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  1. Analysis
16 March, 2022

An investor’s guide to south-eastern Europe

Our investor guide to south-eastern Europe is essential for anyone investing in Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Greece, Kosovo, Montenegro, North Macedonia, Romania, Serbia, Slovenia or Turkey.

By Naomi Davies

Following a sharp decline in 2015, the economy of south-eastern Europe increased year on year from 2016 to 2017. It then fell by 0.2% in 2018 and by 0.8% in 2019. Following the onset of the Covid-19 pandemic, it contracted by 4.2% in 2020. Here, Investment Monitor looks at the economies of south-eastern Europe – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Greece, Kosovo, Montenegro, North Macedonia, Romania, Serbia, Slovenia and Turkey – and compares them using various data points.

Turkey accounts for almost half of the region’s total GDP

Turkey is the largest economy in south-eastern Europe. At $720bn, it accounted for almost half of the region’s GDP in 2020. It also recorded the highest population growth of all countries analysed at 1.1%.

Prior to Covid-19, Turkey had already been experiencing economic hardship, with its GDP declining year on year since 2017. The country’s ongoing currency and debt crisis can largely be attributed to President Recep Tayyip Erdogan's refusal to raise interest rates to control inflation.

As a result, Turkey had the highest inflation rate in the region by far in 2020 at 12.3%, with the value of the Turkish lira slumping to record lows. Economists have warned that the country’s economy will continue to suffer in 2022, with the Russian invasion of Ukraine expected to heavily impact tourism.

Romania is the second-largest economy in the region, accounting for 16.9% of overall GDP. The country’s GDP increased year on year between 2016 and 2019, before contracting by 0.5% in 2020 following the onset of the Covid-19 pandemic.

The World Bank forecasts that Romanian GDP will grow by 7.3% in 2021. However, the success of the country’s recovery will depend on improving vaccination rates. Romania is currently one of the EU’s least-vaccinated nations. As of January 2022, less than 41% of the country’s adult population were fully vaccinated.

Greece is the region’s third-largest economy at $189bn in 2020. The Greek government's debt crisis amid the fallout from the 2008 global recession plunged the country's economy into a sharp downturn. As a result, its GDP experienced a year-on-year decline from 2009 and 2016. In 2020, GDP contracted by 8% due to the economic impact of Covid-19.

According to the OECD, Greece’s GDP is projected to increase by 6.7% in 2021 due to stronger-than-expected tourism activity. It also forecasts that the economy will grow by just under 5% in 2022.

Cyprus had the highest GDP per capita of all countries analysed at $26,624 in 2020. Key economic sectors include renewable energy, tourism, shipping and ICT. Cyprus is also becoming a leading European destination for investment funds and asset management companies.

According to figures from the Cyprus Securities and Exchange Commission, approximately 300 investment funds were based in the country in the third quarter of 2021, with a total of €11.6bn ($12.73bn) in assets under management.

Slovenia recorded a GDP per capita of $25,517 in 2020 – the second-highest of all countries assessed. The country’s economy is forecast to grow by 5.9% in 2021, 5.4% in 2022 and 3.2% in 2023, with domestic demand the main driver of growth.

Kosovo had the lowest population growth rate in the region at -0.76% in 2020. Its GDP grew year on year between 2016 and 2019 before contracting by 2.3% in 2020. Since its independence from Serbia in 2008, Kosovo has begun to transition to a market-based economy. However, it is still heavily reliant on remittances from migrants.

Montenegro is the smallest economy in south-eastern Europe, representing 0.3% of the region’s GDP in 2020. The services industry is the largest in the country, which also has a focus on tourism and banking. Montenegro aspires to join the EU by 2025.

Turkey and Romania lead for FDI

Before the Covid-19 pandemic, foreign investment flows in south-eastern Europe had been on the rise. Greenfield FDI increased year on year between 2017 and 2019. In 2020, FDI project numbers fell by 39.5% from 924 in 2019 to 559 in 2020. Overall FDI project values dropped by 27.4%, declining from $21.9bn to $15.9bn.

Turkey is the top foreign direct investment (FDI) destination in the region. It attracted 203 projects in 2020, representing 57% of south-eastern European FDI. Turkey also experienced the largest nominal increase in FDI project values in 2020, attracting $3.9bn in 2019 and $4.4bn in 2020.

Foreign investors in Turkey benefit from access to its large domestic market and strategic location between Europe, the Middle East, Asia and Africa. Invest in Turkey, the country’s investment promotion agency, also offers one of the most competitive investment incentive regimes of the emerging markets.

Turkey experienced a 6.5% decline in FDI projects numbers in 2020. In early 2021, President Erdogan unveiled a new economic plan in a bid to encourage foreign investment post-Covid-19. It included less bureaucratic red tape, more legal protection and additional financial incentives for investors.

Romania is the second most popular FDI destination in south-eastern Europe. The country saw the biggest nominal decrease in FDI project numbers in 2020, falling by 104 projects from 2019.

The automotive sector is a key investment area, with more than 630 original equipment manufacturers producing automotive components in Romania. Other strategic sectors include IT, aerospace, agriculture and the bioindustry.

Greece received 42 FDI projects in 2020, the third highest of all countries analysed. It was the only country in the region to experience an increase in FDI projects between 2019 and 2020, growing by 0.2%.

North Macedonia saw the biggest percentage decrease in projects between 2019 and 2020. FDI project numbers fell by 70%, from 10 in 2019 to three in 2020. Key sectors in the country include textiles, pharmaceuticals and energy.

Croatia is the region’s leading FDI destination by projects per capita at 0.9 projects per 100,000 people in 2020. Investors include Austrian real estate company Supernova Invest, which opened a $17.9m retail park in Pozega, and Turkish hotel company Rixos, which opened a $24m hotel in Dubrovnik.

Serbia attracted 39 FDI projects in 2020, a significant drop from 114 in 2019. In November 2020, Japan-based Nidec announced plans to open a new $1.9bn electric vehicle motor factory in Novi Sad, producing up to 300,000 units per year.

Montenegro’s 2020 FDI project values represented 18.3% of its GDP, the highest of all countries analysed.

Where is best for doing business in south-eastern Europe?

In Greece, it takes just four days on average to start a business, a substantial reduction from the 38 days it took in 2003. Greece also recorded the highest number of fixed broadband subscriptions of all countries analysed at 40.8 per 100 people.

In 2020, the Greek government implemented a series of reforms to reduce bureaucracy and create a more business-friendly environment, including cutting its corporate tax rate from 28% to 24%. Despite this, Greece still has the highest corporation tax rate in south-eastern Europe.

Montenegro has the lowest corporation tax rate of all countries analysed at 9% in 2020.

In Bosnia and Herzegovina, it takes 80 days on average to set up a business – the highest of all countries analysed. The country is also the most corrupt country in south-eastern Europe alongside North Macedonia. Both countries scored 35 out of 100 on Transparency International’s 2020 edition of the Corruption Perception Index.

Slovenia was the most impressive on the Corruption Perception Index, scoring 60 in 2020.

Greece scores highly for liveability?

Greece had the highest life expectancy of all south-eastern European countries in 2020 at 81.9 years. The country also had the highest tertiary enrolment rate out of all the countries analysed at 149% in 2020.

At a regional level, the unemployment rate in south-eastern Europe is high at an average of 11.1% in 2020. Romania had the lowest unemployment rate in the region at 4.8%. The highest rate was in North Macedonia at 18.4%. In January 2020, the Improving the Quality of Data and Strengthening Policymaking in North Macedonia project was launched, an EU-funded initiative to reduce unemployment and a skills mismatch.

Bulgaria had the highest age dependency ratio – the ratio of dependants to working age population – of all countries analysed at 56.6% in 2020. This is due to the country’s substantial elderly population, which has been further compounded by increasing emigration, high death rates and low birth rates.

Albania is the greenest country in south-eastern Europe

Renewable energy sources accounted for 100% of Albania’s energy mix in 2018. Hydropower is the country’s main source of energy at 99.6%, with solar power accounting for 0.4%. As a result, Albania is highly dependent on annual rainfall for electricity generation, which can cause major fluctuations in domestic energy production.

Albania launched its National Strategy of Energy in 2018. The plan aims to develop an efficient and effective energy sector that ensures the security of its energy supply.

Turkey is responsible for the most carbon emissions of all countries analysed. It accounted for more than half of all emissions in the region in 2020. The country aims to reduce its greenhouse gas emissions by up to 21% by 2030.

In addition, Turkey has announced plans to diversify its electricity mix. It intends to increase its electricity generation from solar power to ten gigawatts (GW) by 2030 and from wind energy to 16GW.

Kosovo depends heavily on fossil fuels, which accounted for 95.1% of its electricity mix in 2018. The country is almost entirely reliant on two lignite plants for its electricity generation. Kosovo plans to unveil its first national energy plan in 2022, which will focus on integrating more renewable energy sources.

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