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1. Patterns of FDI in the Western Balkan economies
in the last decade
Despite the different degrees of privatization of the state property, the
achieved growth rates, capital account liberalization and exchange rate regimes,
there are similarities between the countries in the region.
All of the countries in the region have experienced sluggish growth rates in
the first years of transition, high unemployment rates and low levels of domestic
savings and investment.
Table 1: GDP growth rates in the Western Balkan Economies (1996-2007)
Country 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Albania 9,1 -10,9 8,6 13,2 6,5 7,1 4,3 5,7 6,2 5,6 5,0 6,0
Bosnia and
Herzegovina
86,0 37,0 15,6 9,6 5,5 4,3 5,3 3,0 6,0 5,5 6,2 6,0
Croatia 5,9 6,8 2,5 -0,9 2,9 4,4 5,6 5,3 4,3 4,3 4,8 5,5
Montenegro 13,9 4,2 4,0 -6,7 3,1 -0,2 1,7 1,5 3,7 4,1 6,5 7,0
Serbia 7,8 10,1 1,9 -18,0 5,2 5,1 4,5 2,4 9,3 6,3 5,7 6,0
R. Macedonia 1,2 1,4 3,4 4,3 4,5 -4,5 0,9 2,8 4,1 4,1 3,2 5,5
Emerging towards market economies, they have established capital markets
(stock exchanges) that are still underdeveloped in most of the Western Balkan
economies except for the Croatian capital market that is leading in the region by
market capitalization and trading volume of 41.7 billion euro in 2007. They have
ranked differently according to the business climate and ease of doing business
according to the World Bank (Doing Business, The World Bank 2007), Macedonia
being ranked on the 64 th place whereas Albania on 136, lowest from all the
countries in the region.
However, FDI were the dominant type of investment i.e. the inflows of
portfolio investment have been insignificant. Since there is a shift in the
international capital flows from FDI to portfolio investment, the Western Balkan
Economies are facing challenges for further development of their financial
systems.
The competitive advantages of the Western Balkan region compared to the
EU Countries in attracting FDI are the highly competitive cost structure, the well
educated labor force, the proximity to EU and the Mediterranean, the low labor
cost and the availability of raw materials. All countries have applied certain tax and
regulatory incentives in order to attract FDI such as tax discounts, training grants,
assistance with land acquisitions and infrastructure upgrades (Albania); tax breaks
and customs duty exemptions for government agreed projects (Croatia,
Macedonia); special economic zones (Croatia, Macedonia, Serbia); incentives for
non-developed areas (Montenegro).