Western Balkans must address innovation performance to boost competitiveness

The Western Balkan region has the potential to be a significant player in the European economy and can contribute to its competitiveness and innovation performance, but only if policymakers start preparing now, a new report on competitiveness trends in the region shows.

The report by the Regional Cooperation Council (RCC), an organisation aimed at promoting inter-regional prosperity and collaboration, looks at what trends could shape the competitiveness of the Western Balkans over the next 12 years. It covers Bosnia and Herzegovina, Montenegro, North Macedonia, Serbia and Kosovo.

In terms of innovation performance, there are both promising aspects and warning signs. While progress has been made, there remain fundamental weaknesses, such as low spending on research and development, a lack of private investment, weak links between researchers and businesses, and limited career options for researchers.

If the region addresses these shortcomings, there could be a major improvement in innovation performance and as a consequence, its competitiveness. “With the right policies and investments, the region could become a significant player in the European economy,” Sinisa Marcic, senior expert on human capital development at the RCC, told Science|Business.

“Individual economies in the Western Balkans are small and insignificant players globally, but with more intense regional cooperation and targeted promotion of the region’s potential we could make it more attractive to future investments,” Marcic added.

The trend of persistently low investment in R&D is highlighted as an area that policymakers need to address. Serbia dedicates the highest share of its GDP to R&D at 0.9%, far behind the EU average of 2.24%. Montenegro spends 0.49% of its GDP on R&D while North Macedonia dedicates 0.38%.

There is no official data for the other three countries. “The expected underfunding of R&D in all [Western Balkan] economies will perpetuate the non-competitiveness of research infrastructures and hinder their integration into large pan-European infrastructures,” the report says.

The lack of public investment in R&D is compounded by a relatively weak private investment landscape. The region lacks venture capital “on the level of individual economies as well as on the macro-regional level.”

A shortage of private equity investment in the region means there is a high level of potential going unexplored, the report says. More worryingly, the few large companies that have established themselves in the region may end up gaining more market share, which could limit the possibility of a diverse and competitive market. “Eventually, the SMEs in the [region] will have limited resources to innovate and retain talented staff,” says the report.

All countries in the region are labelled as “emerging innovators” in the European Commission’s latest European Innovation Scoreboard. This is the lowest of four categories. They are all ahead of both Ukraine and Romania on the ranking, and Serbia is ranked above other EU countries such as Latvia and Poland. However, the performance gap to the EU average is increasing for Albania, Bosnia and Herzegovina and Montenegro.

The RCC report highlights the importance of smart specialisation strategies, an EU concept that involves countries concentrating on specific areas that play to their competitive strengths. For example, for the Western Balkan region, agricultural technology is very important in most of the countries. The idea of smart specialisation is to coordinate innovation activities around Europe to avoid doubling up on certain areas.

Although the concept was born in the EU, it has spread outside its borders.

Montenegro and Serbia have smart specialisation strategies in place, while Albania and North Macedonia have identified priority areas, and Bosnia and Herzegovina and Kosovo are in the process of preparing their strategies.

“If adopted, properly implemented and financed, these strategies will promote and support sectors and regions with comparative advantages. They will also promote innovation and technology transfer, as well as regional research,” the report says.

The RCC report is intended to be a starting point for discussions in the region on improving competitiveness. It is based on a foresight methodology that looks at trends which can predict future progress, a relatively new concept in policymaking in the region.

Marcic said the response to the report has been “generally positive”, with regional policymakers “acknowledging the need to improve competitiveness and innovation in the region.” This will be all the more vital with these countries aiming to join the EU at some stage, with varying degrees of progress.