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Top Challenges in SEE in 2015
8. januarja 2015 / 13:18

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Global financial crisis and uncompetitive environment have contributed significantly to deterioration of public finances in many countries of the region. Consequently, many governments will have to focus on implementing structural reforms, such as pension reform, labour market reform, healthcare reform, reorganisation and reduction of the public sector. As part of the agreement with the IMF, Serbia will have to reorganise public sector and reduce the number of employees by 25,000 in 2015 as well as lower the pensions and wages. Additional austerity measures will have to be implemented in Romania and BiH, both under IMF monitoring. Structural reforms and austerity measures can lead to a decline of public confidence in politics and a switch of public opinion against the integration with EU. Public discontent is most evident in Greece, where people completely lost confidence in politics and calls to leave the EU are becoming louder.

 

Omnipresent corruption remains one of the main challenges in the region. Governments are addressing it but will need to be more decisive and comprehensive at it if they wish to attract more foreign direct investments and speed up the integration towards EU.

 

Unresolved relations amongst countries contribute to the escalation of populism and incidents, which hamper mutual trade relations and hinder EU integration. This is most evident in the long lasting disputes between Macedonia and Greece, and Serbia and Kosovo. The Macedonian-Greek dispute also blocks the country’s entrance to NATO, where Macedonia has been a membership candidate since 1999. Status of Kosovo remains the main obstacle for Serbia on its path towards the EU. Due to unresolved border issues between Croatia, BiH, Montenegro and Serbia, we expect further delays and obstacles in accession negotiations.

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Top Risks in SEE in 2015
6. januarja 2015 / 10:46

Note: Top Risks are an extract from the main findings of ISR publication Strategic Foresight 2015: South East Europe. Whole publication is available here

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In 2015, South East Europe will be exposed to rising political uncertainties. This comes as no surprise as the countries in the region have gone through turbulent political times, which resulted in fragile government coalitions and fragmented political arenas. Aforementioned conditions are a suitable playground for permanent political dribble and populism, which at the end can aggravate implementation of social and economic reforms. Despite elections in 2014, Bulgaria and Romania still lack political stability. This is a result of a weak government coalition led by Boyko Borissov in Bulgaria and difficult cohabitation between centre-right president Klaus Werner Iohannis and centre-left Prime Minister Victor Ponta in Romania. Rise of populism is most evident in Greece with the growing popularity of the radical left Syriza and the extreme right Golden Dawn.

Lack of much needed structural reforms and uncompetitive environment retains high unemployment and poverty rate in the region. Standstill in implementation of structural reforms is most evident in Croatia and BiH. Croatia is facing speculations as being the EU’s next Greece. BiH remains one of the poorest countries in Europe with omnipresent high unemployment and is essentially a failed state. Institutional and structural weaknesses and corruption hamper business environment in Bulgaria and Romania. Both countries also recorded highest levels of poverty in the EU. Poor standard of living, chaotic political situation and mass disillusionment with the political elite can raise social tensions in 2015. These are most likely in Turkey due to the intensions of the ruling AKP to increase presidential powers of Recep Tayyip Erdogan, which will strengthen his influence over the judiciary, media, and the central bank.

Region is faced with high ratios of non-performing loans; in some countries these amount to more than 20 % of all loans. High ratios of non-performing loans could further deteriorate bank balance sheets in Serbia, Croatia, Romania, Albania and Greece. This can avert further private investments and domestic consumption and can consequently jeopardise further economic growth.

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People Need to Start Feeling the Economic Growth
5. januarja 2015 / 13:08

Note: This is an extract from the ISR publication Strategic Foresight 2015: South East Europe available here

 

There is economic growth in figures but there are rising political and social tensions. If the local business and the population overall don’t start feeling the impact of the economic growth that is showing on paper, there will be social unrests, which will hamper the economic growth.

As we enter 2015, it is very difficult to establish whether the people in South-Eastern Europe should be optimistic or scared of the coming year. While there is a light feel of better times to come, that sensation is primarily based on statistical numbers, which show that growth is picking up again. However, unemployment, average income and poverty rates remain at worrying levels. The consequence is low public trust, which could lead to dissatisfaction and increasing tensions leading to political instability.

At the beginning of 2014, we forecasted economic growth in the region. Apart from some countries, where the flooding caused damages to the businesses and population, in 2014 most of the countries will experience GDP growth even higher than forecasted at the beginning of the year. Economic growth presents a good starting point for the region to pick up again in 2015. However, problems remain at the social level. We see political uncertainties, caused by social dissatisfaction, as the main risk for the region in 2015. Unemployment levels are high in most of the countries. People that do have jobs, earn very little. Citizens are disillusioned by the low standards of living. Paradoxically, people are becoming cynical by reports of corruption cases, which they see in the news, but are a result of the fight against corruption that the countries are more determined to deal with. All this amounts to lower level of public trust in politicians and state institutions, as well as consumer trust. It could be a ticking bomb for social unrest – which some countries have experienced already in 2014.

On the other hand, politicians need to do more for long-term prosperity in the region. For that, people need to start earning more and there need to be more opportunities for entrepreneurs and investors. The only perspective for SEE is to be catching up with the Western World and getting closer to average EU development. We see this as the main challenge for SEE in 2015. Economic growth is a solid start, but it needs to manifest itself in lowering unemployment first and then in increasing consumer and public trust. Unfortunately, the economic growth we have seen in 2014 has not reached that stage yet.

Part of the reason is low economic growth. Developing countries of SEE need higher GDP growth in order to be catching up with the West. States are aware of the problems and are trying to increase growth by attracting foreign investment. As most countries will be experiencing growth for the second consecutive year, these are becoming more interesting for foreign investors. The interest is further accelerated by incentives offered to foreign investors in terms of tax reliefs and easements of doing business. However, problems remain on the structural level, which businesses consider before investing. Also, the discontent is still growing and uncertainties are rather high. Investments are risky.

The year 2015 will be a year when business and politics will matter. Economic uncertainties will be at lower levels due to GDP growth, however high unemployment and low trust will cause social and political uncertainties to rise. Hence, investment environments will remain in the levels of moderately stable or moderately uncertain. For 2015 do not expect significant improvements or deteriorations, however, the year will show the path on which these countries will go towards 2020.

Let 2015 be good for business!

Tine Kračun,

Director of Institute for Strategic Solutions

 

 

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Realpolitik is the name of the game – again
25. marca 2014 / 10:55

International news stations are busy these days. There have been two topics exchanging the top news for the past two weeks – the tragic disappearance of Malaysia Airlines flight 370 and the Russian annexation of the Crimean peninsula. Whilst the first one is bringing countries and their military together in the desperate search for the ill-fated aircraft, the latter is causing drifts amongst today’s superpowers and its allies.  Nadaljuj z branjem …

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