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Western Balkans: EU membership provides a massive boost to the socio-economic development of the region

An interview with Lilyana Pavlova, EIB Vice-President responsible for the Western Balkans

By: EBR - Posted: Tuesday, June 29, 2021

As the EU Bank, the EIB has in place a mechanism that also prepare countries to act as the block member including introduction of rules from EU Directives on procurement. This includes open international competition, non-discrimination of tenderers, fairness and transparency of the process, and selection of the most economically advantageous offer. These are all processes that benefit a country and its economy.
As the EU Bank, the EIB has in place a mechanism that also prepare countries to act as the block member including introduction of rules from EU Directives on procurement. This includes open international competition, non-discrimination of tenderers, fairness and transparency of the process, and selection of the most economically advantageous offer. These are all processes that benefit a country and its economy.

By Alexandra Papaisidorou*

“For the EIB the economic aspect is essential for long-term sustainable development of the region. The region needs massive investment to recover from devastating effect of COVID-19 pandemic and will need even investment to fuel climate action and digitalization. Regional infrastructure is also in need of billions of investments for upgrade and expansion, especially in the transportation, healthcare and wastewater sector.”

EBR: What is EIB’s role in boosting Western Balkans competitiveness? What are the main areas you are focusing on?

Lilyana Pavlova (LP): The EIB, as the EU Bank, wants to see economies of Western Balkans economically empowered and competitive on the European and global level, capable of creating jobs, incomes and fuelling long-term, sustainable development.

There are several factors important for the competiveness of the region of which cohesion and covid-19 recovery are the priority. Cohesion of the regional economies and creation of a common market, as defined in the Economic and Investment Plan launched by the European Commission in 2020 will bring well-connected market and offer modern transportation, energy and digital network and facilitate regional trade and economic relations.

The recovery of local economies from COVID-19 pandemic is urgent for mitigating short-term economic calamities but also for unlocking transformation towards more sustainable, greener, circular and digital economic model. In addition, the region will need to continue pursuing reforms for EU accession to create better condition for attracting foreign investments and long-term sustainable growth.

As longstanding partner and one of the largest financiers in the region with over €12 billion invested, the EIB is ready to provide financial and technical assistance to accelerate these processes that require substantial funds and technical expertise.

Finding a balance between sustainable economic development, COVID recovery, environment protection and climate action, as well as structural and legal reforms will be the key for long-term resilience of Western Balkans. Today, the EU accession process offers the most effective framework for achieving this balance in a structured and strategic way, foster recovery and induce economic and social growth and development over the long-term.

At the same time, EU accession is the only option available to the Western Balkans that comes with multi-billion financial support mechanisms designed to empower, speed up growth and development in a way that benefits the region in the long-term.

As a major actor in Team Europe initiative, the EIB is ready to work with Western Balkans partners and increase mobilization of these resources to support the region on the road to the EU. We stand ready to provide loans, attract EU grants and provide technical assistance in project preparation to ensure the region can grow and develop in a way that’s sustainable in long-term.

This is particularly relevant for large-scale projects such as modernisation of existing and development of new infrastructure, especially introduction of renewable energy, sustainable transport and digital technologies. As a part of Team Europe initiative, the EIB is scaling up its efforts to help the region recover faster from the devastating impact of the pandemic and continue its integration into EU market.

Important blueprint for the prosperity of the region is the European Commission’s Economic and Investment plan that entails €9 billion for investments that support regional cohesion, inclusive growth, sustainable mobility, the green and digital transition and the creation of common market. In addition, new Guarantee Facility that will be created for the Western Balkans is expected to potentially leverage up to €20 billion of new investments, particularly in the private sector.

These funds should help develop modern, sustainable infrastructure, more favourable investment climate and connected regional market with inclusive job opportunities and conditions for smart, digitally based growth. The EIB has already started supporting these initiatives in the Western Balkans. To improve digitalisation infrastructure, we have signed €65 million loan for digitalisation of over 1500 Serbian schools and €60 worth guarantee scheme to help companies extend their digital capacities.

Regarding sustainable mobility, the EIB is financing the modernisation of key railway routes across the region, as well as waterway navigation along rivers Sava and Danube. In 2021, we have allocated €40 million for improving urban transport network in the Canton of Sarajevo in Bosnia and Herzegovina. To help the region switch to more energy efficient resources, the EIB provided €25 million for the construction of gas interconnector between Serbia and Bulgaria that is to increase diversification and security of energy supply.

We will also continue providing the most affordable and favourable financing for the SME sector, that are available at the commercial banks and national development institutions. In 2020 alone, the EIB Group allocated €320 million for the private sector in the Western Balkans to help small businesses retain jobs, continuity and recover faster from COVID-19 pandemic.

EBR: Where do you see ΕΙΒ stand in the post-Covid era? Do you think that State (EU) funding could be an opportunity or a challenge for the revival of the economy for Europe’s member states?

LP: With the Next Generation EU recovery package, reinforcements to the EU budget, and the EIB by its side, European recovery is also backed by an unprecedented public financial firepower. The EIB Group welcomes the NextGenerationEU (NGEU) programme and in particular its main pillar, the new Recovery and Resilience Facility (RRF) aiming at supporting investment and structural reforms in Member States. Given the EIB Group’s expertise, we are a natural partner for Member States in supporting them for its implementation of all instruments, for instance through providing advisory services and/or developing financial instruments to be funded by RRF, including through contributions to the InvestEU Member State-Compartment. The EIB will also play a key role in all three pillars of the Just Transition Mechanism. We are the main implementing partner for InvestEU including the Advisory Hub under it.

Yet volume is not the only important requirement. We must focus on the quality of each investment and on its impact. There are important questions which need careful analysis before the Member States decide on the implementation of specific projects and plans.

As the EU Climate Bank, the EIB intends to set a path to carbon-neutrality that Europe needs to achieve by 2050. With our Climate Bank Roadmap adopted in 2020, the EIB plans to mobilise up to €1 trillion of investments into sustainability and climate action, to align all financing activities with the goals of the Paris Agreement from the end of 2020 and dedicate over 50% of annual financing dedicated to green investment and climate action by 2025.

The EIB is today one of the main financiers of the climate action and energy projects in the world. The bank has over €197 billion of finance and over €670 billion of investment globally supported in projects that protect the environment, reduce emissions and help countries adapt to the impacts of climate change. For the EIB climate action is much more than a set of ambitious environmental, energy and policy goals. It is the race to preserve life on this planet, protect environment from destruction, a race to prevent major global conflicts, and ensure the sustainable progress of humanity is possible in centuries to come. This gives climate action the importance perhaps unparalleled in the history of human kind.

The ambition of the European Union is to lead the climate action by example and to be the force of global green empowerment including empowerment of Western Balkans. The ambition of the European Investment Bank as the EU Climate Bank is to support and finance this action. Team Europe-led Initiatives, such as the Green Agenda for Western Balkans, and the Initiative for Coal Regions in the Western Balkans and Ukraine contribute help forge these global partnerships for climate action. These initiatives offer valuable institutional bridges between the EU and our partners, create new financing opportunities, build and expand economic cooperation, allow us to listen and understand our needs and concerns, exchange ideas and avoid mistakes, align policies and coordinate steps towards the common goal.

In this context, we will also provide strong impetus for development of digitalization infrastructure and innovations. The EIB is participating in the NextGenerationEU programme, especially in new Recovery and Resilience Facility (RRF), aiming at supporting investment and structural reforms in Member States. As its natural partner, we particularly support climate action and digital transition in line with EU 2025 objectives. Our contribution can also be reflected through providing advisory services and development of financial instruments. I would also like to mention InvestEU that will play an important role in post-covid recovery. It is financial programme assisting the EU to modernize their economies and set them on the path to sustainable growth, while tackling twin challenges – green and digital transition.

When it comes to innovation, Horizon Europe, a key financial programme of EU for research and innovation with 95.5 billion budget will be a driving force and incubator of new ideas for encouraging innovations, especially green and digital. It can strongly support UN’s Sustainable Development Goals and increase competitiveness of its economy on a global level.

Key enablers of these processes will also be partnerships, cooperation on different levels with all key stakeholders. It will be important to develop investments that have longer-term impact on several agendas at the same time – to tackle climate change, environment and local communities when it comes to inclusive growth. This will be possible only by encouraging transboundary, cross-sectoral and public-private partnerships and the EIB will have a pivotal role in these initiatives through its advisory services provided by the team of experts in different areas.

For a true recovery, the resources available must be spent wisely, with a long-term vision in mind. This will allow us to introduce the deep structural shifts in our economies that are necessary.

EBR: Do you think that a further enlargement of the EU would be a step forward for Europe’s integration? What are the “lessons” learned so far?

LP: There is no doubt about the European future of the Western Balkans. The region is an integral part of Europe and improving its economic and investment climate will benefit both the region and EU. Providing better legislative framework for investments and business in line with EU standards and accession processes will facilitate greater scope of economic exchange between EU and the region.

EU membership provides a massive boost to the socio-economic development of the region. It can be underlined that reforms undertaken to align the counties with the EU are important for building strong institutions based on the rule of law and fundamental rights. At the same time, they facilitate the growth and implementation of standards necessary to withstand the competitiveness in the EU.

In addition, the EU enables the candidate countries to participate in EU programmes and initiatives even before their full membership, which increases their connectivity, innovation, competencies and private sector capacities.

EBR: Is, nowadays, the influence of economic diplomacy stronger than “traditional” foreign policy?

LP: For the EIB the economic aspect is essential for long-term sustainable development of the region. The region needs massive investment to recover from devastating effect of COVID-19 pandemic and will need even investment to fuel climate action and digitalization. Regional infrastructure is also in need of billions of investments for upgrade and expansion, especially in the transportation, healthcare and wastewater sector.

All these investments will be key for the region to stay relevant on the EU and global markets in post-pandemic period. These processes require substantial funding and we are aware that financing from non-European investors in increasing in the region.

The key will be to make sure these investments empower the region and do not bring additional calamities down the road that could impede development in any way. If we ensure all investment introduce higher standards in project management, fuel social and economic growth, promote community participation, and strengthen environment protection – the origin of investments will be of lesser importance.

As the EU Bank, the EIB has in place a mechanism that also prepare countries to act as the block member including introduction of rules from EU Directives on procurement. This includes open international competition, non-discrimination of tenderers, fairness and transparency of the process, and selection of the most economically advantageous offer. These are all processes that benefit a country and its economy.

At the same time, we invest a special attention to long-term financial sustainability of the specific country in regard to new loans, when it comes to level of public debt and ability to meet its contract obligations without jeopardizing its financial stability.

On top of that, EIB loans bring additional benefit as our loans can be blended with EU grants and technical assistance for the project preparation and implementation, which makes the EIB financial arrangements one of the most favourable on the market. For example, for the construction of gas interconnector, the EIB €25 million loan has been complemented with €49.5 million EU grant. The project also received JASPERS technical assistance during the preparation phase, which included the review of the EU grant application. Another example is 100 million EIB loan provided for the construction of the new highway linking Nis and Merdare that is combined with €40.6 million EU grant.

The EIB is a non-profit financial institution. We do not make money on our lending operations. Our goal is not to gain profit for the bank but to empower and support – though good lending conditions, introduction of modern standards and practices, and benefits that span over a long term.

* Editor-at-large/ PhD cand. University of Piraeus, Cultural Diplomacy & international Relations

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