7 ways the Western Balkans can develop an innovation ecosystem to grow the economy

The Covid-19 pandemic disrupted the growth of the economies around the world, including those of the Western Balkans.

In 2020, according to the World Bank, the Western Balkan economies collectively contracted by 3.4% compared to 7.0% in the European Union (EU). Even though the economic downturn in the Western Balkans has been lower than in the EU, the Western Balkans still lags the EU in terms of income, development, and quality of life. According to the European Bank for Reconstruction and Development (EBRD), under the most pessimistic scenario, it can take the Western Balkans until about 2220, or about 200 years, to converge with the level of income, development and quality of life enjoyed by EU’s residents. The optimistic scenario is that the convergence would occur by 2053.

To speed up the convergence, the Western Balkans need a high and a sustained long-term economic growth. The region is not blessed with an abundance of quickly commodifiable natural resources like natural gas, oil, or precious metals that could drive economic growth, as with Norway, the United Arab Emirates or Qatar. The region does not have a large population either to attract major industrial production facilities like China has done. With about 18 million inhabitants, which roughly equals the population of the nearby Istanbul metropolitan area (15 million inhabitants), it is a small region. To make matters worse, the region is projected to shrink in population by 2050, with Bosnia & Herzegovina and Serbia shrinking by 29% and 25% respectively. The ways to economic growth are two, either grow the population or increase the productivity. 

To drive sustained and long-term economic growth, defined in this text as 5% or higher annual GDP growth rate, the region should support innovative companies that have the potential for high growth (and high employment). Ultimately, all measures supporting innovation and promoting economic growth are about improving the quality of life of the people in the Western Balkans. Eventually, these measures will lead to convergence with the standards of living in the EU.  

What is an innovation ecosystem and why it matters? 

An innovation ecosystem is a group of actors and organizations that work together and create synergies to support innovation initiatives. The actors can be individuals or organizations from the private, public, academic, or civil society sectors. An innovation ecosystem matters because it can lead to the formation of new businesses that generate both direct and indirect jobs (See Moretti 2012).  

To build an innovation ecosystem in the Western Balkans that endures the test of time, it must focus on supporting not just new startups, but there must be a clear strategy that provides added value across multiple sectors (including existing companies), create synergies that foster the building of clusters and connect the region’s economies. Furthermore, the supported companies should seek to address the issues the people face daily. After all, businesses are supposed to providing solutions to life’s problems.  

Innovation needs to move beyond IT.

Most of the efforts to build innovation ecosystems center on the ICT (tech) sector. Many young entrepreneurs are inspired by stories of successful tech startups from the Silicon Valley and dream that one day their company will become a “unicorn,” a company with $1 billion USD valuation. The problem with focusing on unicorns is that they are extremely rare. They represent only 0.07% of companies in Europe. Furthermore, most startups (unicorns or not) focus on solving the problems of the world’s urban, rich, and young people. The world needs innovations beyond the digital sphere. 

Read all seven key initiatives that would help the Western Balkan economies innovate and grow in a post-Covid 19 world in a whitepaper by Stefan Ivanovski: