Peace, Stability and Confidence through Economic Connectivity The case of the Western Balkan

18/05/2016 09:49


(Contribution of Hannes Swoboda to an OSCE conference on "Connectivity for Commerce and Investment" in Berlin on 18th/19th of May)


Connectivity is a very wide term which covers several kinds of - economic - connections. They may be bilateral, concern a region with similar characteristics, the connection to other regions important for the economic development and even global connections. Very often this connectivity is overlapping and can be of mutual support. And this can be found in the Western Balkans.


But of course, globally seen, there are different - theoretical, strategic - concepts of connectivity. One could differentiate between the US, the China and the European model. The Americans want the general, global acceptance of standards; especially their standards and the economic ties from investments to trade will flourish. China's concept is relying on infrastructure investments like ports, roads and rail. And of course they are investing in this field for their own economic security. In both cases we can see the respective argument for globalization. The European model would be to combine both elements in order to create a stable environment and neighbourhood. The basic idea is that economic connections across borders and conflict lines can help to establish or preserve peace. But we must also recognize that sometimes peace and mutual confidence are preconditions to promote connectivities.


In addition connectivities concern infrastructure like road, rails and energy supply. But in today's world we should also invest into the digital connectivity as an important contribution to tomorrow's economic success. And of course education, training, science and research are also important elements of sustainable growth. In any case the effects and results of connectivity for cooperation and mutual confidence are rather long term and need patience and clever overall policies accompanying the economic connectivity. And countries need also to transform illegal activities and black markets into a world of legality, to reduce corruption, which as such is flourishing across state borders and ethnic divisions. Important steps by Balkan countries have been taken, but there is still a lot to do fight against illegal trafficking.



Infrastructure connectivity in SEE


Again and again the EU has underlined the importance of the regional connection and cooperation in the Western Balkan. But there were many doubts and even resistance against these demands. Many regional politicians were afraid - and some are still afraid - they would be pushed again into a community like Yugoslavia, a political entity they wanted to overcome and forget. And in addition one country in the region Albania was never before a member of a regional federation and as such very isolated. Brussels was their aim and Berlin, Vienna etc. and they wanted not to be distracted from going towards membership of the European Union.


It needed a lot of conviction to agree first to a free trade zone (Central European Free Trade Agreement - CEFTA) and to open up markets to each other. But that could not be enough. After the phasing out of the Stability Pact, the Regional Cooperation Council with the headquarters in Sarajevo took over the task of promoting regional cooperation and it still does in many ways.


A new push came with the "Berlin Process" in underlining the importance of economic cooperation and connectivity. Again it was Germany, which did take the initiative and Austria followed immediately. In a meeting shortly after the Berlin conference the prime ministers agreed to a list of priority projects for developing the road and rail infrastructure. In a Joint Statement in April 2015 they stated: "Improving regionals cooperation and economic stability is one of our common tools for matching European standards and fulfilling the EU accession criteria, and the process should bring clear benefits to our citizens still before(!) accession.......We recognize that improving connectivity within our region as well with the EU is a key factor for growth and jobs in the Western Balkans."


And they were ready to "address without delay all relevant measures such as regulatory issues, streamlining of border crossing procedures, which could bring about immediate connectivity." And a meeting of the energy ministers supported the initiatives of the Energy Community to upgrade and extend the energy networks in the region. In the follow up conference in Vienna, this strategy was confirmed and further elaborated.


A survey done by the Vienna Institute for International Economics/WIIW showed that there are still many tasks to fulfil. There are already some connections which work quite well, so between Albania and Kosovo. Of course a strong connectivity between Kosovo/Pristina and Serbia/Belgrade would be especially important. The fact that many inhabitants of Kosovo speak both languages means, that Albanian and Serbian could easily help to strengthen the connectivity between the two countries.


But other connections wait still for improvements, although one can see a steady progress. This would be necessary to overcome the substantial infrastructure gap with the neighbouring EU countries. Driving on the already existing high ways pleases the driver because they are rarely congested. But this is also a sign of lacking economic activities which would lead to strong use of the new infrastructure. Rail connections are still lacking a strong boost and some connection need a support from investors outside the region. What is important in additions the implantation of a lot of "soft" measured like coordination and streamlining customs of procedures?


Global actors and their interests.


Interesting enough a push is coming from outside. China is very active from investing in port facilities for example in Piraeus to investing into the connecting rail infrastructure, for example between Belgrade and Budapest. This is an example, how interest and investment from the outside can help to upgrade regional connections inside the region and with countries and economies outside the region, for example with EU member countries. China's renewed interest in the "Silk Road" and its "One Belt, One Road" concept can be attractive for the Balkan region if both sides respect the specific interest of the countries of the region and if it would contribute to closer cross border cooperation. But of course China has its own interests as we can see with the establishment of the 16+1 format where besides some EU member countries, also some countries from the Balkans are invited to coordinate economic activities with China. So China acts with the EU as such, when it suits it and with individual member and candidate countries where it benefits them.


Another push from the outside is coming from Russia concerning the energy connections especially for gas and oil. Also in this respect, the interests of individual countries and of the region as such solid are of major concern. And of course also Turkey with its policy of Middle Corridor policy wants to play an active role in connecting Asia, especially China with Europe, specifically also via the Balkans.


These influences from outside must certainly be embedded into the general economic and political strategy of the region. These "outside" activities must strengthen the regional cooperation and support the European in addition to the global connectivity. The overlapping of bilateral and regional connectivities with the connections to global actors like China and Russia must be in the interest of the long term aspirations of the region. As such it may not only help regional cooperation, but also improve the global connections which would contribute to global conflict prevention and solution. But the countries must be empowered especially by the EU to negotiate with China and/or Russia more or less like equals. They must be able to level the playing field and draw clear benefits to of Chinese and Russian investments.


In an article on "The era of infrastructure alliances" Parag Khanna speaks about "infrastructure alliances", which "represent job creation projects that enhance the ability of poor and landlocked countries to participate in the global economy. As traditional Western aid projects have demonstrated, unrealistic conditions for financing commodity and infrastructure projects have unnecessarily delayed development and failed to create jobs in ways that only these sectors can. Sharing infrastructure is sharing wealth. „I can agree with this evaluation, if the countries in the region, which would be connected to the global economy, can keep the final and decisive say about their own interests and needs in this kind of connectivity.


Digital connectivity


It is obvious, that countries which are preparing themselves for future economic growth must have a digital policy, which is trying to catch up with the most developed digital economies. Looking at the Digital Economy and Society Index of the EU we can still see a lot of differences and gaps in the the opening of digital economies and societies. These differences concern the connectivities as such like broad band infrastructure, Human Capital, use of Internet, Integration of Digital Economies and Digital Public Services.


This EU index does not include the non EU members of SEE. But it shows that even most of the neighbours of the region are at the lower end of the list and even falling behind like Bulgaria, Greece and Hungary. Also Croatia and Italy are below the EU 28 average but they are catching up. Only Austria is above the average and climbing up the list. This digitally weak neighbourhood makes it difficult to upgrade the digital connectivity, but there are several efforts to have a regional digital policy supported by the RCC and especially UNEP.


One of these initiatives is the Electronic South Eastern Europe

(E-SEEurope). It was launched in Istanbul in October 2000 with an ambitious agenda and work program. The aim was and is the reduction of the development gap in relation to the EU, the support for integration into the EU but also confidence building and closer cooperation in the region itself. The aim was to build a Single SEE Information Space.


Looking at the list of activities and legislation decided in different countries we can see some progress, but much more has to be done in achieving the targets set by the different national governments. It must be clear, that the way into modern economies and into close economic and finally political cooperation is via extending the infrastructure and creating a single digital space. And for that also an agreement on common - regulatory incl. security and privacy - standards would be necessary. And we need also common policies against the growing number of cyber-attacks.


But these digital policies should not go just parallel to other connectivities, but must be connected to promote widespread private activities, especially concerning the Small and Medium Sized Industries (SMEs). They must be the backbone of the region's development. And to survive also in the future they need to engage digital instrument and methods. But they must be able to rely on common standards and policies.


Illicit Trafficking and Black Markets


There exists no doubt, that illegal trafficking is one de facto element of cross – ethnic - border connectivity. But many taxes are avoided by that kind of trade and there is no control of the standards of these goods. An important element of successful economic policy would be to create enough incentives for illegal traffickers to be convinced to go into legal trading. Some steps have been taken, but much more must be done to transform these illegal activities into a field of legality without interrupting and preventing trade flows as such. A policy of de- bureaucratization is absolutely necessary also to reduce public - private corruption relationships and support respect for legality.