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In poor regions like the Balkans, the economic
impact of the pandemic will be far-reaching and acutely test social
resilience. However, it will also provide opportunities for
self-reliance and resourcefulness that could benefit Europe more
widely. The International Monetary Fund (IMF) and the European Bank
for Reconstruction and Development (EBRD) calculate that the
economic contraction in the Balkans will range between 3% and 10%.
The IMF also forecasts that Balkan economies, which have applied
strict lockdowns to contain the pandemic, can start to rebound later
this year with a 4.2% uptick in production once social restrictions
are relaxed. Several countries are allowing small and medium-sized
businesses to reopen in May, while larger public gatherings,
including schools, shopping centers, parks, and sports venues will
open more gradually if the contagion continues to decrease.
For most Balkan states, two revenue streams —
tourism and remittances — will be badly affected by the pandemic.
Their economies are susceptible to deep disruptions in tourism, with
earnings exceeding 20% of GDP in Albania, Croatia, Greece, and
Montenegro. Family remittances by migrant workers in the EU
constitute more than 10% of GDP for several countries, making them
vulnerable to job losses in Western Europe. Agriculture is a big
part of this. Recent bilateral agreements, such as between Albania
and Greece, will help ensure a substantial seasonal workforce
critical for both economies.
The lockdowns come at a heavy fiscal cost, meaning
sharp increases in public debt. To help limit the fallout, the
European Commission has adopted a proposal (subject to approval by
the European Parliament and Council) for a €3bn macro-financial
assistance package to 10 “enlargement and neighborhood partners.”
Economic readjustment will bring reassessment of
risks in global manufacturing and a renewed emphasis on
diversification along with national self-sufficiency in key sectors,
and regional rather than long-distance interdependence. This heralds
new business opportunities. The Balkans are well-positioned to
benefit.
Domestically, service industries such as
transport, restaurants, sport, and entertainment may suffer for a
prolonged period, but other sectors can record significant growth,
especially in online shopping, deliveries, telecommunications,
computer products, and pharmaceuticals. Bucharest tops a new listing
as the best European capital for online work due to its modern and
fast internet service. Other cities should take that as a model.
Bulgaria also exemplifies resilience. The country
experienced a devastating economic crisis in 1997 when 16 banks
collapsed, inflation soared, and wages plummeted. But good
government policy quickly overcame the crisis and can do so again by
encouraging public resourcefulness and attracting foreign
investment. Within weeks of the covid-19 outbreak, Bulgaria started
producing high-quality carbon-layered face masks and other
protective gear for hospitals. Such production can be substantially
expanded and include other health-care equipment, especially if
foreign investment can be enticed by relatively cheap labor costs.
All Balkan capitals should think regionally about
how their location, labor, and tech-savvy young generations can help
develop new capacities in manufacturing essential or emergency
products needed in the EU. Pharmaceuticals are a notable sector
where production can be expanded. Pharmaceutical companies in
Croatia, Bulgaria, and North Macedonia, already well-known in the
EU, will be looking to substantially increase supplies to the
European market.
Western states will also be reviewing their
economic links with Beijing in order to protect their national
security. Some European and American companies are likely to vacate
China or seek to spread their risks and will find receptive hosts in
the Balkans. Conversely, growing suspicion over China’s economic and
political objectives could set back Beijing’s Belt and Road
Initiative (BRI) and its “17 plus 1” offshoot. This also provides
opportunities for boosting pan-European projects such as the Three
Seas to develop reliable supply chains, help shield against future
crises, and include the entire Balkan peninsula.
Societies that have for decades survived
communism, war, and economic uncertainty can again demonstrate their
resilience. With each country focused on developing its own
capacities, Balkan governments will have an important role to play
in attracting new investments and protecting emerging companies from
hostile takeovers by corrupt business interests. A more effective
pro-business policy will itself become a valuable exam in qualifying
for EU accession – a goal shared by all countries in the region.
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