Honorable Prime Ministers and distinguished participants,
Thank you for asking me to say a few words about regional economic integration in the Western Balkans. After a year of using the Multi-Annual Action Plan (MAP) to frame this agenda, it is a good time to look back at the achievements and forward at the road ahead.
Much is at stake -- greater economic integration is essential for growth and jobs in the Western Balkans. 28 percent! Income per capita in the Western Balkans is 28 percent of Germany’s. At current growth rates, it will take 5 decades to reach Germany’s current standard of living. New growth opportunities are needed to speed up growth– and this requires overcoming small and fragmented national markets.
The past year has brought important achievements:
- The Central European Free Trade Association (CEFTA) Additional Protocol 5 on trade facilitation has entered into force.
- A Regional Investment Reform Agenda (RIRA) has been endorsed.
- Negotiations on the mutual recognition of professional qualifications are about to start.
- A Digital Reform Agenda has been launched.
- The selection of Country Focal Points and the establishment of Working Groups has helped to improve coordination, identify needs, and exchange knowledge.
But there is still a road ahead with your leadership crucial to maintaining the reform momentum. Let me highlight immediate opportunities in the four areas of (i) trade, (ii) investment, (iii) mobility, and (iv) digital integration.
While the region’s trade performance has improved under CEFTA, it remains far behind its potential. Growth success stories in small economies tend to be associated with high export levels. In Latvia for example, exports today stand above 60 percent of GDP. Exports are close to 80 percent of GDP in Estonia and over 170 percent in Singapore. But in the Western Balkans, exports were only about 40 percent of GDP in 2017 on average. What can be done to increase exports?
You can bring down non-tariff obstacles to trade. National single windows can streamline documentation processing. Automating the cross-border process can alone save 2 percent in trade costs. Joint border crossings can reduce waiting time of trucks. A risk-based approach to border controls can slash the level of inspection and other procedures, and thereby, the time to trade. There is much export volume and product diversification to be gained through reliable standards and quality certifications harmonized with the EU.
You can focus on facilitating trade in services, not just trade in goods. Today, most service exports of the region are in tourism and transport – and there is still growth potential in these industries. But there are unrealized opportunities in education, healthcare, finance, ICT, and administrative and professional services. Here in Albania, for example, the number of workers in administrative and support services increased six-fold from under 6,000 in 2012 to over 35,000 in 2017. In part, this reflects the growth of call centers attracted by a competitive workforce fluent in English and Italian – but there is potential to move up-market and toward advanced business processing outsourcing. To take advantage of these trends, it is crucial to streamline the rules for trade in services through the full implementation of the CEFTA Additional Protocol 6.
The recently adopted Regional Investment Reform Agenda is an important step towards tackling the Western Balkan’s investment gap. Across the region, the average level of investment of 23 percent of GDP in 2017 is a third lower than the average in middle-income countries. Country-by-country initiatives to attract FDI have relied on blunt investment incentives, such as tax breaks and cash subsidies. Moreover, the type of attracted FDI has had limited spill-overs into the rest of the economy. Obviously, this is not a sustainable strategy.
RIRA offers a coordinated regional investment framework. In a World Bank worldwide survey, close to 90 percent of investors said that accessing new customers was a key motivation. With RIRA, the Western Balkans can offer a seamless access to a regional market. A regional investment framework will reduce obstacles to investor entry, strengthen investor protection, streamline investor attraction policies and, importantly, better position the region to integrate in global supply chains. Now is the time to translate RIRA into concrete actions to align national investment frameworks.
To alleviate the “brain drain” and fill the skills gap, the Western Balkans need a stronger value proposition for highly skilled workers. The region’s skills gap is real. The 2018 Balkan Business Barometer reports that 1 in 5 businesses have had difficulties filling vacancies in the last 12 months. For 2 of 3 unfilled vacancies, businesses identify the lack of skills as the reason. The MAP foresees: (i) a simplification for the mobility of researchers, (ii) the mutual recognition of professional qualifications, such as Doctors, Dentists, Architects and Engineers, and (iii) the mutual recognition of academic qualifications. These initiatives can raise the value of acquiring and using skills, and together with national education reform can help tackle the skills gap of the Western Balkans.
On digital integration:
The Western Balkans can seize the opportunities created by the digital revolution. Already, from neighboring Kosovo, the startup gjirafa is an inspiring example. As you may know, this company developed a search engine for the Albanian language. Using its success to raise capital in Silicon Valley, the business expanded by adding online content, such as digitizing bus schedules, video streaming services and an online market place that today serves Albania, Kosovo and FYR Macedonia. Equally, the region has already attracted some big players, such as Microsoft; the company has established one of their 5 global development centers in Serbia. This has helped greatly develop the startup scene there.
With the right enabling environment, this is just the start for realizing the IT potential in the Western Balkans. Elimination of regional roaming charges, a unified approach towards digital security, data protection, promotion of digital skills, affordable and accessible high-speed broadband - these are all needed. Our own World Bank “Balkan Digital Highway” initiative also contributes to this. It aims to leverage fiber assets already deployed by the Electricity Transmission Grids Operators to improve connectivity within and across the six countries.
With this, let me close:
With a shared vision to ensure macroeconomic stability, implement bold reforms behind the border, and enhance economic integration, the Western Balkans can accelerate growth, improve living standards and reap the benefits from the new economy.
Much can be achieved at the country level. But the benefits multiply through collective and regional action. The World Bank looks forward to continuing to support the Western Balkans on the road ahead.