10 years Berlin Process - economic development in the WB6 region
Since its inception ten years ago, the Berlin Process has pursued several goals, all aiming to contribute towards strengthening cooperation within the region and preparing the region’s countries for EU accession. To take stock after 10 years, we have analysed to which extent the process was successful in achieving progress towards five of its key goals. While initiatives to promote economic growth did contribute to the region’s resilient growth in the turbulent past decade, much work still lies ahead when it comes to promoting decarbonisation and strengthening regional trade.
Most progress was achieved towards the goals of attracting foreign direct investment into the region and bringing its policy environment closer to EU standards. Overall, along the dimensions analysed, a mixed picture of the performance of the Berlin Process emerges so far.
Topic and method of research
The year 2024 marks the 10th anniversary of the Berlin Process. When it was established in 2014, several goals were set, all relating to strengthening cooperation within the region and preparing it for EU accession. Focusing on five key objectives of the Berlin Process, an analysis carried out by the German Economic Team examines how much progress has been made in achieving the core objectives of the Berlin Process since its inception. For each goal, we identify a suitable indicator to measure progress and assess its development since 2014. Although this methodology does not allow to assess the efficiency of Berlin Process initiatives directly, it yields an indication of the progress made in domains relevant to the Berlin Process. In the following, we present the results of our analysis for the region as a whole. Results for the individual WB6 countries are available in our corresponding publication.
Promoting economic growth
In 2023, the combined gross domestic product of all WB6 countries stood at USD 158 bn. The economic size of the region is therefore comparable to that of Ukraine, although slightly smaller. Annual economic growth averaged 3.1% since 2014. While this is not particularly high for an emerging market, it is important to remember that economic growth over the past decade has been constrained by negative shocks that were exogenous to the region. Most prominently, the COVID-crisis and the inflation that followed the war in Ukraine slowed down the economic growth in the WB6 countries. Although there is room for higher growth rates in the future, economic growth has proved resilient throughout the last decade, rendering the Berlin Process moderately successful in its goal of promoting economic growth.
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Decarbonisation
The region emitted 0.63 kg of CO2 per USD of GDP in 2022, the latest year for which data is available. On average, economic activity in the Western Balkans is thus four times as carbon intensive as in the EU. In view of the region’s high carbon intensity, the promotion of decarbonisation in the Western Balkans is a key objective of the Berlin process. Over the last 10 years, progress towards this goal was very limited. CO2 emissions have only decreased by 15% since 2014, meaning that the WB6 economies have decarbonised more slowly than the EU (22% reduction), despite starting from a higher base.
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Strengthening regional trade and trade with the EU
Perhaps the most central goal of the Berlin Process is to strengthen trade within the region and between the WB6 and the EU. To analyse the progress made towards this goal, we compare the region’s trade structure today with that of 10 years ago.
The EU is by far the most important trading partner of the Western Balkans. Two-thirds of the region’s total exports go to the EU and more than half of all imports into the WB6 countries come from the EU. The importance of the EU as a trading partner has remained relatively high over the last decade.
Intra-regional trade is far less important for Western Balkan countries. Only 16% of total exports from WB6 countries went to other countries in the region and only 8% of imports came from neighbouring countries in 2023. A comparison with the corresponding figures for 2014 shows that the importance of regional trade has even been declining over the past 10 years. Hence, one must conclude that the Berlin Process was so far unsuccessful in promoting regional trade, leaving much potential for the years to come.
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Convergence of policy environments to EU standards
A crucial prerequisite for any (potential) candidate country to join the European Union is the alignment of its policy environment with EU standards. In its Western Balkan Competitiveness Data Hub, the OECD provides scores that measure alignment with EU standards in 15 policy dimensions relevant to the objectives of the Berlin Process. The highest score (5) indicates that a country adheres to EU standards in the design, implementation and performance of policies, processes and institutions in the scored dimension.
Based on these scores, we can report significant progress on practically all categories since 2018, when the OECD started publishing them. In particular, policies on investment, trade, taxation, employment, energy, tourism and science, technology and innovation (STI) have converged significantly towards EU standards. Only the policy environment towards state-owned enterprises stands out as not converging over time. In conclusion, the Berlin Process was very successful in supporting the region’s policy alignment with the EU.
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Promotion of foreign direct investment
To spur economic development, the Berlin Process set out to promote foreign direct investment (FDI) into the region. Through the course of the last decade, WB6 countries were able to attract average net FDI inflows of 5.8% of GDP per year. As can be seen in the chart below, the trend over time is positive: in 2022, WB6 countries were able to attract inflows of 6.9% of GDP. This is a relatively high figure, that compares well to other EU accession candidates. Only Georgia attracts more FDI in relative terms. As a result of the strong performance in attracting FDI, the FDI stock of the WB6 countries has increased significantly from 58% of GDP in 2014 to 72% of GDP in 2022. The Berlin Process therefore was very successful in promoting FDI in the last decade.
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Conclusion
The overall picture obtained through our analysis is mixed. While strong progress was achieved towards the goals of policy convergence and FDI attraction, much work still lies ahead to achieve a stronger decarbonisation of the economy and increased regional trade integration.
This Newsletter is based on the Policy Study 10 years Berlin Process. Economic development in the Western Balkans since 2014.
