The European Bank for Reconstruction and Development and the road to EU accession

Corridor Vc Zenica bypass in Bosnia Herzegovina. Source: EBRD

Bringing (potential) candidate countries up to gear to meet the criteria for EU-accession is a challenge. Almost all of these countries have sought and continue to seek external support. Since 1990, the EBRD is an important provider of such support. Within the EBRD Zsusanna Hargitai is, as director, responsible for the investments and assistance provided to Western Balkan countries. Her contribution provides not only an overview of what the EBRD does in the Western Balkan countries aiming for EU membership, but also insights in how this can lead to concrete changes on the ground or support to specific organisations.

By Zsuzsanna Hargitai, Western Balkans Directorate of the European Bank for Reconstruction and Development

While the approximation process between Turkey and the EU is currently seeing little progress, preparations for membership of the European Union are gaining momentum in the Western Balkans. The six countries of the region — Albania, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Montenegro, Serbia — are making serious efforts to fulfill the Copenhagen criteria. Thanks to its mandate, which combines investment with policy engagement, the European Bank for Reconstruction and Development (EBRD) is ideally placed to play an important role in this process.

The approximation process is taking place on two levels: investment and reforms aim to strengthen the economic performance of and governance in the Western Balkans countries. The challenges are serious. For example, the competitiveness of many firms remains below the levels seen in previous accession countries. Productivity is often low and access to finance is frequently difficult, especially for small private enterprises, the most vibrant economic agents. After years of under investment, the region’s infrastructure needs a massive overhaul. But this illustrates that in every challenge there is also an opportunity: new connections can now be built that will integrate the Western Balkans ever more effectively into global trade flows.

The EBRD is a leading investor in all EU pre-accession countries, with a strong local presence and a track record of operating efficiently and effectively. We invest in all sectors of the real economy, and also in reliable municipal services and transport which contribute to improving the lives of millions of people. In the Western Balkans alone, our total cumulative investments to date amount to €10.7 billion in more than 600 projects, the majority of these in the private sector.

Our work benefits from a longstanding cooperation and strategic partnership with the European Union, one of the EBRD’s founding shareholders and its largest bilateral donor. In many EBRD investments in the Western Balkans and Turkey we blend our financing with EU grants. During the period 2014–2017, the EBRD signed a total of €284.6 million in IPA grants, leveraging such grants to achieve over €3 billion of investment.

Through the EBRD’s participation in the Western Balkans Investment Framework (WBIF), which pools resources from the EU, 20 bilateral donors, recipient countries and financial institutions, we focus on transport and infrastructure projects, greener economies and on advancing the competitiveness of small and medium-sized enterprises (SMEs). Good transport infrastructure is vital for well-integrated economies to boost their regional and international trade.

The Western Balkans economies remain far behind EU countries in energy efficiency: when measured per unit of GDP, the six countries consume on average 37% more than the EU average. The EBRD provides funding and policy engagement to address this challenge.

EBRD environmental projects, again combining investment with policy measures, help improve standards in the countries of Western Balkans and progress them towards EU acquis in the areas of wastewater and solid waste management. Now all capitals in the region have joined the EBRD’s Green Cities programme, leading to strategic plans and prioritised investment to clean up cities and improve the everyday life of their residents.

SMEs are crucial for the economic success and prosperity of the EU accession countries. However, access to finance remains a major obstacle for their growth and competitiveness, together with a lack of adequate business skills and standards. The EBRD, with EU funding, tackles these issues by providing finance and advice. The EU-EBRD SME competitiveness programme is being rolled out across the region.

The EBRD is also seeking to address specific, underserved SME market segments. The Bank’s specially designed ‘Women in Business’ programmes combine loans with the provision of know-how tailored to promote women’s entrepreneurship by helping women-led small and medium-sized enterprises.

The challenges that EU accession countries face are not only economic. Weak institutions, insufficient transparency and a difficult business environment are widely recognised to be key factors that are holding back the region’s economic development. The EBRD is addressing these issues head-on.

We do this through technical assistance and business advice on adopting EU standards and through policy reform dialogue to advance efficiency and transparency in public institutions. With our Investment Climate and Governance Initiative the EBRD promotes reform initiatives in areas of economic governance that affect the private sector by improving the investment climate.

In the Western Balkans we have over 30 such projects in a wide range of areas: encouraging transparent public procurement, establishing platforms for public-private sector dialogue, improving governance in state-owned enterprises, streamlining business inspections, building judicial capacity, introducing alternative dispute resolutions system (including commercial mediation), and more.

While many investment in climate challenges in the Western Balkans are national in scope, there is a strong rationale for a complementary approach that promotes regional convergence as a way to address shared obstacles. The harmonisation of laws and practices across the Western Balkans countries will promote enhanced regional cooperation and integration, as well as supporting the governments’ EU approximation goals, including in the context of developing a Regional Economic Area and single ‘investment space’ for the region.

A concrete example of how we deliver is the Regional Investment Platform (www.investinsee.com), a new electronic one-stop shop for foreign investors interested in the Western Balkans. It was developed by the regional chamber of commerce, the Chamber Investment Forum, established in July 2017 and bringing together the national chambers of the six Western Balkans countries. The goal is to facilitate market access and raise the region’s attractiveness to foreign direct investment which remains behind inflows which have been registered in regions with similar. For the EBRD this is a signal to deepen our engagement and work to attract more investors. This is also why we are pleased to be holding our 2019 Annual Meeting and Business Forum next May in Sarajevo, where we expect to welcome more than 2,000 business and other guests to discuss investing in the Western Balkans.

Tunnel construction for the Corridor Vc Zenica bypass in Bosnia Herzegovina Source: EBRD

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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