BALKAN
GRIT

The Pandemic Has Hit South-Eastern Europe Hard but Opportunities Beckon 


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.


 

Common Crisis is a CEPA analytical series on the implications of covid-19 for the transatlantic relationship. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis. 

Photo: By The Presidential Office of Ukraine under CC BY 4.0.    



 

Janusz Bugajski
4 May2020

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