The European Commission prepared a New Growth Plan for the Western Balkans in November 2023 (hereinafter referred to as the Plan), which is intended to accelerate the implementation of reforms in the region's countries and their socio-economic convergence towards EU standards.[1] The Growth Plan represents an EU effort to do something new and motivating in the accession process, which is long and discouraging for both political elites and citizens of the region. The European Union has undoubtedly looked in the right direction – deepening economic integration with the EU and accelerating economic growth are indeed necessary for the desired transformation of the region's countries. The perception that this accelerated growth comes thanks to the EU would significantly help strengthen the positive perception of the EU among Serbian citizens.
The Growth Plan is based on four pillars, which represent a combination of obligations for the Western Balkans and incentives for fulfilling these obligations. The first two pillars envisage strengthening regional economic integration, followed by the gradual accession of the region to the EU's Single Market, which represents the EU opening up to the region's countries to better prepare them for membership itself. The third pillar involves the obligation for governments to prepare reform agendas, which will contain reform and investment priorities, and upon their successful fulfillment, conditions will be met to withdraw funds provided for by the fourth pillar. The fourth pillar envisposes a package of 6 billion euros for the Western Balkans in the period 2024-2027, consisting of 2 billion in grants and 4 billion euros in favorable loans. These are additional funds compared to those already provided for by the IPA III instrument.
The problem is that it is not yet clear how exactly the EC envisions the desired change to occur. On the one hand, the Plan envisages covering a multitude of areas: from the rule of law to energy and integration into the single market. However, the foreseen funds are certainly not sufficient to bring about these changes on their own. When this amount is divided by 4 years, it is only 1.5 billion euros annually for all 6 Western Balkan countries. Out of the total amount, Serbia could expect around 425 million euros annually, which is only about 0.6% of the 2023 GDP. European officials announce the possibility of doubling the GDP of Western Balkan economies in the next 10 years,[2] which means their average annual growth would have to be a fantastic but unlikely 7%.
Therefore, it is clear that the mentioned amounts are not sufficient to motivate the most difficult changes that the EU currently expects, such as the rule of law. On the other hand, if the EU desires changes that would more directly stimulate economic growth, then not enough time has been allocated for their planning. The selection and definition of reforms to be included in Serbia's reform agenda are carried out in cooperation between the Government of Serbia and the European Commission, under tight deadlines and, consequently, with limited involvement of the wider society. The civil sector became acquainted with the content of the document only after the process had already progressed, and thus did not have the opportunity to submit its proposals for priority reforms in a timely manner, on which it had already had the opportunity to work.[3] This is particularly unfavorable considering that there is no consensus in Serbia regarding the vision and direction it will take in the coming period, which should be embodied in the still non-existent overarching strategic documents – the Development Plan and the Investment Plan.
Reforms are expected to be taken from the Economic Reform Program (ERP), which, in the absence of the aforementioned plans, is the most significant document for economic governance and planning. The irony is that even in the case of this document, the civil sector was only formally consulted, while in practice it has no substantial influence on its content, and the economy even less so. It is therefore not surprising that the structural reforms envisaged by the ERP are not ambitious enough, are repeated from year to year, and monitoring their implementation is reduced to merely recording completed activities. Therefore, the very idea that the reform agenda can represent a recycling of old documents sounds discouraging.
Strengthening the domestic SME sector, as one of the fundamentally important areas for economic convergence towards EU standards, is completely neglected in this plan. Why is this important? First and foremost, it is clear that investments are one of the key drivers of economic growth. The experience of the fast-growing economies of Central and Eastern Europe tells us that for long-term and sustainable economic growth, they need to be between 25% and 30% of GDP. On the other hand, it is no secret that Serbia has recorded extremely high levels of public and foreign direct investment in recent years, while domestic private investment, as the backbone of economic growth for any market economy, is at an unacceptable low level (around 7% annually). Therefore, pre-accession funds should be more strongly directed towards strengthening the domestic economy.
Finally, the modest amounts offered by the Plan are conditional on reforms, which mostly relate to democracy and the rule of law, but also, in Serbia's case, to „constructive dialogue“ with Pristina. And while the EU is searching for a „formula“ to encourage convergence with the EU, the authorities in Serbia have been actively working in recent years to strengthen economic partnership with a country that does not care much about the aforementioned values – China. If we look at foreign direct investment from this country, it is growing year by year, making it the most significant individual investor and the second most significant investor in Serbia after the EU (Chart 1). Also, foreign trade activity with China has intensified in the last 10 years (Chart 2). To this should be added the recently signed Free Trade Agreement, which covers about ten thousand products from Serbia and about nine thousand from China, which will further increase the economic influence of this distant country in Serbia.[4]
Chart 1. Net foreign direct investment inflows in Serbia by country of origin in the period 2013-2022 (EUR million)
Source: National Bank of Serbia
Thus, from the perspective of the political leadership in Serbia, an alternative to European money exists, and it is not conditioned by any reforms or concessions. Furthermore, such a perception is evidently strengthening in the general public, given that the latest polls show that less than 50% of Serbian citizens are in favor of Serbia's membership in the EU, while the perception of China's beneficial economic influence in Serbia is growing year by year.[5].
Chart 2. Structure of Serbia's imports and exports by country in 2013 and 2022
„It's the economy, stupid”
was the title of the slogan that brought Bill Clinton a convincing victory over the then-president George Bush Sr. in the 1992 US presidential election. Therefore, the question arises: what is the real European Union's plan for Serbia (and the Western Balkan region)? Although announced as an economic plan, it seems that the economy (still) does not play a major role in it. Continuing the current policy threatens to push Serbia even further from the EU into China's „steel“ embrace.
Serbia faces (another) opportunity to finally make a good plan for the future, and to be financially rewarded for it. To achieve such a result, it is important for the EU to more precisely direct its incentives and conditions, thereby showing genuine interest in the well-being of the citizens of Serbia and the Western Balkans. In any case, Serbia should approach this Plan seriously and make the best possible use of what is currently „on the table“. This means that, instead of repackaging existing plans, it should prepare a new one that is well-thought-out and focused on real development priorities.
[1] European Commission, „Communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – New Growth Plan for the Western Balkans“, 2023. https://neighbourhood-enlargement.ec.europa.eu/2023-communication-new-growth-plan-western-balkans_en.
[2] BBC Serbia. European Union: What is the Growth Plan for the Western Balkans. https://www.bbc.com/serbian/lat/balkan-68055845
[3] „Serbia 2030: Development Priorities – Non-Governmental Sector Report“, 2020. https://sdgs4all.rs/documents/izvestaj-srbija-2030-razvojni-prioriteti-izvestaj-nedrzavnog-sektora/.
[4] Paragraf. Signed free trade agreement with the People's Republic of China. https://www.paragraf.rs/dnevne-vesti/191023/191023-vest8.html
[5] New Third Way, China and Public Opinion in Serbia, https://istrazivanja.rs/wp-content/uploads/2023/05/Kina-i-javno-mnjenje-u-Srbiji.pdf
Authors of the text: Lana Hadži-Niković and Lazar Ivanović
