The Balkan Peninsula, in southeast Europe, reaches into the Mediterranean Sea and is named after the Balkan Mountains. The MPOC’s working definition of the region covers 11 countries, also dividing it into West Balkans and EU Members. Together, the countries have a population of over 60 million, ranging from more than 19 million in Romania to only 600,000 in Montenegro (Table 1).
Income levels in Western Balkans have been far lower than in the Balkans EU even before the Covid-19 pandemic struck earlier this year (Figure 1). The six countries are poor by almost any standard. Remittances from migrant workers in 2019, on average, reached an astounding 8.8% of GDP, according to a World Bank estimate. By way of comparison, the GDP per capita was €115,536 in Luxemburg, €78,335 in Ireland and €47,662 in Germany.
The coronavirus pandemic has, of course, made things worse. The economies of Western Balkans are suffering, supply chains are collapsing, and remittances may be cut off.
Bosnia and Herzegovina, Northern Macedonia and Serbia, as the more industrialised countries, are struggling with collapsing supply chains. The dependency of Serbia and Northern Macedonia on the European automotive industry is seeing challenges.
Montenegro and Albania, for their part, are struggling with reduced tourist numbers. Tourism accounts for about a quarter of the GDP of the two countries, and at least one in five employees derives income from this sector.
The economic growth forecast for Western Balkans was still positive at the end of 2019 (Table 2). Although the global economic engine had stalled, the region seemed to be able to withstand the headwinds and was expected to grow by an average of 3.4% in 2020. Then the pandemic hit.
Remittances, which form an essential pillar of consumption in Western Balkans, could be lost due to the coronavirus crisis. For some families, these serve as a supplement; for others, the only income they receive is from relatives abroad. Since the coronavirus crisis started, many employees have been on furlough or have lost their jobs altogether.
The situation is no better among EU Members of the Balkans (Table 3).
Bulgaria: After a long period of economic growth, the pandemic is paralysing the economy. Despite this, the political framework conditions – especially low tax rates – and the foreign trade orientation towards the European Union (EU) are still favourable enough to point a way out of the trough.
Croatia: The economy will suffer a severe setback. Economic recovery, which began in 2015 after years of recession, is now ending abruptly. The pandemic is causing a sharp drop in demand both at home and abroad. Measures to contain Covid-19 are severely restricting the ability of companies in the industry and service sectors to function. The consequences of the health crisis will be felt much more strongly in Croatia than in most other countries in Western Balkans and central and eastern Europe.
Greece: The GDP will fall by almost 10% in 2020, according to forecasts by the European Commission. The pandemic has shut down the economy. Greece had just overcome a 10-year crisis, which had robbed it of about a quarter of its economic strength. In 2019, GDP had grown by 1.9%. Now the outlook is gloomy again. The country’s debt will increase to almost 200% of GDP, and unemployment will rise from about 16% to 20%.
Romania: The government promises a fundamental reorientation of its economic policy. Instead of pro-cyclical and consumption-oriented growth, the state is relying on a new model for the next 10 years.
This will focus on:
Slovenia: After seven years of steady growth, the economy will shrink in 2020. The pandemic has drastically hit the open economy, which is strongly interwoven with Europe. Problems are being caused by a drop in foreign demand, especially from the EU. Domestic demand has also suffered severely. Pandemic-related restrictions have impaired the functioning of the transport and supply chains.
Despite the difficulties, the global coronavirus crisis could open up excellent opportunities across the Balkans in the long run. Globalisation and the inter-twined world economy are currently under attack from several sides. At the same time, European economies are considering whether to build up new production sites in Europe or to repatriate others from offshore. The thinking is that this would make them less vulnerable to crises. The keywords are nearshoring and reshoring.
From a western European perspective, nearshoring means production in eastern and southeast Europe. Western Balkans could become to the EU what Central America is to the US: an investment and supply location of great geopolitical and economic importance.
Bosnia and Herzegovina, Northern Macedonia and Serbia are particularly interesting locations for investments in industry. All three countries are competitive in terms of productivity and labour costs, and are geographically conveniently located right at the gates of the EU. There is a sufficiency of human resources. In countries of central and eastern Europe, such as Hungary or Slovenia, it is difficult to find workers.
Vegetable oils sector
Over the past decade, the Balkans have considerably expanded the production and export of vegetable oils (Figures 2 and 3).
In 2019, the Balkans imported over 282,000 tonnes of palm oil, up from 191,000 tonnes in 2009.
In 2019, Malaysia contributed 97,724 tonnes of palm oil products (Figure 5). Palm oil and biodiesel accounted for more than 75% of the volume. Romania, Bulgaria, Croatia and Greece together absorbed 92% of the imports (Figure 6). All of the 30,000 tonnes of biodiesel imports went to Bulgaria.
Over the first half of 2020, the impact of Covid-19 left its mark on the region’s palm oil imports. With the exception of Greece, all major importers recorded a drop in demand (Figure 7).
However, economic experts foresee strong recovery from 2021. With the upturn, opportunities for palm oil will return. The Malaysian Ministry of Plantation Industries and Commodities projects additional exports of 300,000 tonnes of processed palm oil to the Balkans via Turkey, which is geographically well placed to serve as a re-export hub.
Uthaya Kumar
Regional Director
MPOC Brussels
