After a sharp decline in 2015, the economy of South Eastern Europe grew year-on-year from 2016 to 2017. It then fell by 0.2% in 2018 and by 0.8% in 2019. Following the outbreak of the Covid-19 pandemic, it contracted by 4.2% in 2020. Here, Investment Monitor examines 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 nearly half of the region’s total GDP
Turkey is the largest economy in southeastern Europe. At $720 billion, it accounted for almost half of the region’s GDP in 2020. It also recorded the highest population growth of any country analyzed at 1.1%.
Before Covid-19, Turkey was already struggling economically, with its GDP declining year on year since 2017. The country’s current currency and debt crisis can be largely attributed to President Recep Tayyip Erdogan’s refusal to raise interest rates to control inflation.
As a result, Turkey had by far the highest inflation rate in the region in 2020, at 12.3%, with the value of the Turkish lira falling 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 have a big impact on tourism.
Romania is the second largest economy in the region, accounting for 16.9% of overall GDP. The country’s GDP grew year on year between 2016 and 2019, before contracting by 0.5% in 2020 following the outbreak of the Covid-19 pandemic.
The World Bank predicts that Romania’s 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 least vaccinated countries in the EU. In January 2022, less than 41% of the country’s adult population was fully immunized.
Greece is the region’s third-largest economy with $189 billion in 2020. The Greek government’s debt crisis amid the fallout from the 2008 global recession plunged the country’s economy into a deep recession. As a result, its GDP saw a year-on-year decline between 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 expected to grow by 6.7% in 2021 due to stronger than expected tourism activity. It also predicts the economy will grow just under 5% in 2022.
Cyprus had the highest GDP per capita of all countries analyzed at $26,624 in 2020. Key economic sectors include renewable energy, tourism, maritime transport 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, around 300 investment funds were based in the country in the third quarter of 2021, with a total of 11.6 billion euros ($12.73 billion) in assets under management.
Slovenia recorded a GDP per capita of $25,517 in 2020 – the second highest of any country assessed. The country’s economy is expected to grow by 5.9% in 2021, 5.4% in 2022 and 3.2% in 2023, with domestic demand being 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 gaining independence from Serbia in 2008, Kosovo began its transition to a market-based economy. However, it still relies heavily on migrant remittances.
Montenegro is the smallest economy in Southeast Europe, accounting for 0.3% of the region’s GDP in 2020. The service industry is the largest in the country, which also focuses on tourism and banking. Montenegro aspires to join the EU by 2025.
Turkey and Romania in the lead for FDI
Prior to the Covid-19 pandemic, foreign investment flows into Southeast Europe were on the rise. Greenfield FDI increased year-on-year between 2017 and 2019. In 2020, the number of FDI projects fell by 39.5%, from 924 in 2019 to 559 in 2020. The overall value of FDI projects fell by 27.4%, from $21.9 billion to $15.9 billion.
Turkey is the top foreign direct investment (FDI) destination in the region. It attracted 203 projects in 2020, representing 57% of FDI from Southeast Europe. Turkey also saw the highest nominal increase in the value of FDI projects in 2020, attracting $3.9 billion in 2019 and $4.4 billion in 2020.
Foreign investors in Turkey benefit from access to its vast domestic market and its 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 schemes in emerging markets.
Turkey saw a 6.5% drop in the number of FDI projects in 2020. In early 2021, President Erdogan unveiled a new economic plan with the aim of encouraging foreign investment after Covid-19. It included less bureaucratic formalities, 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 largest nominal drop in the number of FDI projects in 2020, with a drop of 104 projects compared to 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 bio-industry.
Greece received 42 FDI projects in 2020, the third highest of all countries analyzed. It is the only country in the region to have experienced an increase in FDI projects between 2019 and 2020, with a growth of 0.2%.
North Macedonia experienced the largest percentage decrease in projects between 2019 and 2020. The number of FDI projects fell by 70% from 10 in 2019 to three in 2020. The country’s key sectors include textiles, pharmaceuticals and energy.
Croatia is the region’s top FDI destination in terms of projects per capita at 0.9 projects per 100,000 inhabitants in 2020. Investors include Austrian real estate company Supernova Invest, which opened a 17.9 million business park dollars in Pozega, and the Turkish hotel company Rixos, which opened a $24 million hotel. in Dubrovnik.
Serbia attracted 39 FDI projects in 2020, a significant drop from 114 in 2019. In November 2020, Japanese company Nidec announced plans to open a new $1.9 billion electric vehicle engine plant in Novi Sad, producing up to 300,000 units per year.
Montenegro’s FDI project values in 2020 accounted for 18.3% of its GDP, the highest of all countries analyzed.
Where is the best place to do 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 analyzed 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 reducing its corporate tax rate from 28% to 24%. Despite this, Greece still has the highest corporate tax rate in South Eastern Europe.
Montenegro has the lowest corporate tax rate of all countries analyzed at 9% in 2020.
In Bosnia and Herzegovina, it takes an average of 80 days to start a business – the highest of all the countries analyzed. The country is also the most corrupt country in southeastern Europe along with North Macedonia. Both countries scored 35 out of 100 in the 2020 edition of Transparency International’s Corruption Perceptions Index.
Slovenia was the most impressive on the Corruption Perceptions Index, with a score of 60 in 2020.
Greece scores high on livability?
Greece had the highest life expectancy of any Southeast European country in 2020 at 81.9 years. The country also had the highest tertiary enrollment rate of any country analyzed, at 149% in 2020.
Regionally, the unemployment rate in South Eastern Europe is high with 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 Data Quality and Strengthening Policymaking in North Macedonia project was launched, an EU-funded initiative to reduce unemployment and skills mismatch.
Bulgaria had the highest age dependency ratio – the ratio of dependents to working-age population – of any country analyzed at 56.6% in 2020. This is due to the large elderly population of the country, which has been further aggravated by increased emigration, high death rates and low birth rates.
Albania is the greenest country in southeastern Europe
Renewable energy sources accounted for 100% of Albaniaof the energy mix in 2018. Hydroelectricity is the main source of energy in the country at 99.6%, with solar energy representing 0.4%. As a result, Albania is highly dependent on annual rainfall for electricity generation, which can lead to significant fluctuations in national energy production.
Albania launched its National Energy Strategy 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 highest number of carbon emissions of all the countries analyzed. 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 its intention to diversify its electricity mix. It intends to increase its electricity production from solar energy to ten gigawatts (GW) by 2030 and from wind energy to 16 GW.
Kosovo relies heavily on fossil fuels, which accounted for 95.1% of its electricity mix in 2018. The country depends almost entirely on two lignite-fired power 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.