The western Balkans has a jobs crisis. Unemployment is 19 percent in Serbia, and more than double that for youth. The figures are even higher in other countries, peaking in Kosovo at 45 percent and 75 percent, respectively. For some perspective, U.S. unemployment topped out at roughly 25 percent during the Great Depression.
In a new op-ed, Kori Udovicki of the UN Development Programme and Gerald Knaus, founder of the European Stability Initiative think tank, ask how things got so dire.
Why are there more than 10,000 jobs in the furniture industry in the central Turkish city of Kayseri, far from any forests, but not in Bosnia? Why are household appliance producers doing well in Slovenia, Romania and Turkey, but not in the Western Balkans? And why is there so little agro-processing for the EU market?
The authors blame poor priorities and disastrous circumstance. In the recovery period after the collapse of Yugoslavia, they say, regional governments embraced laissez-faire economics – “‘hands-off’ privatizations and deregulation” – when they should have focused on developing specific industries with growth potential. Jobs were lost in the privatization processes, and then they were decimated by the 2008 financial crisis.
Regional economies are effectively starting from scratch today. To create jobs, according to Knaus and Udovicki, they need foreign investment to develop comparative advantages, or to revitalize the expertise and know-how in industries where they once excelled. For instance, Kosovo (my example) was once a regional breadbasket, but now it imports milk, butter and eggs. Agriculture could be a comparative advantage with the right investment. Kosovo also has the world’s fifth-largest lignite reserves.
To attract foreign capital, governments could create industrial development agencies – perhaps modeled on the Irish Industrial Development Agency, the authors say – to identify promising sectors and educate local governments on courting investment. Brussels can help by encouraging countries to formulate long-term re-industrialization strategies while providing financial assistance. Regional capitals, in turn, should get serious on EU reforms to improve their business climates.
“The more realistic the prospect of EU membership is, the bigger are the incentives for those interested in long-term investments in industrial production in the Balkans,” the authors write, adding that only Croatia has even so much as begun EU accession talks in recent years.
Knaus and Udovicki say there is no “silver bullet” for job creation in the Balkans, especially with Europe in turmoil. But they also say the potential to re-industrialize is there – Serbia, for instance, once had a vibrant textile industry – and point to Poland and Slovakia as models. In the past decade, Bratislava (again, my example) capitalized on Czechoslovakia’s legacy as an engineering powerhouse to win major international automotive investments after pursuing business-friendly reforms like its much-lauded 19 percent flat corporate, income and value added tax, introduced in 2004.
Do the capitals of the western Balkans have that same political will? Doubtful. Foreign investors like incentives such as low taxes, sure, but what they really want are stable, business-friendly governments they can turn to in a pinch. More than anything, Slovakia’s tax reform was symbolic – ”we’re open for business,” it said – but the dysfunctional and often toxic political dynamic in the Balkans sends the opposite message.
Bosnia, to take one example, is internally divided. It lacked a central government in 2011 because of infighting. Some local leaders want to tear down the state through nationalist rhetoric and referenda to challenge the legitimacy of public institutions. Corruption is endemic. As a result, key EU reforms have stalled, and foreign investment has plummeted since 2009.
And where’s the rise together spirit that helped the post-communist EU states to reform and membership? The western Balkan countries are often at cross-purposes. Take Kosovo. It’s one of Europe’s poorest countries and needs to attract foreign investment. But even if it did – in agriculture, let’s say – its export options are paltry, as Serbia and Bosnia continually embargo Kosovo products. This is despite the country’s membership in the Central European Free Trade Agreement.
Knaus and Udovicki suggest that regional leaders need to wake up and prioritize industrial development.
Allowing the Western Balkans to continue down its current economic path is not an option. Today’s lack of employment opportunities is generating too much despair, especially among the young. There is, in fact, no greater and more urgent social and economic issue in the region.
Picture of a produce stand in Pristina from flickr