Foreign investors in the Western Balkans: have China and Russia crowded out the EU?

Tamás Ginter, Antje Hildebrandt¹

The short answer is no. Yet, perceptions may differ. So, it is time for a reality check. This is where data on foreign direct investments come in – and they show a more nuanced picture. While the share of investments in the region from outside the European Union has grown, the EU is still the undisputed number one investor in the Western Balkans. Not least thanks to its historical ties and proximity. Read on for concrete examples and figures.

The economies in the Western Balkans have greatly benefited from the inflow of foreign direct investments (FDI) over the past three decades. Since Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia transitioned to market economies, the volume of inward FDI has grown steadily.

The geopolitical position of the Western Balkans is rather peculiar within Europe. It also influences who invests in the region. Over the past decades, economic ties between the EU and the Western Balkan countries have intensified – in line with the countries’ strive for EU membership. But Russia, Türkiye and most recently China have likewise fostered their economic, diplomatic and cultural ties with these countries. In other words, all major regional and global powers are present in the region. The magnitude of their investments differs, however.

Rich ties and proximity play a role
Before we turn to concrete figures, let us look at some of the historical, geographical, cultural and other ties that have had a major impact on investment trends in the Western Balkans. Here are a handful of examples:

• Italy’s strong presence in Albania can be attributed to the close proximity and the rich historical ties between the two nations.
• The Gulf states Saudi Arabia, the United Arab Emirates and Kuwait are notably active in Bosnia and Herzegovina, accounting for more than 6% of total FDI stock in 2023. This highlights the importance of religious and cultural proximity.
• The United States holds a significant share of FDI in Kosovo, which is linked to US geopolitical objectives in the region.
• Turkish investments are aligned with geographical and religious proximity. Türkiye is particularly active in the southern part of the peninsula, including Albania, Kosovo and North Macedonia, all of which have a notable Muslim population.
• Russian investments are substantial in countries with shared linguistic and religious ties, particularly in Montenegro and to a lesser extent in Serbia and Bosnia and Herzegovina.

Despite shrinking share, the EU is still the major investor in the region
The EU has remained the undisputed number one foreign investor in all Western Balkan countries for several decades. Except for Kosovo and Montenegro, the EU’s share in FDI inward stock exceeds 50% in all Western Balkan countries. In North Macedonia, this share even came close to 67% in 2023. Nevertheless, since 2010, the EU’s share has been declining steadily throughout the region except for Kosovo.

US investments, by contrast, are much less common in the region. The United States’ share in total FDI stock typically lies below 3.5%, with Kosovo a notable exception (more than 7%).

Russian investments in the region vary. Russia’s highest share in the FDI stock is in Montenegro (over 10%), and it holds lower shares in Serbia and Bosnia and Herzegovina. In the other Western Balkan countries, Russian FDI is negligible.

Chinese FDI in the region is a relatively new phenomenon and has grown steadily. Since the launch of the Belt and Road Initiative about a decade ago, China’s shares in the FDI stock of the Slavic Western Balkan countries have been on the increase. In Serbia, in particular, the share skyrocketed to 11.3% in 2023. While Chinese FDI is nonexistent in Albania and Kosovo, Türkiye is a notable investor in these countries.

Western Balkan countries increasingly invest in each other
Besides receiving FDI from outside the region, the Western Balkan countries increasingly invest in each other. The country that receives by far the most intraregional investments is Bosnia and Herzegovina. The share of investments in its total FDI stock coming from the region reached around 15% in 2023. Albania, Kosovo and especially Montenegro have registered a growing share of FDI stemming from other Western Balkan countries throughout the past decade. The countries recording the smallest intraregional FDI shares are Serbia and North Macedonia.

Just like the investments from external actors, intraregional investments reflect cultural and historical ties as well as geopolitical interests. As a case in point, Serbia particularly invests in Bosnia and Herzegovina and Montenegro. Albania, in turn, primarily invests in Kosovo, given that the two countries share a similar ethnic composition.

Relative to their GDP, the FDI stock of the Western Balkan countries is comparable to that of the EU member states in Central, Eastern and Southeastern Europe (CESEE). On a per capita basis, the Western Balkan countries are still lagging behind, however.

1 Magyar Nemzeti Bank (MNB), Tamás Ginter, gintert@mnb.hu; Antje Hildebrandt, antje.hildebrandt@oenb.at.

The views expressed are not necessarily those of the OeNB or the Eurosystem and should not be interpreted as those of the OeNB or the Eurosystem.