EIB in the Western Balkans: how the EU Bank helps countries towards accession and EU integration

Railway in Montenegro. Source: EIB.

The European Investment Bank, or as they like to call themselves, sometimes also called the ‘EU Bank,’ is the world’s largest multilateral lender and borrower, including providing inter alia funding for many projects within the EU and implementing one of the key initiatives of the Juncker Commission, the European Fund for Strategic Investments. But what does the EIB do for (potential) candidate countries? Matteo Rivellini, as Head of Division in the EIB responsible for the Bank’s operations in Croatia, Slovenia and the Western Balkans, gives an overview on what the EIB does, particularly in the Western Balkan countries and how it ties in to EU policy initiatives.

By Matteo Rivellini, Lending Operations in Slovenia,
Croatia and Western Balkans, European Investment Bank

The Western Balkans — a key priority for the EIB group

The Western Balkans is a key priority for the EIB Group, consisting of the European Investment Bank and the European Investment Fund. Since 2007, the EIB Group has financed projects totalling over € 8 billion in the region. For comparison: In 2017, the EIB Group provided more than € 78 billion for long-term investment in projects across Europe and around the world. The EIB’s regional activity follows the EU’s objective of helping the Western Balkans towards accession and rapid integration into the EU.

Financing from transportation to environmental protection

Our work in the Western Balkans is broad, from building roads and railways, to investing in energy and digitalisation projects. We are working actively to improve the region’s physical, human, and economic connections both with the EU and within the region. However, there is more to do. The quantity and quality of infrastructure in the region is low, well below the level found in the EU. According to the IMF, the average infrastructure development in the Western Balkans is about 50% lower than the EU average, ranging from approximately 30% in Serbia to almost 70% lower in Albania.

This issue is observed across a number of sectors. In transport, Western Balkans countries have on average 54 kilometres of roads per 100 square kilometres of land, compared with 126 kilometres of roads per 100 square kilometres in the Central and Southeast European countries in the EU, excluding Romania and Bulgaria. In response, the EIB is financing roads in the region including those on the so-called priority corridors in Serbia and the Former Yugoslav Republic of Macedonia, and in Bosnia and Herzegovina. To develop a more sustainable and diverse regional transport system, several new rail operations are also under consideration. This includes supporting Montenegro’s national railway network upgrade along the Bar-Podgorica-Vrbnica line forming part of the Orient/East Mediterranean Extended TEN-T core corridor.

Concerning energy, power generation in the Western Balkans largely comes from lignite coal power plants (over 55%) and hydropower (over 35%). While domestically mined lignite provides the region with supply security, this form of coal emits significant levels of greenhouse gas and other pollutants. Wind, solar and other energy efficiency projects have a large untapped potential in the region. Given the lignite-rich context and the green EIB energy lending policy, the Bank’s energy sector lending represents a small share of our work in the Western Balkans (about 4% compared to 15% within the EU). We are exploring opportunities in energy efficiency and renewable energy to make the region greener and more sustainable. For example, the EIB is participating in the European Commission-led pilot programme to boost energy efficiency in Serbia and is appraising potential investments in wind farms.

The EIB is also active in other vital sectors that promote key regional objectives such as manufacturing, research and development, and environmental protection. In Serbia, we have provided € 500 million to Fiat Chrysler Automobiles (FCA) to refurbish, modernise and expand the company’s automotive plant in Kragujevac. This has increased production capacity from 30,000 vehicles to over 180,000 vehicles. Also in Serbia, we have provided € 200 million of financing to support public sector research and development to promote innovation and science literacy in the country. In Bosnia and Herzegovina, following the 2010 Sava river basin floods, the EIB have financed flood defence facilities along the Sava river and its tributaries to protect people, houses and industries in the area from future flood damage.

All of this work is assisted by the EIB’s central role in the EU’s Western Balkans Investment Framework (WBIF). This unique partnership between the European Commission, International Financial Institutions (IFIs), EU Member States and our Western Balkans partners, is highly effective in supporting the region through blending EU grants and IFI financing.

Stimulating SME development

The EIB does not only support infrastructure projects. Ensuring investment of small and medium-sized enterprises (SMEs) is also a core part of our business. Western Balkans countries have fewer SMEs than the EU, according to population size (30 SMEs per 1,000 people compared with 47 SMEs per 1,000). Yet, SMEs contribute towards over 65% of value added in the region. These small businesses generally need more support for longer-term financing where impediments are often related to high collateral requirements.

The EIB helps by lending to local banks and other intermediaries, which subsequently ‘on-lend’ to SMEs and midcaps. Since 2007, the EIB has provided over € 3.1 billion of financing to intermediaries in the region. In 2017 alone, the EIB Group financed over 800 SMEs generating more than 45,000 jobs in the Western Balkans. This work is reinforced by our participation in lending facilities such as the Western Balkans Enterprise Development and Innovation Facility (WB EDIF). WB EDIF provides financial instruments for SMEs such as loan guarantees. To date, € 275m has been invested into the programme and 4,600 SMEs are to be supported under WB EDIF.

Accountability and cooperation with other European institutions

We strive to demonstrate to EU citizens that we have their best interests at heart and are accountable to them. We are committed to good administration and delivering positive results as laid out in our corporate responsibility. Our robust accountability framework ensures the right to be heard and the right to complain by any EIB stakeholder who believes we have failed to honour these commitments, for example through the Bank’s Complaint Mechanism.

In line with good governance, we strive towards constant improvement in all aspects of performance, and our Operations Evaluation (EV) forms an important part of this. EV carries out independent ex post evaluations of EIB and EIF activities, looking at relevance, effectiveness, efficiency and sustainability, with two aims:

  • Accountability: to assess whether our activities have been in line with our policy mandates and the strategies that have derived from them, and if these activities have delivered as expected.
  • Lessons learned: identifying possible areas of improvement that can be applied to Group activities to increase performance in the future.

Furthermore, we maintain close working ties with the other members of the family of EU institutions in pursuit of the Union’s objectives. In particular, we have a strong and fruitful cooperation with our colleagues from the European Court of Auditors: in accordance with Article 287(3) of the Treaty on the Functioning of the EU (TFEU), the European Court of Auditors can audit loan operations under the mandate conferred by the EU on the Bank, as well as the operations managed by the Bank that are guaranteed by the general EU budget.

Financing for the future: going beyond the traditional projects

As we look ahead, the EIB Group will continue to support important projects in the region. In 2016, the EIB launched the Economic Resilience Initiative (ERI), following a request from the European Council as part of a joint response to the refugee and migration crisis. ERI is addressing social and economic infrastructure gaps and stimulating private sector-led growth by increasing the EIB’s financing in the Southern Neighbourhood and Western Balkans from the € 7.5 billion already envisaged to € 13.5 billion over a five-year period.

ERI, alongside our other activities, represent the EIB’s continuous commitment towards enhancing the prosperity of the Western Balkans. Our support will contribute to the on-going economic and social stabilisation of the region. Moreover, in the context of this year’s Bulgarian and Austrian Presidency’s of the Council of the EU, which have placed the region’s enlargement as a priority, our support is fully aligned with helping our Western Balkans partners on their paths towards EU accession.

Zvezada Technology Parc Serbia. Architect: Predrag Jakovljevic. Source: EIB.

This article was first published on the August-September 2018 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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Articles from the European Court of Auditors, #EU's external auditor & independent guardian of the EU's finances.

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