Stabilizing the Western Balkans Requires Economic Solutions, Not Just Political Ones

In late April and into May, the U.S. deputy assistant secretary of state for Europe and Eurasia, Hoyt Yee, made several visits and high-level phone calls to the countries of the Western Balkans. These states have been wracked by corruption scandals and governing standoffs that have raised questions about the effectiveness of American assistance. Yee’s efforts have yielded some positive outcomes. But they also made clear that American diplomacy alone cannot provide the longer-term solutions to the region’s nagging political and economic problems.

After Yee’s visit to Skopje on April 29, Gjorge Ivanov, Macedonia’s president, finally gave the opposition party a mandate to form a government in mid-May, after a five-month-long standoff that ground the country to a halt. Yee’s calls to Kosovo’s then-prime minister, Isa Mustafa, focused on ratifying the demarcation of the border with Montenegro, a key issue. Although Yee’s calls ultimately did not yield the desired outcome—Mustafa’s government collapsed in a vote of no confidence on May 10—they showed the attention Washington is paying to political outcomes in Kosovo.

Following Yee’s May 15 visit to Tirana, the Albanian opposition party agreed to participate in national elections scheduled for late June. Finally, after Yee’s visit to Belgrade on May 24, Serbia’s prime minister-turned-president, Aleksandar Vucic, expressed his support for talks with Kosovo and thanked the United States for backing Serbia’s accession to the European Union.

Overshadowing these promising political moves, however, is the reality that the key to stability in the Balkans is not cajoling fractious political parties to work together, but providing much-needed private-sector jobs that can be a counterweight to resurgent nationalist sentiment.

The economic case for helping the Balkans is clear when considering the Croatian conglomerate Agrokor, which is on the brink of collapse. Agrokor directly employs nearly 60,000 people across the region and roughly 2.5 percent of Croatia’s workforce, and indirectly employs upward of 150,000 people across the region via suppliers. Its demise could have widespread repercussions for employment, growth, regional relations and the confidence of foreign investors.

Unemployment rates in the Balkans are already high, and the numbers of unemployed youth are even higher. While regular unemployment levels range from 12 percent in Croatia to 25 percent in Bosnia and Herzegovina, those numbers jump to 30 to 67 percent for young people. The United States, by comparison, has a youth unemployment rate of 10 percent. Unsurprisingly, a brain drain has sharply increased in recent years in many of these countries, where anywhere from 20 to 40 percent of the population live outside of the country.

The key to stability in the Balkans is not cajoling fractious political parties to work together, but providing much-needed private-sector jobs that can be a counterweight to resurgent nationalist sentiment.

Against this backdrop of political and economic instability, countries such as China, Russia, Saudi Arabia and Turkey are making investments in business, infrastructure, energy, media and education. This economic engagement increases their influence and sometimes hinders U.S. objectives of promoting transparent governments that are supported by the rule of law and free markets. Russia’s meddling in particular can be destabilizing, as evidenced by its domination of the media in Serbia, recent efforts to derail Montenegro’s accession to NATO, and its role in perpetuating the political crisis in Macedonia. Disinformation fed by Moscow and tensions in Macedonia have inflamed nationalism in a region sorely in need of stability and integration. That state-owned Russian banks hold the majority of Agrokor’s debt gives Moscow another form of leverage in the region.

More benignly, in Bosnia and Herzegovina and Kosovo, wealthy Arab Gulf countries, along with Turkey, are extending their economic reach by buying property, starting companies and rebuilding mosques. These economic and development initiatives have a positive impact on individual countries. A consortium of banks originating from the Gulf states, for example, runs one of the few annual business investment forums in Sarajevo. But Middle Eastern money risks displacing some American influence in a critical region and is raising concerns about the influence of Wahabbi Islam on the moderate form of Islam practiced in Bosnia.

The current solution for Southeastern Europe being pursued in Washington and Brussels—using EU accession as a catalyst for internal reforms and economic development—is a risky proposition. The timeline is too long and uncertain, while the EU itself is under pressure. And when accession is achieved, as in Croatia, the reforms don’t always stick. If the U.S. wants a stable and prosperous Southeastern Europe, a different approach is needed that can address increasingly stubborn obstacles like the waning viability of EU membership, rising foreign influence, the precariousness created by high unemployment, and the political manipulations of countries’ bloated government sectors.

Growing the private sector, especially small- and medium-sized enterprises, has the potential to provide a better future for the many highly educated, English-speaking, technologically savvy young people in the region. Shifting power away from government could help create a more diversified society, unlocking opportunities outside the official bureaucracy to combat unemployment, disaffection and the lure of extremism.

The region is ripe for this type of growth. Literacy hovers near 100 percent. Many people speak English. Tech and entrepreneurship hubs across Southeastern Europe are already attracting ambitious young people. Time zones also work to the region’s advantage—not just for Western European markets, but for those in the U.S. that face a 12-hour time difference with back-end IT and service companies in India. The challenge is creating a skilled pipeline to meet the demands of global companies and generating enough business acumen to fill higher-up positions needed to guide companies and grow the economy.

Unfortunately, the governments and education systems in many Balkan states are slow to react. Universities are churning out lawyers and economists, but not coders and CEOs. Government programs exist, but by and large it is the needs of entrepreneurs themselves that are leading the way. BIT Alliance, a consortium of software companies in Bosnia and Herzegovina, developed a rigorous and competitive IT boot camp to prepare their own future workers. Hubs 387 and 385, in Sarajevo and Zagreb respectively, are conducting business and IT trainings.

The private sectors in the U.S. and Western Europe can also play an active role in this regional effort. First, by looking to the Balkans for back-end IT and software development and investing in training, American companies can derive value for needed services. Second, U.S. companies with already-developed innovative tech products can look to entrepreneurs in Skopje and Sarajevo, for example, for local licensing and commercialization deals, cutting out the costly and time-consuming early stages of developing a product and business plan. Finally, harnessing the Balkan diaspora in the U.S., Europe, Australia and beyond will provide access to the capital and know-how needed to jump start young companies in the region from those with an interest in its development.

Yee’s recent Balkan tour was necessary to quell a good deal of political instability, underscoring the continued importance of high-level political outreach from Washington. But it didn’t address some underlying factors that could lead to more unrest down the line. Dealing with deeper problems like youth unemployment requires economic solutions, not just political ones. And with the State Department facing large budget cuts under the Trump administration, the U.S. government is going to need more help from the private sector.

Courtney Doggart is the president of Network 20/20 and author of the report “A Plan B for the Western Balkans.”