The current developments in the Western Balkans are mostly driven by high economic growth, the analyses at the Institute for Strategic Solutions (ISR) show. According to the World Bank, the economic growth in the region will be on average 3.2 % this year. A review of developments in recent years shows that Serbia’s investment environment reached a rate of moderate stability, while the investment environment in Croatia continues to be moderately uncertain.
RATE OF UNEMPLOYMENT
When ISR began monitoring the situation in the countries of the Western Balkans in 2014, the economic picture of the region looked alarming. Economic growth was negative while the unemployment rates were increasing. Other indicators were also unfavourable and the situation continued to deteriorate in the following years. But why is it important to look back at the developments from 2014 onwards? Because they show us how the recession and the economic growth affect the stability of the investment environment compared to how it is impacted by the long-standing political uncertainties.
Moderately uncertain Macedonia and Croatia
To highlight the impact of political uncertainties, ISR takes the example of North Macedonia and Croatia. In 2014 both countries had a moderately stable investment environment but in more recent years, ISR rated their investment environments as moderately uncertain.
In Macedonia, growing political instability is the main reason for the reduced rating in the investment environment. In Croatia, however, politics was the main factor for stability in the past, while the performance of the economy was the factor that created uncertainty. In recent years, this trend has been reversed. Early parliamentary elections and the instability of ruling coalitions in Croatia increased political volatility, while economic growth, after years of recession, became the pillar of stability for the investment environment.
Serbia achieving moderate stability, Montenegro still unstable
As ISR analysis demonstrate, a similar trend is present in Montenegro’s investment environment, where economic and political instability is increasing. In recent years, the greatest progress has been made in Serbia, where political stability has been growing since 2014. This was reflected in ISR improving Serbia’s rating from a moderately uncertain to a moderately stable investment environment.
Investment uncertainty: Kosovo and Bosnia and Herzegovina still at the bottom
Political and economic-social developments have been the most static in recent years in Kosovo and in Bosnia and Herzegovina. Both countries have been trapped in the loop of a moderately uncertain investment environment for the last four years. It is therefore not surprising investment environment in those two countries is the most uncertain in the region.
Forecast: The economic growth will be 3.2 % this year
Latest data shows that economic growth is the one that defines current events. According to the World Bank (Spring Report 2018), the economy in the region grew by an average of 2.4 % in 2017. After about a decade of economic crisis, the unemployment rate returned to the level prior to 2008 in all countries of the region, except for BiH. Around 230,000 new jobs were created last year, of which more than half were contributed by the private sector.
The World Bank forecasts a 3.2 % average economic growth in the Western Balkans’ countries in 2018.
Poverty and unemployment still a major problem
Economic growth, job creation and relatively low inflation have not had much impact on the poverty rate in the Western Balkans. It has decreased by only one percent (approximately 124,000 people) and remains high (23,6 %). The Balkan Barometer 2017 showed that, despite improved economy, the common problems of the region’s inhabitants still remain unsolved. More than 67 % of respondents said the unemployment is the biggest problem, followed by a bad economic situation (46 %), corruption (32 %), economic crime (16 %) and brain drain (10 %).
In the eyes of the public, corruption is the biggest problem in Kosovo (62 %), followed by BiH (34 %), Montenegro and Serbia (both 27 %) and Macedonia (17%). This was also reflected in the Transparency International report 2016, which ranks Kosovo as 95th, Macedonia 90th and BiH 83rd on the corruption perception index.
Most countries in the region are also facing increasing issues around youth employment. The data from 2017 shows the unemployment rate among young people in Montenegro is 39.4 %, in Macedonia 49.7 %, and in BiH 52.3 % (World Bank 2017, 5).