Why is the Commission presenting an Economic and Investment Plan for the Western Balkans?
The main aim of the Economic and Investment Plan is to spur the long-term economic recovery of the region and foster regional economic integration. We want to support a green and digital transition in the Western Balkans, the implementation of reforms required to move forward on the EU path, and bring the region closer to the EU Single Market. All of this should lead to sustained economic growth and job creation.
This Plan is all the more necessary as COVID-19 is having massive disrupting effects on the economies of the Western Balkans, which were already lagging behind in terms of economic convergence with the EU and face challenges from weak competitiveness, high unemployment and structural weaknesses.
What are the key flagship initiatives in the Plan?
The plan identifies ten investment flagship initiatives in key areas for economic development such as sustainable transport and energy connectivity, the green and digital transformation, strengthening the competitiveness of the private sector and support to health, education and social protection, including a youth guarantee to create job opportunities for young people.
In the context of the Green and Digital transition, the Commission will examine the costs, the benefits and the impacts of the following priority investment flagships and their corresponding project proposals with a view to take them forward actively and expediently
FLAGSHIP 1 – CONNECTING EAST TO WEST
– The “Peace Highway” in Kosovo (linking Pristina with Niš in Serbia) will be finished with the Serbia section substantially advanced.
– While the (core network of the) road corridor (Corridor X) south-east from Hungary through the region to Bulgaria, Greece and beyond has been practically completed, including with EU support, the parallel rail corridor will be fully modernised. In particular, the Niš railway bypass in Serbia will be finalised in this timeframe. The project on Corridor X to upgrade the rail connection between Serbia and Croatia, which is a vital link in terms of rail freight, will be considerably advanced, as will the project to upgrade the rail link to North Macedonia.
– Rail Corridor VIII between Skopje and the Bulgarian border will be substantially advanced to connect Skopje and Sofia.
– Demining of the Sava river and addressing bottlenecks on the Danube river will be completed or advanced to improve the sustainable transport mode of these important waterways as part of the TEN-T network, and to facilitate further development of intermodal exchanges.
FLAGSHIP 2 – CONNECTING NORTH TO SOUTH
– 75% of the main north-south road corridor linking central Europe capitals through Sarajevo in Bosnia and Herzegovina to the port of Ploče on the Adriatic coast (Corridor Vc) will be completed to motorway standards. The rail connection along the same corridor will also be upgraded.
– Rail Route 4 linking Belgrade to Podgorica to the Montenegrin port of Bar will be fully rehabilitated from the Serbia border to the sea. The parallel road corridor will be further advanced, in particular the Podgorica bypass.
– The Sarajevo to Podgorica capital to capital connection will be enhanced, linking further to the existing and planned networks in Bosnia and Herzegovina, and providing more direct links between neighbours.
– Railway Route connecting Belgrade with Pristina will be further upgraded through construction works in Kosovo and by preparing the necessary technical documentation for the rehabilitation works in Serbia.
FLAGSHIP 3: CONNECTING THE COASTAL REGIONS
– The Rail Route 2 linking the capitals of Tirana and Podgorica, and extended to the port of Durres, is a key project for the region and will be enhanced through the rehabilitation of 120 km of railway line in Albania towards the border with Montenegro.
– Major steps will be taken to complete the “Blue Highway” along the coast from Croatia down to Greece: the Tirana road bypass will be completed and two further sections in Albania plus the Budva bypass in Montenegro will be substantially advanced.
FLAGSHIP 4 – RENEWABLE ENERGY
– The Fierza Hydro Power Plant rehabilitation in Albania will be completed, and the construction of the Skavica Hydro Power Plant advanced, in order to increase the potential for the country and ultimately the region with view to increase export of electricity from clean energy.
– The Piva Hydro Power System in Montenegro will be expanded with the start of the construction of the Komarnica Hydro Power Plant.
– Preparations for the construction of the Ibër-Lepenc Hydro System Phase II in Kosovo will be accelerated.
– Wind park and solar power plant investments in North Macedonia will be substantially advanced and serve as an example for future proof investments making use of the renewable energy potential of the region.
FLAGSHIP 5 – TRANSITION FROM COAL
– As part of the Trans Adriatic Pipeline, the construction of the Fier-Vlora gas pipeline in Albania will be completed, and the Ionian-Adriatic pipeline along the coast will be prioritised, facilitating a major diversification of the sources of gas supply to the Western Balkans region and beyond
– The Gas-interconnector Bosnia and Herzegovina – Croatia, complementing the above diversification, and increasing the potential and diversification of the existing gas distribution system in the country, will be completed
– The North Macedonia – Kosovo Gas Interconnection, and extending the already ongoing investment of the North Macedonia – Greece interconnector, would start construction.
– The North Macedonia – Serbia Gas Interconnection will be prepared for construction.
– The Trans-Balkan Electricity Transmission Corridor in Serbia as part of interconnection between Serbia, Montenegro, and Bosnia and Herzegovina will be completed to provide the backbone for the electricity distribution of the whole region and towards the EU.
FLAGSHIP 6 – RENOVATION WAVE
The Commission proposes to expand the “EU renovation wave” to the Western Balkans.
The building sector accounts for over 40% of total energy consumption in the Western Balkans. Renovating public and private buildings to meet minimal energy performance standards can make a very significant contribution to the reduction of greenhouse gas emissions, improve the living standards of citizens, as well as their health. A building renovation wave implemented with the help of the Energy Community will assist the Western Balkans in decarbonisation of public and private building stock, with a strong emphasis on digitalisation and taking into account energy poverty. The EU together with international financing institutions, will support the efforts of the Western Balkans partners to triple the current renovation rate and energy savings in existing buildings and achieving nearly-zero energy and emission standard in new buildings.
FLAGSHIP 7 – WASTE and WASTE WATER MANAGEMENT
– Construction of wastewater treatment plants in Skopje and Pristina will be completed. These projects have a high transboundary impact and improving the living conditions of the population.
– The implementation of an environmental investment programme in Serbia, comprising modernised waste water treatment projects for large and medium sized towns, will be undertaken
– Integrated regional waste management systems in Albania, Montenegro, North Macedonia and Serbia, going hand-in-hand with the closure of non-compliant landfills, will be established. Similar investments elsewhere in the region should also be supported in the future, including better management of waste in cross-border areas.
– Support for the establishment of proper air and water monitoring systems and pollution prevention measures.
FLAGSHIP 8 – DIGITAL INFRASTRUCTURE
– The development and roll-out of national broadband infrastructure in the six Western Balkans partners will continue and the preparation of further investments elsewhere will be accelerated with particular focus on connecting rural areas.
– Setting up secure, energy-efficient and trustworthy data centres, edge and cloud infrastructures while ensuring alignment with EU’s rules and fundamental values, including data protection, as well as linking to EU initiatives on high performance computers, digital incubators and innovation hubs.
– Building on ongoing initiatives such as the Balkan Digital Highway, synergies with other connectivity areas such as transport and energy should be fully explored in the context of infrastructure-sharing. In addition, using technology and data purposefully to make better decisions has a high potential to deliver a better quality of life for the citizens in the region. Support will also be provided for adapting to the rapid transformative technological development in order to remain prosperous and competitive. The EU will promote cooperation in digital education globally through the renewed Digital Education Action Plan (DEAP) and promote equality in access, in particular for disadvantaged groups, including Roma.
FLAGSHIP 9 – INVESTING IN THE COMPETITIVENESS OF THE PRIVATE SECTOR
– Plan to increase the grant amount to support the private sector under the Western Balkan Investment Framework. 50% of EU private sector funding should be dedicated to innovation and green growth.
– Plan to increase the guarantee capacity supporting investments to, primarily to strengthen the competitiveness of SMEs and enhance employment creation, particularly catering to young people, through the Western Balkans Guarantee Facility
– Mobilise assistance for sustainable transformation of agri-food systems and rural development in the region.
FLAGSHIP 10 – YOUTH GUARANTEE
The Youth Guarantee is an activation scheme to ensure that all young people receive a good quality offer of employment, continued education, apprenticeship or traineeship within a period of four months of becoming unemployed or leaving formal education.
The Youth Guarantee flagship should be implemented by Western Balkan governments in line with the EU Youth Guarantee. It is proposed to implement it in four phases, which could all potentially benefit from EU support.
How much EU funding will be allocated to this Economic and Investment Plan?
Subject to the adoption of the next Multi-annual Financial Framework and the related legal bases, the Commission proposes to mobilise up to €9 billion of grant funding from the Instrument for Pre-Accession Instrument IPA III for the period 2021-2027 to support economic convergence with the EU.
This funding will primarily enable investments and provide support to competitiveness and inclusive growth, sustainable connectivity, and the twin green and digital transition.
Will European financial institutions and others bring loans for the planned investments? How will the European Investment Plan attract investment?
In addition to the EU’s significant funding to the region already foreseen under IPA III, the EU aims to provide guarantees to help reduce the cost of financing for both public and private investments and to reduce the risk for investors: support through the new Western Balkans Guarantee Facility has the potential to mobilise up to €20 billion of investments in the next decade.
The Western Balkans Investment Framework (WBIF), including its private sector platform the Western Balkans Enterprise Development and Innovation Facility (WB EDIF) and the Western Balkans Guarantee Facility, gathering Western Balkans partners, bilateral donors and International Financial Institutions will be the main vehicle to ensure swift deployment of the investment package.
The rule of law and good governance (“Fundamentals first”) is at the core of the accession process. Does the Economic and Investment Plan shift this focus? Is the Plan al alternative to the Enlargement?
Both the Enlargement package and the Economic and Investment Plan make it very clear that the fundamentals first principle remains at the heart of the EU’s enlargement policy. Preparing the candidate countries and potential candidates to meet the requirements of membership requires a strong focus on fundamental reforms in the rule of law, including fighting corruption and organised crime, the economy and functioning of democratic institutions and public administration.
This plan is an integral part of the support to the Western Balkans on the path to the EU. Economic development and implementation of fundamental reforms should be mutually reinforcing and contribute to partner countries meeting the well-established requirements of the accession process. This includes the implementation of the rule of law reforms and structural economic reforms, in particular those identified in the Economic Reform programmes, which will maximise the potential impact of this investment package.
Boosting investment and economic growth will therefore only be possible if the Western Balkans firmly commit to and implement fundamental reforms in line with European values. Whether structural socio-economic reforms, in particular those identified in the Economic Reform Programmes and the joint policy guidance, strengthening the rule of law, respect for human rights, or improving public administration, these reforms are essential for an environment favourable to entrepreneurship, job creation and sustainable investment.
Western Balkans leaders must deliver more credibly on their commitment to implement the fundamental reforms required and with clearer political commitment, in line with the revised enlargement methodology.
Therefore and in line with the enhanced methodology, the Enlargement package presented in parallel with the Economic and Investment Plan assesses in greater detail developments on all the fundamentals and makes clearer recommendations for the partners to address shortcomings. Only with concrete results in these fields will they be able to move forward on the EU path and reap the full benefits of this Economic and Investment Plan, as well as create an environment more conducive to economic development and attract investments.
Will EU condition funding to progress in the rule of law area?
The Economic and Investment plan is built on the foundations of a performance based and reform oriented Pre-Accession Instrument III proposed by the Commission and reinforced instruments to foster public and private sector investment.
Respect for the rule of law is also necessary to protect the EU funds and ensure that they are used to support the development of the Western Balkans.
Public procurement needs to be aligned with EU rules and fully implemented. Exceptions to public procurement procedures should be applied restrictively, including limiting the use of inter-state agreements. This will help to ensure that corruption in procurement does not impide economic development, distort the market and create inefficiencies reducing competitiveness, trade and investment. These reforms will also strengthen safeguards against any misuse of EU funds.
In line with the principle of conditionality reflected in the revised enlargement methodology, where countries move on reform priorities this should lead to increased funding and investments. In case of any serious or prolonged stagnation or backsliding and on the basis on of the Commission’s assessment of progress in the annual progress reports, the scope and intensity of EU funding could be adjusted downward.
The Economic and Investment Plan heavily focuses on infrastructure investments such as roads and pipelines. What about the European Green Deal and the twin green and digital transition?
The Economic and Investment Plan contains a broad range of measures and will seek to promote a green and digital approach to development specific to the Western Balkans, but similar to that of the EU itself. These include infrastructure investments, in sustainable transport and clean energy, but also concrete proposals to better protect the environment, reduce carbon dioxide emissions, and support energy transition, with a specific Green Agenda for the Western Balkans presented in annex to the Plan, outlining in more detail our approach in this regard.
In parallel to the Economic Investment plan to support the region, the Commission has presented guidelines for implementing the Green Agenda in the Western Balkans, expected to be adopted at the Western Balkans Summit in Sofia in November 2020. It foresees actions around five pillars. These are (i) climate action, including decarbonisation, energy and mobility, (ii) circular economy, addressing in particular waste, recycling, sustainable production and efficient use of resources, (iii), biodiversity, aiming to protect and restore the natural wealth of the region, (iv), fighting air, water and soil pollution and (iv) sustainable food systems and rural areas. Digitalisation will be a key enabler for the above five pillars in line with the concept of the dual green and digital transition.
The Plan also aims at strengthening investments in a digital future, including the deployment of ultra-fast broadband, and at making the private sector more competitive.
This broad approach will support the development of connected, competitive knowledge-based, sustainable, innovation oriented and thriving economies in the Western Balkans, with an increasingly dynamic private sector.
The Plan has a strong focus on enhanced regional economic integration in a regional market on the basis of EU rules. What opportunities does it bring for reaping the growth potential of the region?
The Commission has been supporting the efforts of the Governments of the region to develop a new vision for the creation of a regional economic area expected to be endorsed in the Sophia Summit in November.
Building a Common Regional market, based on EU rules, is an important milestone for preparation for the EU accession. Successful regional economic integration will help pave the way to a deeper economic integration with the EU single market.
In this context, the Economic and Investment Plan will also seek to better integrate economically the Western Balkans – amongst themselves and with the EU. The Plan identifies avenues where a closer economic integration of the region with the EU could be achieved, e.g. digital market, industrial and consumer goods, banking transactions.
The Economic and Investment Plan emphasises as well our expectations from the region to remove barriers to trade within the region: currently the Western Balkans suffer too much from economic fragmentation. As an example, trucks spend 28 million hours waiting at borders every year – a burden that costs 1% of its GDP. Building a common market of 18 million people, functioning on the basis of the EU rules, could be a game changer for the Western Balkans and would benefit both the region and the EU.
These two mutually reinforcing economic integration processes (EU-Western Balkans and intra Western Balkans) will allow the region to reap economic benefits from the regulatory convergence process ahead of accession as well as from near-shorting opportunities in reaction to the pandemic. The economic growth potential of the region as a whole must be tapped to contribute to overcome the socioeconomic consequences of the pandemic.
What is the link between this Plan and the Enlargement reports?
The Enlargement package provides a very comprehensive assessment of the progress of the region towards the European Union and gives clear recommendations to the authorities on where there are still gaps to meet the EU’s accession criteria. The reports will be a very useful tool for the governments to focus their reform efforts in the year ahead. At the same time, the Economic Investment Plan will provide the region the EU’s financial support to foster the much-needed economic growth to ensure convergence with the EU’s economic criteria and improved living conditions for the citizens of the region.
The plan provides a unique combination of three strands: first the substantive funding that the European Union will provide to swiftly deliver on key priority investments that have been proposed by the authorities and have high impact for the whole region; second: the firm commitment of the partners to accelerate the reforms needed to consolidate conducive conditions for economic growth and third: the engagement of the whole region to establish an economic market that will make the region more attractive for investors from the region, the EU and abroad.
How much has the EU invested already in the Western Balkans?
The EU is the biggest donor, trading partner and investor of the Western Balkans, in line with the European perspective of the whole region.
Since the 1990s, the EU has contributed over €11 billion in grants and loans for the development of transport and energy infrastructure in the region, resulting in investments of almost €22 billion.
In the framework of the Connectivity Agenda in 2015, the EU pledged a further €1 billion by 2020, which is on target to trigger €4 billion in investments and create more than 45.000 jobs.
Over 69.4% of the region’s total trade in 2019 was with the EU, making it its first trading partner, whilst EU companies are the first investors, accounting for approximately 65.5% of total foreign direct investment stock in the region in 2018.