Western Balkan countries to react as capital inflows fall shaprly

Western Balkans countries are working together to attract foreign investors, as capital inflows have fallen sharply this year in all countries except Montenegro, foreign investment promoters said in a meeting between state investment agencies.
Foreign direct investment (FDI) in the region was 4.5 billion euros in January-September, a deep decline from the previous year, mainly due to the global economic downturn and grim outlook for the region still outside the European Union.
“We have realised that big investors do not eye the countries individually but rather the region as a whole,” said Petar Ivanovic, a Montenegro investment promotion agency official.
Montenegro was the region’s only country that continued to enjoy a boom in investment, for the fifth consecutive year, thanks to its liberal taxation policy and promotion of public-private partnerships, especially in tourism, Ivanovic said.
“Montenegro has attracted 726 million euros in foreign direct investment (FDI) in the first nine months of this year, which is 6% up from 2008 all together,” he added.
FDI is expected to reach 951 million euros by the end of 2009 and may exceed 1 billion euros in 2010 if all agreed projects are implemented.
Ivanovic noted, however, that individual economies were too small and there was a need to identify joint projects and harmonise business legislation to keep investors’ interest.
The network of agencies from Serbia, Croatia, Montenegro, Bosnia, FYR Macedonia and Albania will next year create a joint web site to promote investment possibilities, regularly exchange data and hold meetings with potential investors.
In Serbia, FDI fell by 60-70% to 1.5 billion euros while Croatia received 900 million euros, down from 3.3 billion euros in the whole of 2008. Most went to the financial and retail sectors rather than production.
“In future we must focus on green-field investments,” said Bozica Lapic, a promotion agency deputy head.
Haris Basic, the head of Bosnia’s agency, said that apart from the global economic downturn, political instability and stalled privatisation processes were the main reasons behind a 40% fall in FDI.
The countries of the region have for years relied on foreign investment for growth and a lack of it has weighed on their economies.
Economic growth in Bosnia is expected to shrink by 3.5%. In Serbia, the economy is expected to contract by 3%, and Croatia’s and Montenegro’s economies by close to 6% and 4% respectively. Only Albania, is expected to have a positive growth in 2009, with forecasts varying from 2-5% of GDP growth.