The Western Balkans is rapidly becoming a favored nearshoring destination for foreign companies, particularly in the wake of the COVID-19 pandemic. A recent study by the Vienna Institute for International Economic Studies (wiiw) highlights the region’s appeal due to its geographic proximity to the European Union, a skilled workforce, and competitive labor costs.
Key Takeaways
- Increased Foreign Direct Investment (FDI): FDI inflows in the Western Balkans have surpassed long-term equilibrium values.
- Geopolitical Factors: Companies are relocating to mitigate risks associated with long supply chains.
- Satisfaction Among Investors: A significant majority of foreign firms express satisfaction with their investments in the region.
- Challenges Remain: Issues like poor governance and underdeveloped infrastructure still pose challenges.
The Rise of Nearshoring
Nearshoring, the practice of relocating production facilities closer to consumer markets, has gained traction as companies seek to reduce the risks associated with long supply chains. The wiiw report identifies five of the six Western Balkan economies—Albania, Bosnia & Herzegovina, Kosovo, North Macedonia, and Serbia—as active participants in this trend.
Branimir Jovanović, the lead author of the study, notes that Asian firms are particularly strategic in their approach, positioning their production facilities near the EU’s economic core. This shift is driven by both economic and geopolitical factors, with companies from China, Japan, and South Korea leading the charge.
Investor Sentiment
A survey conducted by wiiw revealed that:
- 72% of foreign firms are satisfied with their investments in the region.
- 11% have relocated production closer to the EU.
- 66% view the Western Balkans as a promising area for green investments.
These findings indicate a strong interest in the region, particularly for companies looking to engage in environmentally sustainable practices.
Challenges to Growth
Despite the positive trends, the report highlights several challenges that investors face in the Western Balkans:
- Poor Governance: Corruption and weak rule of law hinder business operations.
- Underdeveloped Infrastructure: Inadequate facilities can impede growth.
- Inadequate Institutions: The lack of robust institutions poses risks for foreign investors.
Jovanović emphasizes the need for governments in the region to assist local companies in becoming more environmentally sustainable and to foster collaboration with foreign investors.
Potential for Green Investments
The report also underscores the Western Balkans’ potential for green investments, particularly in renewable energy. Major projects are already underway in countries like Albania, Bosnia, Montenegro, North Macedonia, and Serbia.
Jovanović points out that environmental sustainability is becoming increasingly important for companies considering investments. Many foreign investors prioritize environmental protection and CO2 reduction in their decision-making processes.
Local Companies’ Awareness
A survey of 382 local companies included in the wiiw report reveals that:
- 66% of respondents recognize the need to reduce CO2 emissions to boost exports to the EU.
- Most local companies believe that significant financial support will be necessary to achieve these goals.
This awareness among local businesses indicates a readiness to adapt to the changing landscape, provided they receive the necessary support.
In conclusion, the Western Balkans is emerging as a significant nearshoring destination, driven by favorable conditions and a growing interest from foreign investors. However, addressing the existing challenges will be crucial for the region to fully realize its potential in the global market.
Sources
- Western Balkans emerges as nearshoring destination , Intellinews.
