Countries from Western Balkans – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia are likely to benefit from the trend of relocating production by EU companies from Asia close to home due to the coronavirus pandemic.
This is stated in a report of the Vienna Institute for International Economic Research.
However, to make the impact more tangible, economists say it is essential to improve governance, education and transport infrastructure in the region.
The report provides two examples of the vulnerability of global supply chains during the pandemic – the shortage of parts for the automotive industry and medical supplies, medicines and vaccines.
In view of the protectionist tendencies in world trade, the relocation of production from Asia to the old industrialized countries has already begun in the last decade.
This phenomenon will intensify significantly in Europe after the pandemic, claim economists at the Vienna Institute for International Economic Research and co-author of the study.
The team prepared the report involved members of Western Balkan Chambers of Commerce and Industry. They assessed what this change means for Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia.
“The economies in the Western Balkans can indeed take advantage of this approaching production trend, but they will have to take the right political steps,” report added.
Two large surveys among German companies cited in the report show that such scenario is possible.
Almost half of the companies pointed out that cost optimization and risk diversification are the main reasons for the possible relocation.
Especially the last two factors demonstrate the negative impact of the pandemic and the willingness to shorten supply chains and industrial locations.
If we take Germany’s foreign investments worldwide between 2010 and 2019 they amounted to EUR 1.7 trillion.
For the same period EUR 2.5 billion were invested in the Western. This means there is a lot of room for increased investment in the region.
The study recommends a fundamental change in the investment environment in addition to overcoming long-standing deficits such as mismanagement and political instability.
“Low labor costs and low taxes no longer play a decisive role. Above all, foreign investors need a well-qualified workforce and infrastructure, “the study said.
This means countries must increase spending on education with a focus on science, technology, engineering and mathematics, more practical vocational education and training, and huge improvements in transport infrastructure.