. “Another important factor in securing investment flows is the ability not only to promote the country but also to deliver on an individual investor basis,” according to Colangeli. 

“Serbia is very efficient in terms of negotiating deals with investors and delivering on those deals in a timely and reliable manner. A lot of German companies are in Serbia because those who came first found a reliable partner, and that attracted more. Success stories breed more success, and vice versa.”