The standards of living in the Western Balkans are far behind those of EU countries.
The six Western Balkan countries have a Gross Domestic Product (GDP) per capita adjusted by purchasing power parity (PPP) that is less than half of the EU average.
The European Bank for Reconstruction and Development (EBRD) in its latest report “Can the Western Balkans converge towards EU living standards?” considered that improving governance in Albania and the region could be an effective tool to increase well-being and push forward convergence rates to reach EU standards.
According to the EBRD, improving governance quality could help change demographic trends, especially in Albania. The region has made regress in governance standards in recent years, expanding the gap with homologous countries in the EU and elsewhere.
The EBRD notes that the GDP gap between the Westen Balkans and the EU has narrowed in the past two decades, but the pace of convergence has slowed since the global crisis of 2008-2009. According to recent growth trends, it could take 70 years or more for the Western Balkans to achieve the prosperity of EU countries.
Therefore, the key question is: What can be done to accelerate the convergence rate? And EBRD experts believe that reforms can make a difference. Everyone agrees that more must be done to create a more sustainable and functional market economy.
But which reforms are likely to prove more effective in accelerating convergence? Specifically, convergence could be accelerated by:
- better governance,
- promoting cross-border links, and
- promoting green economy.
Areas requiring special attention include the overall inefficiency of state institutions, courts, lack of protection for property and intellectual rights, and high levels of corruption.
The EBRD highlights that weak governance is not only the main obstacle for investors but also a discouragement for the local population, encouraging young people to emigrate (and discouraging immigrants from returning).
The EBRD says that improving governance can address the region’s skills deficit, persuading talented people to stay or promoting the return of those who have left.
Greater openness to trade and investment will make the region more competitive. For the past three decades, efforts by Western Balkan economies to fully integrate into regional and global markets have been hampered by weak infrastructure quality, barriers to trade beyond borders, and lack of knowledge and sophistication that prevent them from entering richer markets.
The EBRD states that attracting foreign investors can strengthen regional competition and bring new growth opportunities.
The fundamental problem in the six Western Balkan countries is low productivity, which has been accumulated by underinvestment in the economy, weak institutions, and, finally, unfavorable demographics and a difficult business environment.
