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Lilyana Pavlova, Vice President Of The European Investment Bank (EIB)

Determined To Help The Region’s Green Transformation

The Western Balkan region needs to become part of the solution to both challenges – the pandemic and climate change. To achieve this objective, we need to remodel the way we think, live and do business. As part of Team Europe, the EIB is scaling up its support for sustainable growth in the Western Balkans

As the pandemic continues to ravage the economies of the Western Balkans, concerns about the long-term negative impacts of the crisis remain. The recovery is taking place gradually and we will only see the full impact of COVID-19, compounded by the effects of climate change, in the years to come. The green and digital transition provides some light at the end of the tunnel, reassuring us that we, and future generations, will be able to continue benefiting from natural resources and living in the familiar environment to which we are accustomed.

We discussed these important topics with Lilyana Pavlova, Vice President of the European Investment Bank (EIB) responsible for the Western Balkan region. She gave us the perspective of the European Union’s bank when it comes to addressing challenges of the green and digital transition, but also recovery after COVID-19.

How do you see the future development of the Western Balkan region? What are the opportunities for growth and what will be the role of the European Investment Bank in ensuring economic progress?

The Western Balkans needs to become part of the solution to both challenges – the pandemic and climate change. To achieve this objective, we need to remodel the way we think, live and do business. Economic and social paradigms from the pre-COVID era should be replaced with a greener, digital and inclusive model that is able to ensure sustainable growth and equal opportunities for all. These goals are part of the European Union’s Economic and Investment Plan (EIP) for the Western Balkans, which envisages the mobilisation of up to €30 billion in investments in a greener and more sustainable future.

At the recent EU-Western Balkans Summit in Brdo pri Kranju, Slovenia, the President of the European Investment Bank, Werner Hoyer, reiterated the EIB’s support for the region’s EU integration, its sustainable recovery from the COVID-19 pandemic and the digitalisation of the regional market, in line with the EIP and the Team Europe initiative.

As the EU climate bank, the EIB plans to help the Western Balkans achieve its climate goals and undergo a green transition that will enhance the resilience of the local economy and provide better living conditions for people across the region

Although the Plan provides an excellent incentive by potentially leveraging up to €30 billion of new investments, its success will depend on the determination of all parties involved to seize the existing opportunities and remain on the path to EU accession by supporting the associated reforms. This will result in the faster preparation of strategic projects and the creation of a stable business environment. As one of the key financiers of the Plan, the EIB is working with the European Commission, as well as other international financial institutions in the region, on an extensive pipeline of investments to support the Green Agenda, the digital transition, connectivity and small and medium-sized enterprises. Targeted impact financing is one of the options being rolled out. In parallel, the EIB – as the EU bank – is also looking forward to scaling up its advisory support for preparing and implementing projects that will assist a faster recovery of the region and its adjustment to the new scenario created by the COVID-19 pandemic and climate change.

We can see that environmental pollution and climate change are among the biggest challenges for countries in the Western Balkans, which have started to impact our lives on a daily basis. Which steps would the EIB propose when it comes to making this region greener and less polluted?

The Economic and Investment Plan goes beyond transport and energy to look at the broader digital and green agendas. As the EU climate bank, the EIB plans to help the Western Balkans achieve its climate goals and undergo a green transition that will enhance the resilience of the local economy and provide better living conditions for people across the region. Since the start of 2021, the EIB’s policy has been to only support operations that are aligned with the goals of the Paris Agreement, as it aspires to make Europe the first net zero-carbon continent. As part of its Climate Bank Roadmap, the EIB is the first international financial institution to publish a detailed operational interpretation of its alignment. Our commitment to allocating 50 per cent of our lending to climate action and environmental sustainability by 2025, as well as mobilising up to €1 trillion for these categories of projects, confirms our ambition to lead the fight against climate change.

The Western Balkans will not be left behind and the EIB has already started the process with concrete, climate-friendly investments, while also developing new projects in the areas of environmental sustainability, renewable energy, agrifood, environment protection and sustainable transport. In sustainable mobility, the EIB is already supporting the improvement of waterway, rail and urban transport projects across the Western Balkans. These initiatives should reduce environmental pollution and improve living conditions for people across the region.

The COVID-19 pandemic has demonstrated the importance of quality digital connections, both for our private and professional activities, but also for the competitiveness of the economy. Are there some EIB investments aimed at helping the countries of the region upgrade their digital infrastructure and skills?

Digitalisation is key for employment and longterm economic stability in the region. The EIB Investment Survey indicates that the Western Balkans is facing a digitalisation gap, although about a fifth of firms increased their online business activity during the COVID-19 crisis. EU firms also lag behind their U.S. peers when it comes to digitalisation. Only 66% of manufacturing firms in the European Union report having adopted at least one digital technology, compared to 78% in the United States. As such, support for small and medium-sized enterprises and the public sector in digitalising their products and services is a vital prerequisite for the long-term competitiveness and resilience of the local economy.

The EIB has already started supporting the improvement of digital infrastructure in Serbia by investing €65 million in the Connected Schools Project, while we plan to roll out similar projects throughout the region. This project will enable over 1,500 schools and some 50,000 teachers to increase their digital capacities by developing skills and educational platforms

We want to stimulate the digitalisation process by supporting the introduction of the 5G network, the upgrade of existing infrastructure and the increased availability of digital skills. Globally, our financing has helped boost new digital business models, launch 60 satellites providing broadband internet into space and pave the way to 2.6 million subscriptions for 5G services in 2020. The EIB has already started supporting the improvement of digital infrastructure in Serbia by investing €65 million in the Connected Schools Project, while we plan to roll out similar projects throughout the region. This project will enable over 1,500 schools and some 50,000 teachers to increase their digital capacities by developing skills and educational platforms.

The digital transition is also an essential factor for innovation in development, the knowledgebased economy and more sustainable and greener solutions in all sectors. The EIB Group has been at the forefront of innovation and advanced research for decades. Since 2000, it has allocated €210 billion to innovative studies that tackle many of the social and economic challenges we are facing today.

In the region, our €200 million in R&D investment has helped develop platforms and infrastructure for innovation, benefiting the academic community and the economy alike. These funds helped build advanced research laboratories and innovation centres, providing overall logistical support for the development and marketing of new, technologically-advanced products and services.

A stronger private sector, as a key provider of employment, is an essential factor in the successful recovery from the COVID-19 pandemic. What kind of support do the region’s SMEs need to retain their businesses and adapt to the new circumstances caused by COVID-19?

The EIB Bank Lending Survey indicates that access to finance remains a constraint for small and medium-sized enterprises in the Western Balkans, where about 34% of firms are credit-constrained, ranging from 18% in Albania to 47% in Montenegro, mostly due to unfavourable interest rates.

In relation to the COVID-19 pandemic, the EIB granted additional flexibility and introduced exceptional measures to speed up the disbursement of new and existing funds, especially for the companies hardest hit. For the private sector alone, some €715 million has been unlocked since the COVID-19 outbreak to help small businesses in the Western Balkans address their liquidity, working capital and employment constraints. EIB funds are available under more favourable conditions, with increased maturities and lower interest rates, in order to help the hardest hit firms not only stay afloat and maintain jobs, but also recover faster, expand and adapt to greener and digital business models.

For these purposes, we are seeking new financial instruments that would accelerate these processes. In 2020, the EIB Group signed the first guarantee agreement under a pilot digitalisation programme to enable Serbian companies to expand their digital capacity. During the same year, the EIB introduced the first ever innovative impact incentive loan aimed at encouraging and rewarding companies that decide to employ people from vulnerable social groups on a longterm basis and support women’s entrepreneurship. Moving forward, the EIB intends to sign new loans to support the introduction of energyefficient and climate-friendly practices among companies in Montenegro.

The EIB Bank Lending Survey indicates that access to finance remains a constraint for small and medium-sized enterprises in the Western Balkans, where about 34% of firms are credit-constrained, ranging from 18% in Albania to 47% in Montenegro, mostly due to unfavourable interest rates

All these initiatives require substantial support and the inclusion of all relevant practises to get things rolling. What is the EIB’s approach to addressing these issues?

Looking ahead, the EIB will intensify its collaboration with all key partners in the public and private sectors, in order to roll out the major projects and financial products that are so essential to economic transformation. It will extend its support beyond financing to policy dialogue, capacity building and progress in the core rights and obligations that bind EU member states.

An important example of this approach is the first ever Western Balkans Rail Summit, which was jointly organised recently by the European Investment Bank, the Transport Community, the European Bank for Reconstruction and Development and the European Commission. This summit marked a major step forward in the modernisation of the railway network across the region. This important, greener and smarter transport model is vital for reducing air pollution and facilitating the shift to cleaner mobility options. The EIB is looking forward to contributing to the financing of the Railway Corridor X in Serbia, as a key sustainable transport project across the entire Western Balkan region.

TRANSFORMATION

The EIB will intensify its collaboration with all key partners in the public and private sectors to roll out the major projects and financial products that are so essential to economic transformation

SUSTAINABILITY

The EIB is looking forward to contributing to the financing of the Railway Corridor X in Serbia, as a key sustainable transport project across the entire Western Balkan region

DIGITALISATION

We want to stimulate the digitalisation process by supporting the introduction of the 5G network, the upgrade of existing infrastructure and the increased availability of digital skills

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