Rebuilding the Balkans, brick by brick

Jean Lemierre International Herald Tribune
MONDAY, MAY 23, 2005

BELGRADE The Western Balkans is often associated with fledgling states, impossible politics, stalled economies, violence and corruption. But the people who live and invest there are changing that image.
Bosnia and Herzegovina, Croatia, Macedonia and Serbia and Montenegro emerged from what was Yugoslavia and, like neighboring Albania, set out to forge their futures as independent, democratic, market-based states.
Important efforts by many political leaders in the region and by the international community are devoted to making the future more stable. But negotiations and political compromise are only part of the solution. Across the region, owners of businesses, industries and banks are finding their own ways to build enduring stability.
They are building with bricks, among other things. A disused brick factory in Sarajevo will soon be renovated and put back into operation by a Croatian company that makes construction materials. The investment represents not only an expansion by NasiceCement of Croatia to acquire a clay brick plant in Bosnia. It represents the future of the region.
Across the Western Balkans, old trading links are being restored. Old political wounds and ethnic divisions are giving way to the practicalities of doing business. A Serbian juice-maker has aspirations to be the best in the Balkans. Grand Coffee may be branded Bosnian, but it is part of a Serbian company that is growing internationally. Hypermarkets, agribusiness and pharmaceutical companies from the region are expanding into neighboring countries and beyond.
These are the successful projects of entrepreneurs who see their future in a regional economy with a market of 25 million people. Their focus is on what governments have done to encourage trade and attract investment, especially beyond their own countries. Entrepreneurs in the Balkans understand that countries have to join up or give up.
All the governments of the region have signed bilateral agreements for free trade across their mutual borders. An integrated energy market is becoming a reality. Transport infrastructure, such as railroads, air links and highways are creating a transit corridor that will form the fabric of a regional economy.
Foreign investors are recognizing the opportunities that Southeast Europe's regional market can offer, including the steel multinationals LNM and US Steel. Foreign direct investment into the Western Balkans over the past two years adds up to more than $6 billion in the oil industry, banks, tourism, transport and other sectors.
The economies of the region are showing the results, with growth averaging more than 5 percent in 2004 in all five countries. Governments are reinforcing market economies through privatization and by introducing new institutions to promote competition, corporate governance and an increasingly sophisticated banking sector. The private sector now accounts for more than 60 percent of the regional economy.
The Western Balkans is in the full throes of a process of transition from planned economies to democratic market economies. The philosophy of the European Bank for Reconstruction and Development is that this transition is ultimately the best hope for prosperity and stability.
The EBRD has partnered with foreign investors and provided loans or taken stakes in Balkan companies to start or expand operations, often into a neighboring country. We support local banks to finance small businesses and to develop a full market economy. That includes finding ways to redirect the massive remittances that Balkan expatriates send from abroad, channeling them through banks instead of the informal economy.
Even in Kosovo, whose final status is yet to be determined, entrepreneurship and market principles are starting to take hold, thanks in part to EBRD financing for 25,000 loans to small and micro businesses.
To develop the market economies of the Western Balkans is to invest in the stability of the region. Strong trading links across borders and between ethnic groups, incentives to get closer to the European Union, and initiatives to work collectively will give people a sense of control of their own destiny and make them more prosperous. And that can only help the political process.
(Jean Lemierre is president of the European Bank for Reconstruction and Development.)