COMMENT: The EIB supports the long-term recovery of the Western Balkans

COMMENT: The EIB supports the long-term recovery of the Western Balkans
By Lilyana Pavlova vice-president of the European Investment Bank March 11, 2021

The decade ahead will demand solutions for at least three major issues that could have significant and grave consequences on our lives. One of them, the COVID-19 pandemic, has posed considerable economic and social challenges ranging from increased unemployment to liquidity and operational issues that are hampering growth and jeopardising the very survival of companies, especially small and medium enterprises (SMEs). On top of that, the world is increasingly affected by devastating changes in the climate, a major emergency that is threatening life on our planet. These changes are already taking a heavy toll on livelihoods and straining economies across the globe. Finally, we have to find an answer to the third fundamental question of how to make people and economies resilient to COVID-like crises in the future. 

All of the above applies to the Western Balkans as well. The region needs to identify ways of tackling the severe deficits and setbacks caused by the pandemic. It is not alone, and can count on committed, hands-on support from the European Union and the European Investment Bank (EIB). Team Europe is ready to support the region’s economies in overcoming this unprecedented crisis and help them find answers to the socioeconomic issues of recovery, climate action and resilience to pandemics. In 2020 alone, the EIB, which is just one part of Team Europe, mobilised over €1bn to help the region’s economies tackle the negative consequences of the pandemic. This support is part of a €1.7bn financial package announced last year to foster the recovery from COVID-19. 

On top of this package for the immediate term, the EIB plans to provide financial and advisory support for the long-term recovery and the green and digital transition of the region’s markets. This economic transformation will ensure the competitiveness and sustainability of the countries in the Western Balkans in the post-COVID era. 

An important blueprint for these initiatives is set out in the Economic and Investment Plan adopted by the European Commission. The plan envisages the mobilisation of up to €9bn in investment to encourage inclusive growth, sustainable transport, the green and digital transition, as well as the creation of a regional common market. 

Retaining jobs as an imperative

The pandemic has had a devastating effect on the region’s job market, causing a surge in unemployment. For example, in Bosnia & Herzegovina, employment figures fell by 2.1% in the third quarter of 2020, compared to the same period in 2019. Youth unemployment remained high, reaching 38.6% in the second quarter of 2020. According to the European Commission, job retention will be the most demanding task facing the region’s companies and governments in the upcoming period. 

Small businesses across the Western Balkans region employ over 70% of the active population. For over a year now, they have had to cope with severe liquidity constraints on a daily basis, restricting their ability to access finance, maintain day-to-day operations and retain jobs. More flexible credit lines with increased maturities and fewer collateral requirements became urgently needed to help them finance their working capital and investments. 

The EIB Group addressed this issue head on. In 2020, it unlocked €320mn for SMEs in the Western Balkans. These funds were facilitated under very favourable and flexible conditions, following the EIB’s and European Union’s measures to support the private sector’s recovery from COVID-19 in the Western Balkans. 

The aim was to accelerate access to finance for the worst-hit industries and help them retain businesses and jobs. We widened the focus of our operations and increased financing options even for underbanked segments – micro companies, start-ups and rural entrepreneurs – that usually have very limited access to loans. Moreover, the EIB signed the first ever impact loan, encouraging employment among vulnerable social groups, jobs for youth and women entrepreneurship. A further boost to the private sector’s development in the region will be provided by the creation of the Western Balkans Guarantee Facility, as outlined in the Economic and Investment Plan. It is expected to potentially leverage up to €20bn of new investment, particularly for the SME sector.

Looking ahead, the region’s economy needs to be more sustainable and connected, which can only be achieved through the digital and green transformation. The creation of an inclusive common market in the region will lead to more efficient integration in the European Union’s production and distribution processes, thereby ensuring the competitiveness of the local economy. The EIB has expressed its commitment to supporting these initiatives and the important first steps have already been taken.

Tackling climate change

In November 2020, the EIB adopted a new Climate Roadmap, pledging to mobilise up to €1 trillion in investment for climate action and environmental sustainability in the decade to 2030, and dedicate 50% of its financing to green investments by 2025. All of the Bank’s activities are aligned with the Paris Agreement and the ambitious goal of making Europe the first climate-neutral continent by 2050.

As the EU climate bank, the EIB is looking forward to supporting the region through its green transition, helping it switch to more efficient, renewable and sustainable energy resources. It offers financial and technical support to develop new energy efficient and sustainable projects for the region, which will help reduce the need for coal-based energy generation, a major source of air pollution.

Going forward, the EIB will extend its investments in wastewater management and sustainable mobility areas that can also significantly contribute to a cleaner environment, a lower carbon footprint and improved living conditions for people across the Western Balkans. These initiatives could provide powerful impetus for the development of the region’s economies.

Increased resilience to future emergencies

And lastly, what mechanism can be deployed to increase preparedness for future crises? There is no easy answer to this question because the process must be comprehensive, involving the strengthening of both the private and public sectors with the modernisation of key infrastructure.

However, these initiatives alone cannot ensure competitiveness and sustainability in the world as we know it today. A long-term transformation of the economy and the public sector is needed via a green and digital transition. All these processes combined can achieve the full impact required, boosting the creation of a competitive, strong and prosperous region that is integrated in the EU market. The EIB – the EU bank – stands by our partners in the Western Balkans to support the region in this endeavour. 

Lilyana Pavlova is the new EIB vice-president in charge of the activities for the Western Balkans. Within the bank, she is responsible for cohesion policy, transport financing, advisory, joint Assistance to Support Projects in European Regions (JASPERS), European Investment Advisory Hub (EIAH), strategy for the Danube region and for other areas. Prior to this position, she was a member of the National Assembly of the Republic of Bulgaria.